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Payday loan law passed in New Mexico
Law regulating short term loans isn’t very tough
The payday loan industry is enjoying explosive growth throughout the United States. And slowly, the states are trying to reign in the lenders. New Mexico has become the latest state to try to toughen up against these loans; unfortunately, the law doesn’t really do much.
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Cash advance loans are still expensive in New Mexico
The payday loan business is a profitable one; that’s the only explanation for why the number of stores in the United States has grown tenfold in the last five years. Banks may make a bit of money lending on homes at 6% per year, but lending at 500% per year is far more profitable. Unfortunately, even in this day and age of Republican government and their “let business be business” attitude, the notion of poor people borrowing money at those kind of rates leaves a lot of politicians uncomfortable. With the passage of a new law that takes effect in July, 2006, New Mexico becomes the latest state to regulate payday loans. While the notion is laudable, it doesn’t do much.
Some states, like Arkansas and North Carolina, have decided to prohibit the short term loans, which are intended to tide borrowers over until their next payday. These loans carry fees that run between $10-35 per $100 borrowed, and the sums range from $100-500. Some states have passed laws that limit the interest rates to 36% annually, or 3% per month, as Oregon has recently done. Other states, such as South Dakota, have no regulations at all.
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The New Mexico law, recently signed by Governor Bill Richardson, does attempt to put caps on the interest rates. But the cap is set at $15.50 per $100 borrowed, which translates to 403% per year when viewed on an annual basis. Given that the national average for payday loans is 391%, this law isn’t going to have lenders quaking in their boots, although most stores in New Mexico have reportedly been charging considerably higher fees. One provision that may help is the requirement that lenders may not offer sums that exceed 25% of a borrower’s gross income.
Some additional restrictions now imposed by New Mexico:
- Loans may be rolled over no more than twice. “Rolling over” a loan is renewing it; it may be renewed by the borrower if he or she pays the fee a second time.
- If the borrower has not repaid after the second renewal, he or she will be given up to 130 days, with no additional interest, to repay the loan. It is hoped that by granting a longer period of time for repayment, fewer customers will default.
In the past, most lenders have found ways to work around restrictions imposed by the states in which they do business. In most cases, the stores simply do business with an out of state bank and declare that the transaction has taken place within that state. It remains to be seen what will happen in New Mexico, as the 400+% allowed by the law isn’t terribly restrictive. If borrowers are looking for a bargain, they won’t find it in the Land of Enchantment. But at least it’s a start.
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