Fastbucks Countersuit

STATE OF NEW MEXICO
COUNTY OF CHAVES
FIFTH JUDICIAL DISTRICT COURT
FASTBUCKS OF ROSWELL, NEW MEXICO, LLC,
FASTBUCKS OF ALAMOGORDO, NEW MEXICO, LLC,
FASTBUCKS OF GALLUP, NEW MEXICO, LLC,
FASTBUCKS OF LAS VEGAS, NEW MEXICO, LLC,
FASTBUCKS OF RIO RANCHO, NEW MEXICO, LLC,
FASTBUCKS HOLDING CORP.,
FASTBUCKS, INC., and
FASTBUCKS WAGE AND BENEFITS, LLC,
Plaintiffs,
v. Case No.
GARY K. KING,
Attorney General of the State ofNew Mexico,
Defendant.
PETITION FOR WRIT OF MANDAMUS

AND COMPLAINT FOR MALICIOUS ABUSE OF PROCESS
Plaintiffs seek a writ of mandamus compelling Attorney General Gary K. King to abide
by the limited authority of his office and prohibiting the Attorney General from exceeding his
authority under New Mexico law. In addition, plaintiffs seek damages for the Attorney General's
malicious abuse of process and damage to their property.
INTRODUCTION
Attorney General King and others in the Executive Branch have been vocal and active
critics of the small/micro loan industry for many years. In spite of compelling evidence regarding
the value for many New Mexicans of the micro loans offered by some of the plaintiffs and
others, the New Mexico Executive Branch has advocated legislation to effectively prohibit
anyone from making such loans. The New Mexico Legislature repeatedly has rejected such
legislation.
In response to those failures, Attorney General King now is attempting to legislate by
litigating. He has brought a civil action against plaintiffs and under the guise of pursuing
violations of New Mexico common law and the Unfair Practices Act, hopes to convince the
Court to establish some of the same constraints on plaintiffs' business which were rejected by the
New Mexico Legislature.
The Attorney General lacks both a reasonable belief that plaintiffs have violated the law
and the authority to prosecute such a groundless civil action. This Court must prevent the
Attorney General from exceeding the limited powers of his office in his unwarranted attempt to
effectuate legislative policy. Moreover, his litigation has damaged plaintiffs' property and the
Attorney General is liable for such damages.
THE PARTIES, JURISDICTION, AND VENUE
1. Plaintiff FastBucks of Roswell, New Mexico, LLC is a New Mexico limited
liability company, a resident of Chaves County, New Mexico, and a defendant in a lawsuit
brought by the Attorney General and captioned State of New Mexico ex reI. Gary K. King,
Attorney General v. FastBucks Holding Corporation, et al., No. DOl Ol-CV-2009-09l 7, pending
in the First Judicial District Court in Santa Fe County, New Mexico (the "AG Action") (a copy
of the First Amended Complaint in the AG Action is attached hereto as Exhibit 1).
2. Plaintiff FastBucks of Alamagordo, New Mexico, LLC is a New Mexico limited
liability company, a resident of Otero County, New Mexico, and a defendant in the AG Action.
3. Plaintiff FastBucks of Gallup, New Mexico, LLC is a New Mexico limited
liability company, a resident of McKinley County, New Mexico, and a defendant in the AG
Action.
4. Plaintiff FastBucks of Las Vegas, New Mexico, LLC is a New Mexico limited
liability company, a resident of San Miguel County, New Mexico, and a defendant in the AG
Action.
5. Plaintiff FastBucks of Rio Rancho, New Mexico, LLC is a New Mexico limited
liability company, a resident of Sandoval County, New Mexico, and a defendant in the AG
Action. The above five limited liability companies each operate a FastBucks location and
provide small/micro loans to New Mexico consumers. Collectively, these plaintiffs are referred
to herein as the "FastBucks Stores."
6. Plaintiff FastBucks Holding Corp. is is a Nevada corporation, a resident of Texas,
and a defendant in the AG Action.
7. Plaintiff FastBucks, Inc. is a New Mexico corporation, a resident of Dona Ana
County, New Mexico, and a defendant in the AG Action.
8. Plaintiff FastBucks Wage and Benefits, LLC is a Nevada limited liability
company, a resident of Texas, and a defendant in the AG Action.
9. Defendant Gary K. King is the Attorney General of the State of New Mexico and
the plaintiff in the AG Action. He is the chief law enforcement officer of the State of New
Mexico. Plaintiffs sue Attorney General King in his official and individual capacities.
10. The Court has jurisdiction over the subject matter of this action and the parties.
Venue is proper in this district pursuant to NMSA 1978, Section 38-3-1(G) (1988) (for plaintiffs'
request for a writ of mandamus) and NMSA 1978, Section 41-4-18(B) (1988) (for plaintiffs'
claim of malicious abuse of process) because a plaintiff, FastBucks of Roswell, New Mexico,
LLC, resides in Chaves County, New Mexico.
BACKGROUND FACTS
The Small Loan Industry in New Mexico
11. The FastBucks Stores are licensed, regulated, and their practices are governed by
the Small Loan Act of 1955 (NMSA 1978, §§ 58-15-1 to -39 (1955, as amended through 2007))
(hereinafter the "SLA"). The New Mexico Legislature enacted the SLA for a number of reasons
and with several goals in mind. Specifically, the Legislature:
a) believed that "there exists among citizens of this state a widespread demand for
small loans" and the SLA will "provide legitimate sources of loan credit to a large class of
borrowers throughout the state, who cannot otherwise obtain honest and lawful loan
accommodations under the general laws of New Mexico governing money, interest and usury."
Section 58-15-1(A), (D);
b) determined that "the expense of making and collecting small loans . .. is
necessarily high in relation to the amounts lent" and that "experience has proven that such loans
cannot be made profitably except under special permissive laws." Section 58-15-1(B);
c) recognized that the small loans "are usually made on comparatively unsubstantial
security to wage earners, salaried employees and other persons of relatively low incomes." Id~;
d) was concerned with insuring "more rigid public regulation and supervision of
those engaging in the business of making small loans", facilitating "the elimination of abuse of
borrowers", and establishing "a system which will more adequately provide honest and efficient
small loan service and stimulate competitive reductions in charges." Section 58-15-1(D).; and
e) declared that the that the charges established by the SLA "are limiting maximums,
fixed after careful study of modernized, adequate and efficiently functioning small loan statutes
of other states, which will permit licensees hereunder to meet the expense and loss hazard
incident to the making and servicing of small loans, to the end that licensees may be encouraged
4
to establish and maintain supervised and regulated loan agencies, whose competitive operations,
while stimulating reductions from maximum allowable charges." !d.
12. Thus, the language of the New Mexico Legislature in the SLA reflects the State's
public policy relevant to the small/micro loan market. New Mexico believes that the making of
small/micro loans, like the ones offered by the FastBucks Stores, is an important endeavor for its
citizens and should be encouraged by the State. New Mexico appreciates that small loans are
expensive to make and are unlikely to be available if lenders are forced to comply with the
general laws of New Mexico governing lending. Accordingly, New Mexico enacted special laws
permitting smalVmicro lenders to be licensed by the SLA and make small loans with the
maximum amount of charges incident to those loans limited only by the amounts specified by the
SLA.
13. As the market for small/micro loans evolved, the New Mexico Legislature eased
government regulations and allowed the contours and pace of that market to be shaped by the
dynamics of competition and individual choice. For example, at one time the SLA contained a
hard cap on interest. However, the New Mexico Legislature repealed that limit in 1981. Section
58-15-14.1 of the SLA limits the method of computing interest, but not the amount that may
form the basis of that computation. One "limiting maximum" that the SLA specifies is any
maximum explicitly stated by "any usury statute of this state". However, also in 1981, the
Legislature repealed the general usury statute. In its stead, the Legislature enacted statutes
requiring the rates be specified in writing and that they be disclosed in a specific manner. These
provisions were also later repealed in 1991. Finally, the Legislature specified that entities
licensed under the SLA that make installment loans, such as the loans at issue in the AG Action,
must comply with the New Mexico Bank Installment Loan Act of 1959. This Act also contained
a hard cap on interest until that cap was also repealed by the Legislature in 1981. According to a
5
1999 submission for the New Mexico Legislature prepared by Frank D. Weissbarth, Assistant
Attorney General, Consumer Protection Division, "the New Mexico legislature abolished
virtually all limits on interest rates" in 1981. At the time, New Mexico regulated "neither the cost
of credit nor the kinds of lending practices...." Fin. Inst. Div. Dir., Consumer Lending Study
Committee Report for the Forty Fourth Session of the New Mexico State Legislature (as
requested by House Memorial 36) at 29 (1999) (attached as Exhibit 2 hereto).
14. In sum, as of 1981, the New Mexico Legislature made the public policy of the
State quite clear: the State would not dictate to private parties a maximum allowable rate of
interest. Instead, the Legislature determined that parties could make their own business
decisions. Plainly, as the Attorney General's Office itself recognized in its 1985 opinion on the
issue, "the maximum rate of interest may now be that rate agreed to in writing by the parties".
New Mexico Attorney General Opinion No. 85-1, 1985 N.M. AG LEXIS 5 (February 2, 1985)
(attached as Exhibit 3 hereto).
The Executive Branch and the Small Loan Industry
15. In spite of the policy made by the Legislature, the New Mexico Executive Branch
has not been content to have government remain outside the business and choices of private
parties. Instead, the New Mexico Executive Branch has sought time and time again to impose its
own policy notions on New Mexicans. In 2005, after New Mexico Attorney General Patricia
Madrid failed to persuade the Legislature to enact her policy beliefs through the proper course of
legislation, she purported to enact regulations governing the loans made by smalVmicro lenders,
including the FastBucks Stores.
16. Attorney General Madrid claimed to have the power to regulate small/micro
lenders pursuant to the Unfair Practices Act. Plaintiff FastBucks of Roswell, New Mexico, LLC
and others sued Attorney General Madrid in February 2006, claiming that she was engaged in an
6
unconstitutional "power grab" aimed at circumventing the New Mexico Legislature and the
Financial Institutions Division, which the Legislature designated to regulate small/micro loans.
In March 2006, Attorney General Madrid agreed to stay imposition of the unconstitutional
regulations.
17. But immediately thereafter, Attorney General Madrid sought to enact
substantially similar regulations, this time through the Financial Institutions Division of the New
Mexico Regulation and Licensing Department and its Director William Verant. Again, Plaintiff
FastBucks of Roswell, New Mexico, LLC and others brought suit to prevent the Executive
Branch's attempt to unconstitutionally circumvent the Legislature by essentially modifying the
terms of the SLA. The Second Judicial District Court in Bernalillo County, New Mexico ruled
against the Executive Branch and granted a permanent injunction to prohibit it from enforcing its
unconstitutional regulations. A copy of the injunction is attached hereto as Exhibit 4.
18. The Executive Branch and specifically the Attorney General continued to lobby
the Legislature against smalVmicro loans. In the 2007 legislative session, the New Mexico
Legislature responded, but only by amending the SLA and adding eight sections that generally
pertain to a specific type of micro loan known as a "payday loan'.'.
19. The Attorney General was not satisfied with the Legislature's action. Believing
the Legislature's policy was still too permissive, the Attorney General has continued to press the
Legislature to eliminate the small/micro loan business. In 2009, Attorney General King directly
sought from the Legislature more restrictions on small/micro loans. A copy of lobbying
information distributed by Attorney General King to the Legislature is attached as Exhibit 5. The
Legislature rejected the policies advanced by the Attorney General thereby determining that the
small/micro loan business was effectively serving New Mexicans.
The AG Action
20. Despite the clear policy choices made by the Legislature and the injunction issued
by a Bernalillo County district judge, Attorney General King filed the AG Action in the hope of
creating legislation through litigation.
21. The AG Action specifically concerns micro loans made to numerous New Mexico
consumers by the FastBucks Stores. It is undisputed that these loans are made in full compliance
with all relevant statutory and regulatory mandates. Nonetheless, the basis of Attorney General
King's complaint is that the loans made by FastBucks are "unconscionable both as a matter of
New Mexico common law and under the terms of the New Mexico Unfair Practices Act". A
careful review of the complaint (Exhibit 1) reveals that Attorney General is seeking to have a
court make policies that the Legislature refused to enact.
22. Although plaintiffs are defending the specific allegations of the AG Action, this
Court should prohibit the Attorney General from usurping the province of the Legislature and
along the way, damaging plaintiffs' property.
Writ of Mandamus
23. Plaintiffs reallege the previous paragraphs.
24. The New Mexico Constitution strictly delineates the powers of government between
the three branches of government:
The powers of the government of this state are divided into three distinct
departments, the legislative, executive and judicial, and no person or collection of
persons charged with the exercise of powers properly belonging to one of these
departments, shall exercise any powers properly belonging to either of the others,
except as in this constitution otherwise expressly directed or permitted.
N.M. CONST. art. III, § 1.
25. The New Mexico Supreme Court has long held that New Mexico statute created the
office of the Attorney General and defines and limits his power. The Attorney General has no other
8
authority to act. Although New Mexico statute pennits the Attorney General to prosecute and
defend certain lawsuits when in his judgment the interest of the state requires such action, the
Attorney General may not usurp the policy making function of the Legislature. The Legislature has
determined the policy of the state regarding the making of small/micro loans and the Attorney
General simply may not substitute his judgment for that ofthe Legislature.
26. The Attorney General's authority under the New Mexico Unfair Practices Act is
even more limited. The Unfair Practices Act requires that the Attorney General have a "reasonable
belief' that a person is using an act or practice prohibited by that law before he can sue in the name
of the state to prevent such act or practice. Again, Attorney General King cannot have such a
reasonable belief in the face of the polices properly enacted by the New Mexico Legislature.
27. The Attorney General has no legitimate authority to prosecute the AG Action.
Malicious Abuse of Process
28. Plaintiffs reallege the previous paragraphs.
29. Attorney General King initiated a lawsuit against plaintiffs without a reasonable
beliefin the validity of its factual and legal allegations against them.
30. Attorney General King's use of the process was not proper III the regular
prosecution of the claim.
31. Attorney General King's pnmary motive in misusing the process was to
accomplish an illegitimate end.
32. Plaintiffs have been damaged by Attorney General King's conduct.
33. Attorney General King's conduct was malicious, willful, reckless, wanton, and/or
in bad faith.
WHEREFORE, plaintiffs request that this Court: 1) enter a Writ of Mandamus prohibiting
the Attorney General from exceeding the limited power of his office by prosecuting the AG Action;
9
2) enter appropriate temporary, preliminary, and permanent injunctive relief; 3) enter judgment in
their favor and against Attorney General King and the State of New Mexico for actual damages in
an amount to be proven at trial, punitive damages, costs, attorneys' fees; and 4) provide such other
relief as this Court deems just.
Respectfully submitted,
STREUBELKOCHERSBE
MORTIMER LLC
onald F. Koc ersberger II
David A. Streubel
320 Gold Avenue SW, Suite 610
Albuquerque, New Mexico 87102-3299
(505) 848-8581 (Voice)

(505) 848-8593 (Facsimile)
dkochersberger@skm-Iaw.com
dstreubel@skm-Iaw.com
10
..
ENDORSED
First Judicial District Court
FIRST JUDICIAL DISTRICT
STATE Olj'NEW MEXICO
NOV 25 2009
COUNTY OF SANTA FE
Santll Fe~ Rio Arriba &
LOll Alamos Counties
STATE OF NEW MEXICO. ex TeL . f'lo 130x 2288
Sfitl\#. FijI ~M ~1Aij#..p.1ii8
GARY K. KING, Attorney General,
Plaintiff,
v. No. DOIOl·CV·2009·0917
FASTBUCKS HOLDING CORPORATION,

FAST BUCKS, INC.,
FASTBUCKS WAGE AND BENEFITS, LLC,
FASTBUCKS OF ALAMOGORDO, NEW MEXICO, LLC
FASTBUCKS OF GALLUP. NEW l\tIEXICO, LLC
FASTBUCKS OF LAS VEGAS, NEW MEXICO. LLC
FASTBUCKS OF RIO RANCHO, NEW MEXICO, LLC
FASTBUCKS OF ROS\VELL, NEW MEXICO, LLC
Defendants.
FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE NEW MEXICO
UNFAIR PRACTICES ACT. FOR RESTITUTION AND CIVIL PENALTIES,
AND FOR DECLARATORY, PRELIMINARY AND PERMANENT INJUNCTIVE
RELIEF
COMES NOW the State of New Mexico, ex reI. GARY K. KING. Attorney
General, by Assistant Attorney General Karen J. Meyers, and alleges that:
INTRODUCTION
1.
.
This is a suit seeking injunctive, declaratory and equitable relief. and
restitution and civil penalties pursuant to New Mexico common law and the New Mexico
Unfair Practices Act, NMSA 1978 § 57-12-1 el seq. This action seeks to redress on
behalf of the public in New Mexico lending practices by Defendant FASTBUCKS
HOLDING CORPORATION. Defendant FAST BUCKS, INC., Defendant
FASTBUCKS WAGE AND BENEFITS. LLC, Defendant FASTBUCKS OF
EXHIBIT
1.1.
·.
ALAMOGORDO, NEW MEXICO, LLC, Defenuant FASTBUCKS OF GALLUP, NEW
MEXICO, LLC, Defendant FASTBUCKS OF LAS VEGAS, NEW MEXICO, LLC,
Defendant FASTBUCKS OF RIO RANCHO, NEW MEXICO, LLC, and Defendant
FASTBUCKS· OF ROSWELL, NEW MEXICO. LLC (collectively "Defenuants") for
loans made at an unconscionable interest rate in excess of 500% per annum, which loans
are in violation of New Mexico law.
PARTIES, JURISDICTION AND VENUE
2. Plaintiff is the duly elected Attorney General for the State of New Mexico.
He is authorized to bring this action pursuant to NMSA 1978, § 57-12-8(A) (1967), and
NMSA 1978, § 8-5-2(B) (1933). Plaintiff has determined that the matters set forth in this
Complaint are in the interest of the State of New Mexico.
3. Defendant FASTBUCKS HOLDING CORPORATION is a duly
registered Nevada corporation, with its principal place of business at 7920 Beltline Road,
Suite 600, Dallas, Texas 75254-8154.
4. Defendant FAST BUCKS, INC. is a duly registered New Mexico
corporation, with its principal place of business in New Mexico at 2225 E. Lohman
Street, Las Cruces, New Mexico 88001, and its principal place of business outside of
New Mexico at 7920 Beltline Road, Suite 600, Dallas, Texas 75254-8154.
5. Defendant FASTBUCKS WAGE AND BENEFITS, LLC, is a duly
registered Nevada limited liability company, with its principal place of business at 7920
Beltline Road, Suite 600, Dallas, Texas 75254-8154.
6. Defendant FASTBUCKS OF ALAMOGORDO, NEW MEXICO, LLC is
a duly registered domestic limited liability company, with its principal place of business
Complaint for Violations of the New Mexico Unfair Practices Act

Page 2 of 15
at no A South White Sands Boulevard, Alamogordo, New Mexico 88310. Defendant is
also registered and licensed under the New Mexico Small Loan Act of 1955, NMSA
1978, Sections 58-15-1 el seq.
7. Defendant FASTBUCKS OF GALLUP, NEW MEXICO, LLC is a duly
registered domestic limited liability company, with its principal place of business at 605
West Highway 66, Gallup, New Mexico 87301. Defendant is also registered and licensed
under the New Mexico Small Loan Act of 1955, NMSA 1978, Sections 58-15-1 el.w!q.
8. Defendant FASTBUCKS OF LAS VEGAS, NEW MEXICO, LLC is a
duly registered domestic limited liability company, with its principal place of business at
to 10 Mills Avenue, Las Vegas, New Mexico 8770 I. Defendant is also registered and
licensed under the New Mexico Small Loan Act of 1955, NMSA 1978, Sections 58-15-1
el seq.
9. Defendant FASTBUCKS OF RIO RANCHO, NEW MEXICO, LLC is a
duly registered domestic limited liability company, with its principal place of business at
1650 B. Rio Rancho Boulevard, Rio Rancho, New Mexico 87124. Defendant is also
registered and licensed under the New Mexico Small Loan Act of 1955, NMSA 1978,
Sections 58-15-1 el seq.
10. Defendant FASTBUCKS OF ROSWELL, NEW MEXICO, LLC is a duly
registered domestic limited liability company, with its principal place of business at 200
West Second Street, Roswell, New Mexico 88201. Defendant is also registered and
licensed under the New Mexico Small Loan Act of 1955, NMSA 1978. Sections 58-15-1
el seq.

Page 3 of 15
11. 1\t all relevant times Defendants have been. individually and collectively.
engaged in trade or commerce in New Mexico within the meaning uf NMSA 1978. § 57
12-2(C).
12. Defendants have offered andlor originated- -the- -unconscionable---Ioan-- - - --- -- --
products at issue in this lawsuit and, upon information and belief. will continue to offer
andlor originate such loan products. to residents located throughout the State of New
Mexico, including in Bernalillo County.
13. The loan products Defendants offer to New Mexico consumer'i are not
expressly prohibited under the terms of the Small Loan Act. These loan products are,
nonetheless. unconscionable both as a matter of New Mexico cOll1mon law and under the
terms of the New Mexico Unfair Practices Act.
14. For purposes of the general venue stanlte in New Mexico, Plaintiff resides
in Santa Fe County. Venue in this judicial district is therefore proper pursu:mt to NMSA
1978, § 38-3-1(A).
DEFENDANTS' BUSINESS PRACTICES
15. Defendants are engaged in the practice of originating and servicing high-
cost installment loans throughout the State of New Mexico. As set forth in greater detail
herein, these loans share a pair of common features that make them especially dangerous
to New Mexico consumer welfare: (1) interest rates in excess of 500/,~ per annum; and
(2) prolonged amo11ization periods which result in cumulative paym~nts that exceed the
principal amount financed by as much as five times.
16. Upon infommtion and belief, Defendants routinely .Jriginate these high-
cost installment loans without making any inquiry into the borrow,~rs' reasonable ability

Page 4 of 15
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to repay the loans under the proffered terms. The exorbitant interest ratcs offered in these
loans are adhesive elements of a "take-it-or-Ieave-it" bargain.
17. The Office of the New Mexico Attorney General has received multiple
complaints against the named Defendants.. Upon' fnfonnation and belief, Defendants
FASTBUCKS HOLDING CORPORATION, FAST BUCKS, INC., and FASTBUCKS
WAGE AND BENEFITS, LLC, are affiliated with the other named individual
Defendants as parent companies, and have subsidiary LLCs operating throughout the
State of New Mexico, all of which are engaged in the unconscionable trade practices
complained-of herein. Further, and upon information and belief, Defendants
FASTBUCKS HOLDING CORPORATION, FAST BUCKS, INC., and FASTBUCKS
WAGE AND BENEFITS, LLC, govern and control the business practices of the other
named Defendants, including the unconscionable trade practices complained-of herein.
To wit:
Phyllis Etdttv of Crownpoint. New Mexico
18. On December 16, 2006, New Mexico resident Phyllis Etcitty took out an
$800 loan from Defendant FASTBUCKS OF GALLUP, NEW MEXICO, LLC. A copy
of the "Installment Loan Agreement, Security Agreement, and Disclosure Statement"
(hereinafter "Etcitty Agreement") is attached hereto as Exhibit A.
19. The Etcitty Agreement carries an interest rate of 521.49 perce"t per
mIRUIR, TIle Agreement calls for the $800 loan to be paid in eleven monthly installments
of $348.66 starting on January 17,2007, with a final '"balloon" payment of $349,08 due
on December 15, 1007. All told, the Etcitty Agreement calls for Ms. Etcitty to a pay a
total of$4,184,34 over a olle-year period on a loan of$800.

Page 5 of 15
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20. A copy of the "Payment History" for the Etcilly Agreement is attached
hereto as Exhibit B. The Payment History retlects that Ms. Etciny made a total of seven
installment payments on her loan.
21. The first"' installment, paid on January 17, 2007, was in the amount of
$365.76, of which $342.90 was allocated to the payment of interest, and $22.86 to
reduction of the principal balance of the loan. The second installment, paid on February
14,2007, was in the amount of $348.66, of which $333.10 was allocated to the payment
of interest, and $15.56 to reduction of the principal balance of the loan. The third
installment, paid on March 14, 2007, was in the amount of $348.66, of which $304.66
was allocated to the payment of interest, and $44.00 to reduction of the principal balance
of the loan. The fourth installment, paid on April 16, 2007, was in the amount of
$348.66, of which $338.33 was allocated to the payment of interest,_ and $10.33 to
reduction of the principal balance of the loan. The fifth installment, paid on May 23,
2007, was in the amount of $358.50, of which $358.80 was allocated to the payment of
interest, and $0.00 to reduction of the principal balance of the loan. The" sixth
installment, paid on June 30, 2007, was in the amount of $700, of which $398.33 was
allocated to the payment of interest, and $301.67 to reduction of the principal balance of
the loan. The seventh and final installment, paid on August 8, 2007, was in the amount
of $348.66, of which $344.68 was allocated to the payment of interest, and $3.98 to
reduction of the principal balance of the loan.
22. Over a seven-month period, Ms. Etcitty paid Defendant Fast Bucks of
Gallup, NM, LLC a total of 52,818.90 in seven unequal installments. Of the $2,818.90

Page 6 of 15
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~~ --' _ •••
~.a _ _ ._
_.a~ ~_ ._. ••. _ _
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that she paid to Defendant, a total of $2,420.50 was allocated to the payment of interest,
and only $398.40 to reduction of the principal balance of her $800 loan.
23. Moreover, and upon information and belief. the hme 30, 2007 installment
of $700 was paid via an ACH debit from Ms. Etcitty's banking account that Ms. Etcitty
did not authorize.
Enclowa EndwClrrior of Rio Rancho. New Mexico
24. On November 13, 2006, New Mexico resident Endowa Endwarrior took
out a $934 loan from Defendant FASTBUCKS OF RIO RANCHO, NEW MEXICO,
LLC. A copy of the "Installment Loan Agreement and Disclosure Statement"
(hereinafter "Endwarrior Agreement") is attached hereto as Exhibit C.
25. The Endwarrior Agreement carries an interest rate of 521.49 percent per
annum. The Agreement calls for the $934 loan to be repaid in twenty-three bi-weekly
installments of $194.92 starting on December 1,2006, with a final "balloon" payment of
$197.32 due on October 19, 2007. All told, the Endwarrior Agreement calls for Ms.
Endwarrior to pay Ii total of$4,680.48 over nearly a one-yearperiod on a loan of$934.
26. The Endwarrior Agreement is accompanied by a "Simple Interest
Amortization Schedule" (hereinafter "payment schedule"), which is attached hereto as
Exhibit D. The payment schedule reveals that for each of the first six installments of
$194.92 due under the Endwarrior Agreement, the full amount of each installment would
be allocated to payment of interest on the loan. As such, the Agreement calls for Ms.
Endwarrior to make a cumulative payment of $1,169.52 on her $964 loan before she
reduces the principal balance of the loan by a single cent.

Page 7 of 15
27. Of the $1,169.52 due under the seventh through twelfth installments, a
total of $ 1.101 would be allocated to payment of interest on the loan. and only $68.52 to
the reduction of principal. As stich, for the first $2.339.04 that Ms. Endwarrior was
obligated to pay under the terms of the payment schedule, a total of $2;270.52 would· be-:-
applied to payment of interest on the loan, while only $68.52 would be applied to
reduction of the principal balance.
Angel Bustamante ofR(},f~welJ. New Mexico
28. On December 8, 2007, New Mexico resident Angel Bustamante took out a
$500 loan from Defendant FASTBUCKS OF ROSWELL, NEW MEXICO, LLC. A
copy of the "Installment Loan Agreement, Security Agreement, and Disclosure
Statement" (hereinafter the "Bustamante Agreement") is attached hereto as Exhibit E.
29. The Bustamante Agreement carries an interest rate of 650.01 percent per
annum. The Agreement calls for the $500 loan to be paid in twenty-three bi-weekly
installments of $118.42 starting on December 8, 2007, with a final payment of $117.20
due on November 4, 2008. All told, the Bustamante Agreement calls for Mr. Bustamante
to pay a total of$2,840.86 over an eleven-month period on a loan of$500.
Jolmn\' Romero of La.v Vega.v. New Mexico
30. On July 25, 2008, New Mexico resident Johnny Romero took out a $500
loan from Defendant FASTBUCKS OF LAS VEGAS, NEW MEXICO, LLC. A copy of
the "Imltallment Loan Agreement and Disclosure Statement" (hereinafter "Romero
Agreement") is attached hereto as Exhibit F.
31. The Romero Agreement carries an interest rate of 649.99 percent per
annum. The Agreement calls for the $500 loan to be paid in eleven hi-weekly

Page 8 of 15
installments of $134.22 starting on August 8. 2008. with a final ··balloon" payment of
S134.29 due on January 9, 2009. All told, the Romero Agreement caBs for Mr. Romero
to pay a total of$1,610.71 over a five-month period on a loan of$500.
Lee Estenson of AllIIlwgordo. Ne~v Me.\:ii.:() ------"
32. On May 2, 2008, New Mexico resident Lee Estenson took out a $1500
loan from FASTBUCKS OF ALAMOGORDO, NEW MEXICO, LLC. A copy of the
"[nstallment Loan Agreement and Disclosure Statement" (hereinafter "Estenson
Agreement" is attached hereto as Exhibit G.
33. The Estenson Agreement carries an interest rate of 519.97 percent per
annum. The Agreement calls for the $1500 loan to be paid in ten monthly installments
of $662.59 starting on June 1, 2008, with a final "balloon" payment of $663.00 due on
April 1,2009. All told, the Estenson Agreement calls for Mr. Estenson to pay a total of
7,288.90 over an eleven-month period on a loan of$1500.
34. Upon information and belief, the Etcitty, Endwarrior, Bustamante,
Romero, and Estenson Agreements (collectively, the "FastBucks Loans") are emblematic
of the thousands of high-cost installment loans Defendants have made to consumers
throughout the State of New Mexico.
35. Defendants' practice of originating the FastBucks Loans, all of which
carry interest rates in excess of 500% per annum, constitutes an unconscionable trade
practice under New Mexico law.
36. Further, and upon information and belief, Defendants' failure to inquire
into their borrowers' reasonable ability to repay these loans under the proffered telms,

Page 9 of 15
.. --------_._--_._ _. __ ._ , __.. _-_.__ __.._._--_. _._._._-------._---_. __ ._-~~ .. _-_.....•. __ ._-_ _----------_ _-.._._.-..._ --.-.
constitutes an independent and adequate basis for finding that they have ~ngaged in
unconscionable trade practices under New Mexico law.
37. By reason of the foregoing actions, Defendants have caused and. unless
enjoined, wilrcontinue to cause injury. loss and damage to the State of New Mexico and
consumers located in this State.
COUNT I:
COM.MON-LAW UNCONSCIONABILITY
38. The allegations set forth above are incorporated herein by reference.
39. A contract is substantively unconscionable and lUlenforceable when the
content of the contractual tenns is illegal. contrary to public policy. or grossly unfair.
The Fao;tBucks Loans are substantively unconscionable insofar as they require cumulative
payments of as much as tive (5) times the principal amount borrowed in order to satisfy
the debt. Loans that carry APRs ranging from 500-650%, and which are amortized over
extended periods of time. are grossly unfair, contrary to public policy and. as a result,
substantively unconscionable on their face.
40. The FastBucks Loans are procedurally unconscionable because (L) the
Loans were prepared entirely by Defendants for the acceptance by the borrowers on a
"take-it-or-Ieave-it" basis and without an opportlmity for meaningful bargaining; and (2)
Defendants used their superior bargaining power vis-ii-vis their borrowers to impose
oppressive and unconscionable interest rates on their borrowers.
41. For all of the foregoing reasons, this Court should lind the FastBucks
Loans and all other loan agreements the Defendants have originated which offer the same
or similar terms unconscionable as a matter of New Mexico common law.
COUNT II:

Page 10 of L5
••. ._ _._
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STATUTORY UNCONSCIONABILITY UNDER THE

NEW MEXICO UNFAIR PRACTICES ACT
4' The allegations set forth above are incorporated herein by reference.
.43. The New Mexico Unfair Practices Act defines an "unconscionable trade
practice" as "an act or practice in connection with ...the extension of credit... which to a
person's detriment: (I) takes advantage of the lack of knowledge, ability. experience or
capacity of a person to a grossly unfair degree; or (2) results in a gross disparity between
the value received by a person and the price paid." NMSA 1978, § 57-12-2(E)(l)-(2).
The Act declares all such unconscionable trade practices to be unlawful. NMSA 1978, §
57-12-3.
44. Defendants' practice of originating the FastBucks Loans, all of which
calTY interest rates in excess of 500% per annum, and, upon infonnation and belief,
Defendants' ongoing practice of originating the same or similar loan agreements with
consumers in this State,. constitutes an unconscionable trade practice under the New
Mexico Unfair Practices Act.
45. Moreover, and upon information and belief, Defendants' practice of
originating the FastBucks Loans without inquiring into the borrowers' reasonable ability
to repay under the terms proffered, constitutes an independent and adequate basis for this
COLUt to find that Defendants have engaged in an unconscionable trade practice within
the meaning of the Unfair Practices Act.
46. Fmlher, and upon information and belief, Defendants' practice of
originating the FastBucks Loans was done in knowing and willful violation of the
prohibition against unconscionable trade practices in the Unfair Practices A~t, for which
Defendants should rightfully be held liable for payment of civil penalties thereunder.
Complaint for Violations of the New Mexico Unfair Practices A~t

Page 11 of 15
47. For all of the foregoing reasons, this Com1 should find the FastBucks
Loans and all other loan agreements the Defendant has originated which offer the same or
similar tenns unconscionable under the New Mexico Unfair Practices Act.
48. Moreover, this Court should order all Defendants to pay restitution to the
New Mexico consumers they have hanned as a result of their unconscionable trade
practices pursuant to NMSA 1978, § 57-12-8(B).
COUNT III:
REQUEST FOR DECLARATORY RELIEF
50. Plaintiff requests that this Court declare the FastBucks Loans and all other
loan agreements sharing the same or similar tenns unconscionable and unenforceable as a
matter of New Mexico law.
COUNT IV:
APPLICATION FOR PRELIMINARY AND PERMANENT
INJUNCTIVE RE'LIEF
52. Defendants have engaged in a pattern and practice of exploiting New
Mexico consumers through the origination of tIDconscionable high-cost installment loan
agreements. New Mexico consumers have suffered, and will continue to suffer,
irreparable hann as a direct and proximate result of Defendants' wrongful acts if an
injunction does not issue in this lawsuit. Further, there is no adequate remedy at law, as
Defendants' violations of the Unfair Practices Act are present and continuing. Any harm
resulting from the issuance of an injunction will be outweighed by the benefit to the
public, and there is a substantial likelihood that Plaintiff will prevail at a trial on the
merits of its claims.

Page 12 of 15
',;;,·;o,...bS~-"l".L!Io"-'-""'.-""".·"'_'~.''''''_'·~~'''O-''''' ''''''-'''''''''- ~''W' •• •• • _
COUNT V:
EQUITABLE RECOVERY UNDER PRINCIPLES OF
RESTITUTION AND UNJUST ENRICHMENT
54.· .. As a direct and-- proximate· .result . of· Defendants' origination of the
FastBucks Loans and other loan agreements sharing the same or similar provisions,
Defendants have been unjustly enriched inasmuch as they has received installment
payments which, cumulatively, exceed more than 500% and as much a.~ 650% of the
principal amount financed.
55. This Court should fmd that Defendants have been unjustly enriched and
order Defendants to disgorge all monies collected under the tenns of the FastBucks
Loans and any other agreements it originated with New Mexico consumers which share
the same or similar tenns.
WHEREFORE, Plaintiff respectfully prays that the Court:
A. Declare the tenns of the FastBucks Loans strucnlral1y unfair and
unconscionable as a matter of New Mexico common law and under Section 57
12-2(E) of the New Mexico Unfair Practices Act.
B. Declare all of Defendants' loan products that share the same or similar
terms stmcnually unfair and unconscionable as a matter of New Mexico common
law and under Section 57-12-2(E) of the New Mexico Unfair Practices Act.
C. Declare aU loan agreements encompassed by Sections A. and B. above to
be void and unenforceable.
D. Enter preliminary and pelmanent injunctive relief as follows:

Page 13 of 15
1. Requiring Defendants to cease seeking future payments from
. consumers under the tenus of the FastBucks Loans and from
seeking future payments from any borrowers who have loan
agreements with Defendants sharing the same or similar terms; and
2. Requiring Defendants to cease originating any loans that share the
'same or similar terms as the FastBucks Loans.
E. Order Defendants to pay restitution to all consumers determined during
the litigation to have been injured by Defendants' unconscionable trade practices;
F. Order Defendants to cease all collection efforts on any loans that it has
originated in New Mexico;
G. Order Defendants to pay a civil penalty of up to $5,000 for each violation
of the Unfair Practices Act determined to have been willful;
H. Order Defendants to pay the taxable costs incurred by Plaintiff in
prosecuting this action;
I. Grant such other and further relief as it may deem just and proper.

Page 14 of 15
..
RespectfulJy submitted,
GARY K. KING
Attorney General
Complaint for Violations of the New Mexico Unfair Practkes Act

Page 15 of 15
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Consumer Lending Study Committee Report
'forthe
Forty Fourth Session
of the New Mexico State Legislature
Submitted by the Financial Institutions Division Director, as

. requested by House Memorial 36
EXHIBIT
I 2.
Exhibit 2 - p. 1
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Executive Summary
House Memorial 36
Financial Institutions Division Director's Report
This report was prepared at the request()f the New Mexico legislature. Following the
formation of a committee comprised of ienders, consumer interest representatives
and state government officials, a study of the consumer lending environment and
lending practices was conducted to determine what if any legislation is necessary to
. improve the economic environment for lenders and borrowers. All depository and
market funded lending institutions participated and contributed.
New Mexico and its borrowing consumers presently enjoy a highly competitive and
comprehensive loan delivery system providing a full spectrum of consumer loan
products and services. Loans are funded under a broad matrix Qf federal and state
laws goverr}ing consumer disclosure, preventing certain abusive lending.practlces,
lender licensing and the extension of consumer credit by lenders in general.
The regulatQry environment was examined and revealed a rapidly growing lending
industry accompanied by increasing regUlatory responsibilities. The Financial
Institutions Division (FlO) has Increased it's productivIty to keep pace with the growth
of regulated lending Industries.
Consumer complaints concerning consumer lending aclivity received by FlO, the

Attorney General's Office, the Better Business Bureau were analyzed 8:long with
referral information from the Consumer Credit Counseling Services of the
Southwest. The overall number of formal complaints was small compared to the
volume and scope of consumer lending in the State. However, the trend of
complaints recen11y toward residential home mortgage origination and servicing is
significant.
A great deal of important and relevant information regarding consumer lending was
learned and analyzed by the committee. Factual findings about consumer lending In
New Mexico and-nationwide were identified, documented and are Included in the
report.
Two of the moresignifioant areas of information and findings were: _

1. Lender economic realities regarding the cost and pricing of very small closed
end loans.
2. The preemptive Impact of the IIMost Favored Lending Doctrine " and exportation
of uncapped interest rates from lenders domiciled in unregulated states to states
having rate limitations.
Finally, as a result of the information and findings derived, specific recommendations

to improve the consumer lending envIronment are provided.
Exhibit 2 - p. 2
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1999 New Mexico

State Legislature
House Memorial 36
UQUESTING TJIZ DIUC'1'OR. 01' lJ'HB lI'INANCDL INSTI'1'tJTIONS DIVISJ:ON 011' THB
1tEGULATXON AND LICBNSING DBPARTHBNT '1'0 SELBCT A S'l'UDY COKMIT'1'BB IW)B UP 011'
REPRESBNTATIVES OF THB LBNDING INDUSTRY AND CONSUMERS TO STUDY THB EXISTING
REGULATORY STATt1'1'BS 011' AHD '1'HB: EXISTING LENDING PRACUCZS IN THE STA'1'J:
'1'0 DBTBJUlINB WHAT, :IP MY, LBGISLATJ:ON IS HBCEBSARY '1'0 'RaVIDB A HBALTHY
ECONOMIC BNVIRONHEm lI'OR BOTH LBNDBRS AND CONSUlmRS.
WHERBAS, many New Mexicans need access to short-term

. and long-term loans; and
WHEREAS, this need extends throughout the population,

affecting persons with both substantial income and financial
resources as well as those existing with little or no income
and inadequate financial resources on a daily basis; and
WHEREAS, computer and communications technology has
made it possible to offer instant short-term high interest
loans to people in dire financial circumstances without
requirements for credit establishment or verification; and
WHZRZAS, serious questions arise about whether this
relatively new fast loan industry is regulated adequately
under current law1
NOW I '1'HBRBI'OU, BE %'1' RBSOLVBD BY 'l'D HOUSB OF
UPRBSEN'l'A'rIVBS 01' !I'D S'rATB or NEW HBXICO
that the director of the financial institutions division
of the regulation and licensing department be requested to
select a committee made up of representatives of all
segments of the loan industrY and consumers within the state
to study the existing regulatory statutes of and the existing
lending practices in the state to determine what. if any,
legislation is necessary to provide a healthy economic environment
for both lenders and consumerSl and
. BJI :Ior FUR'l'HE1t RBSOLVED that the director of the
financial institutions division report to the second session
of the forty-fourth legislature his findings and
recommendations resulting from the study; and
DB IT FURTHER RBSOLVBD that copies of this memorial be
transmitted to the governor, the superintendent of regulation
and licensing and to the director of the financial institutions
division of the regulation and licensing
departmen t .
Exhibit 2 - p. 3
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Table of Contents
Report Introduction. ..•.. ••. ••••• •.•. Page 5
Legal Environment Review.................... Page 6
Regulatory Environment Review............ Page 8
Consumer Complaint Review.................

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Page 9.
Most Favored Lender Doctrine..... ....••.•.. Page 11
Important Information & Findings

Page 12
Recommendations ~...........
Page 15
Report Conclusion...
Page 16
Acknowledgements & Participants.........

Page 17
Study Committee & Resource Material..

Page 19
Exhibit 2 - p. 4 .
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Financlallns'Ututions Division Directorls Report

Introduction
House Memorial 36 requested the Director of the Financial Institutions Division (FlO) to select a study
committee and conduct a study of existing regulations, statutes and lending practices in the state for the
purpose of determIning what If any legislation Is necessary to provide a healthy economic environment for
both lenders and consumers.
This report summarizes the selection and work of the study committee, provides an overview of all market
funded lending operations and depository institutions actIvity and their Impact in the state, IdentIfies and
analyzes relevant lending Issues and findings and prOVides recommendations to improve the lending'
borrowing environment In New Mexico.
The State of New Mexico and Its consumers presently enjoy a comprehensive and geographically
disbursed loan delivery system comprised of depository and market funded lenders located throughout
the state. This lending system Is highly competitive and provides a full continuum of loan products and
servioes to New Mexico's borrowing public.
Market funded lenders including small loan companies (installment loans, payday loans and title loans)
and mortgage companies, maintain and operate over 900 lending offices In New Mexico. FlO estimates
the lending volume for consumer loans (mortgages. auto, personal, etc.) exceeded twelve bIllion dollars
($12.000,000,000) in 199B. Additionally. th~re are approximately 200 Pawn Shops in New MeXico
prOViding colJateralloan services to consumers. The Flnanciallnstitulions Division (FID). Regulation and
L10ensing Department has regUlatory responsibility for state chartered depository Institutions and nearly
all other market 1unded consumer-tending operations In the state. Depository InstltU1ions (banks, credit
unions, saVings and loans) maintain and operate over 650 main offices and branches located througho\Jt
New Mexico. As of December 31, 1998. the Financial Institutions Division (FlO) estimates that in New
Mexico depository ins11tullon loan holdings exceeded eleven billion dollars ($11,000,000,000). This total
Includes business loans, consumer mortgage loans and consumer loans for other purposes (personal,
auto, home Improvement, etc.).There were 1829 lenders under FlO oversight on .December 31, 1998.
Nearly all borrowing consumers whether possessing substantial Income and resources or wIth lesser
income and resources have access to credit and loans in New Mexico. Economic reality drives the price
of credit. Factors determining the price Include but are not limited to the following:
• The supply and demand of credit whether supplied by market funded lenders or depository
institutions
• The availability and oost of lendable funds to lending institutions
• Direct and Indirect business costs of lending, administration and colle0110n
• Credit and repayment risk ( Loss and Charge off experience) for varying risk borrowers and
different loan .products
• PrQduct research and development expense
• Cost to develop and deploy new technology
• Net profitability Ireturn on equity.
Consumer demand and Industry lnnovalion have produced many new loan products and services, which
are delivered through the comprehensive lender ne1work in New MexIco. The continuing challenge is to
support and promote the availability of credit while providing appropriate consumer protection safeguards.
InvItations to participate In the House MemorIal 36 Lending StUdy Committee went out to representatives
from 1he lending community, consumer Interest groups and other appropriate parties. During the fIrst
meeting, on June 21, 1999 participants were asked to Join one more working groups to stUdy and
describe the state's lending environment, Identify relevant Issues and offer suggestions for improvements.
Participants were free to move among groups but generally focused on one.
Exhibit 2 - p. 5 .
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The working groups were; Legal, Consumer and Lender. Each working group was given a specific initial
direction and a number of oharges to initiate their work. Following a series of individual work group
meetings, the collection and analysis of relevant Information, data and related research, the DIrector
formed a Drafting Committee. This oommlttee's charge was to compile and summarize working group
Information, do independent research and draft components of the final report. The committee met
frequently from August 6 through November 3 to comptete Its work.
Legal Environment Review

The fOllowing Is a brief summary of Federal and State law relevant to consumer lending In New Mexico.
This summary Is drawn mainly from a report prepared by Frank D. Welssbarth, Assistant Attorney .
General, Consumer Protection Olvlslon~ Mr. Welssbarth led the Legal work group within the Committee.
Federal Laws and RegUlations

Generally, Federal Laws focus on consumer disclosure and prevention of certain abusive lending
practices.
A very brief synopsis of each relevant law follows:
• Truth In Lending Act ("TILA")-Thls very Important Aot reqUires lenders to disclose loan terms and
the cost of credit in terms that consumerS can understand Ina highly standardized format. It also
regulates. how consumer credIt Is advertised and In certain credit transactions Involving a home, It
prOVides for a three-day right to oancel the transaction. The Federal Trade Commission (FTC)
. enforces thIs law.
• FaIr Credit Reporting Act- This Law applies to Credit reporting agencies. It addresses consumer
privacy, gives consumers access to their credit history. sets limIts tor the retention of negative
credit Information and provides a method for consumers to dispute Incorrect credit Information,
The FTC enforces this Law.
• Fair Debt Collection Practices Act- This Law protects consumers from abusive collection
practices and Is enforced by the Federal Trade Commission.
• Fair Credit Billing Act- This Law sets out a process Whereby consumers can dispute credit card
billing errors.and unauthorized charges on their credit cards.
• Real Estate Settlement Procedures Act ("RESPA',- ThIs Law requires lenders to provide a "Good
F.aith Estimate of Closing Costs" on home loans, requires a standardized disclosure 01 closing
.. 'costs (HUO-1), and contains anti· "Klckbaok" provisions to deter lenders from paying such fees
to mortgage brokers.
• Federal Trade CommissIon rules regarding "Holder in Due Course" and credit practices- These
rules prOVide buyer claims recourse to the holders of retail installment contracts to the same
extent as the origInal seller. Also, the rules provide for dIsclosures to co-signers about con1ingent
liability. The rules prohibit confession of Judgment olauses, prohibit waivers of state law debtor's
exemptions and prohibit "pyramiding" of lale charges.
HOME Ownership and EqUity Protection Act ("HOEPA"}-Thls Law combats predatory lending
practices In low Income and minority communities. It applies to high cost refinance mortgages.
The Federc;tl Trade CommIssion enforces thIs Law.
Exhibit 2 - p. 6
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• Equal Credit Opportunity Act- This Law ensures that all consumers are provided an equal
opportunity to credit based upon relevant uniform credit qualification criteria. It prohibits lenders
from making credit decisions based upon race, sex, marital status, age or other discriminatory
factors. The Federal Trade CommIssion and other Federal lending institution regulators enforce
thIs L a w . · .
• Federal Limitations on State Laws- In certain areas Federal Law preempts or limIts the ability of
states to enact or enforce state laws. Examples include slate laws limiting Interest rates on home
mortgages and from banning "Due on Sale" provisions. Similarly, the "most favored lender"
doctrine permits NatIonal banks located In states with permissive or no limits on Interest rates to
"export" those rates to other states In which il does business. The effect Is to enable one state to
control the lending polley including rate limitation of another staia.
New Mexico Law and Regulation

New MexIco laws include those that regulate depository finariclallnstitutlons that make consumer loans
and those that regulate the extension of cOl1siJmer credit by lenders in general. A brief review of relevant
State laws follows: .. . .
• Small Loan Act, NMSA 1978, 58-15·1 through 58-15·31~ This law regulates lenders making loans.
o~$2.500 or less. The Act contains a number of disclosure requirements which prohibIt false and
misleading advertisIng by lenders, requires the posting of rates charged and authorizes the
Director, FlO to require that charges are disclosed fully and clearly to prevent misund&rstanding
by borrowers. The law prohibits prepayment penalties and the sale of certain insurance. There
are no restrictions on Interest rates and fees and the Act authorj~es lenders to make loans under
other laws including Money, Interest and Usury 56-6-1 9t seq. Interest rate limitations were
abolished by the Legislature in 1981. Lenders licensed under the Small Loan Aot may make loans
to consumers at coniracted rates and fees.
• Money, Interest and Usury, NMSA 1978, 56-8·1· through 56-8-21- This law limits the Intarest due
on contracts not specifying a rate to 15%, limits the Interest rate on Judgments to 8.75% to 15%
depending upon defendant's conduot In theabsenca of a written contractand limits the amount
loan brokers can charge for negotiating or procuring a loan to between 6% and 2% plus $20
depending upon the loan amount and whether the broker Is a registrant with FlO. Before repeal In
1961 this Act contained limits on interest rates.
• Motor Vehicle Salss Finance Act, NMSA 1976,58-19·1 through 56-19-14- This Act contains
disclosure provisions and prohibits fraudulent representations for car loans. Before repeal in 1981
58·19-8 set limits on oar loan Interest rates.
• Residential Home Loan Act, NMSA 1978, 56-8-22 through 56-8-30· This Act provides that
prepayment penaltles In home loans are not enforceable. This prohibition Is pre·empted by
Federal taw with respect to non- standard ""alternatlve" home loans.
• RetaIl Installment Sales, NMSA 1978, 56-1-1 through 56·1-16- ContaIns disclosure requirements,
however provides tliat creditor compliance with Federal Truth in Lending disclosure is deemed
compliance with New Mexico law. This Act also prohibIts certain lendIng practices Including
aoceleratlon of contract maturity In the absence of default, confession of Judgment and wage
assignment, waivers of rights for illegal coUeatlon actiVities and agreements prohibiting the buyer
from asserting claims and defenses arisIng from the sale. Previously, this law contained
restrictions on Interest rates and fees before these limitations were repealed In 1981.
• Bank Installment loan Act, NMSA 1978,58-7-1 through 58-7·9- ProhIbits lenders from making
roans to borrowers with an Installment loan under the Small Loan Act unless that loan Is paid and
Exhibit 2 - p. 7
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released. Previously, 1he Law limited the amount of interest creditors could charge before
limitations were repealed in 1961.
• Pawnbrokers Act, NMSA 1978, 56·12·1 through 56-12-16- This law contains special disclosure
provisions for Pawn transactions, prohibits certain lender practices against borrowers inclUding
those that could result In the pawning of stolen property. Pawn loans are limited to $2000. This
.law also limits 1he pawn service charge to the greater of 10% of the pawn loan or $7.50 for the
fIrst loan month. Succeeding months are limited 10 a maximum of 4% per month.
• Unfair Practices Act, NMSA 1978, 57-12-11hrough 57-12·22· This Act prohibits misleadIng and
deceptive lending practices as well as omission of materlallnformalion to consumers. Unfair,
deceptive and unconscionable trade practioes are prohibJled. There are no New Mexico appellate
deoislons dealing with the Issue of "unconscionable" in the context of consumer lending.
• Banking Act, NMSA 1978,58~1-1 through 58-1-80· This Act regulates allstate chartered banks.
There are presently .26 Stale chartered banks. The emphasis of bank regUlation Is on safety and
soundness of these Institutions that hold and manage the public's money. Although the Act does
not contain special consumer disclosure requIrements or specific consumer lending prohibited
practices, all banks are subJecl to all Federal consumer disclosure and protectIon laws.
Compliance with these laws Is monitored by the FDIC, FRS and other Federal Government
agencies.
• Consumer Credit Bank Act, NMSA 1978, 58·1a-1 through·58·1a-8· This Act regUlates Credit Card
Banks loca1ed in New Mexico of which there are none at this time. The Act does not contain any
speolflc disclosure reqUirements, prohibited consumer lending practices or restrictions on Interest
rates and fees. Any New Mexico credit card bank would be SUbject to all Federal consumer
disclosure and protection Jaws.
• Savings and Loan Act, NMSA 1978, 58·10·1 through 58·10·11- This Act regulates state chartered
. SaVings and Loan associations of which there Is one at present. There are no specifiC consumer
lending or disclosure provisions In this Act. The Financial Institutions Division (FlO) is responsible
for the Safe and Sound operation of this Institution. Savings and Loan Assocla11ons are subject to
all Federal consumer disclosure and protecllon laws. The FDIC and Office of Thrift Instllu.lions
(OTS) and other Federal Agencies monitor compliance with all Federal Consumer disclosure and
protection laws.
• Credit Union Regulatory Aot, NMSA 1978, 58·11·1 through 58·11-65- This Act regUlates state
chartered credit unions of which there are 26 at present. New Mexico's FlO Is the primary
.regulator ensuring the Safe and sound operatIon of ·all State chartered credit unions. There are no
specific consumer lending or disclosure provisions In this Act. The NCUA and other Federal
agencies monitor compliance with Federal consumer disclosure and protection laws.
Regulatory Environment RevIew

The Financial Institutions Division (FID) within the Regulation and LIcensing Department of New Mexico
licenses and regulates more than 1600 lending operations and depository Institutions Including their
delivery locations and branches throughout New Mexico.
The Regulatory EnVironment and the responsibility or lhe Division have grown SUbstantially over the past
four years. The reality is that the Division's workload has dramatically Increased while the budgetary and
human resouroes of the Division have been static or reduced. The DivIsion has met these challenges with
higher efficiency and productivity. Management restructure. staff cross training and new technology have
been the main strategies utilized to achieve these improvements. Significant facts are as follows:
Exhibit 2 - p. 8
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• The Division's workload, activity and responsibility have increased by approximately 60% over the
past four years
• Orvlslon revenues increased 46% over the past four years
• Division expenditures have been flat over the, past four years
• Division Staff (FTE) has declined 14% over the past four years.
• DIvision efllcleney and productivity has increased 50% over the past four years
• Although the number of depository and trust Institutions (banks, oredlt unions, S&L's and trust
companies) has remained relatively flat ovar the past four years, the number of consumer
financial services lIcensees has Increased by approximately 80% '
Every sniallloan company licensed and regulated by FlO is annually examined, In 199B, the Division
examined 420 small loan companies and more than 4200 consumer loan flies. The principal focus of the
examination is the review of consumer loan files and documents to determine among other things, if
Federal Truth in Lending disclosures have been prOVided and that they are accurate.
In New Mexico, .Ienders comply with federal Truth in lending disclosure reqUirements. During the
examination process, If any Irregularities are discovered, they are Included In the examination report, new
documents are drawn and provided for the consumer, the lender Is required to correct the process that
led to the error and If applicable, consumers receive refunds on any over payment or charge relative to
the Truth in lending Disclosure.
It is the experIence of FlO that most Truth in Lending Disclosure errors are minor in nature and usually
involve a new lender whose programs or processes In calculating the annual percentage rate (APR) are
flawed. The lender makes corrections in the system and the problem is solved. Rarely, does the problem
re-occur in subsequent examInations.
As previously stated, the Division has been able to Increase Its productivity and efficiency to keep pace
with it's increased responsibilities through management and staff re·structurlng, intensified training, c~oss
training and employment of new tochnology. The DivIsion has maximized lis productivity and efficienoy.
Future growth in licensing and regulatory activity due to Industry expansion or new regulatory
reqUirements will require additional resources.
Consumer Complaint Review

It was ·Inilially determined that an analysIs of consumer complaints from all readily available sources
would be valuable for all working groups In order to Identify, quantify and understand relevant consumer
issues. Requests for InformatIon were sent to consumer advocacy groups who had demonstrated an
interest in this issue. However, in the end, the only complaint sources responding with speoiflc complaint
data InCluded a written report from the Office of the Attorney General, FlO, and Information prOVided to
the DIrector by the Better Business Bureau of New Mexico and Consumer Credit Counseling Services of
the Southwest.
The fIndings are presented as follows:
Office of the Attorney General

A brief summary and analysis of oomplaints Included within the· Assistant Attorney's report, as received .
and analyzed covering the period January 1,1999 through August 10,1999 revealed the following
information: .
1. More than 400 complaints Involving credit practices were received of which 39 Involved the focus
of House Memorial 36. Complaints deemed outside of th9 focus of the project by the Assistant
Exhibit 2 - p. 9
9
'to
Attorney General included unsolicited credit card offers, harassment by collection agencies,
advance fee loan schemes, credit card billing disputes, credit reporting errors, retail installment
contracts and mortgage company/broker complaints. .
2. Thirty NIne (39) complaints Involved direct extensions of credit by finance companies, car tille
loan companies and payday lenders. The industry breakdown and description of complaints
follows:
A. Car Titre loans- Sixteen (16) complaInts- Consumers complained that Interest rates were 100
high and that they could not pay them off. They also complained that lenders misrepresented
loan terms and failed to disclose interest rates. Consumers also complained about
repossession praotlces, destruction or theft of property and in one case alleged assault.
B. Small Loan companies ("A" lenders - generally Installment loans above $1,000)- Most of the
fourteen (14) complaints against these companies Involved mortgage loans. Other complaints
were collection harassment and high origination fees.
C. Small Loan Companies ("B" lenders~ generally Installment loans· below$1 ,OOO)~ Five (5)
complaints were received and they Involved substantial origination tees for re-flnanced loans
and debt oollection harassment.
.D. Payday lenders (generally, loans $250 or less with maturity 2 weeks or less)· Four (4)
complaints received. Three (3) complaInts were about multiple l'rollovers".
The Assistant Attorney General's report also included opinions and recommendatlons regarding the debt
collection practices of lenders, loan renewals or "rellovers", consumer disclosure, closing "loopholes" in
the Small Loan Act, limiting the cost of credit, a cooling off period for high cost loans, reporting good
credit and the "Exportallon" of Interest rates by National banks located in deregulated states.
The Financial InstitutIons Dlvlslon-

FlO licenses and regUlates market funded and depository lending Institutions in New Mexico. Part of this
regulato/)' responsibility involves the handling and reaolutlon of consumer complaints.
During the five (5) year period ended 12/31/98, FlO receIved, processed and resolved 1225 consumer
complaInts. The majority of these complaints were against lenders. It Is Important to note that only 127
complaints were against small loan companies and none of those complaints involved high rates of
Interest or loan charges.
Through October 1999, FlO had received 224 complaints of which 21 were against small loan companIes
and~only two of those complaints involved high rates or fees. Clearly, 1he quantity of formal consumer
complaints against small loan companies for high rates and/or fees Is not substantial.
However, the complaint analysis has revealed a substantial and consistent trend of consumer complaints
related to mortgage lending activity in New Mexico. In 1998, 118 out of 249 consumer complaints
received by FlO were against registered and exempt mortgage companies. Through October 1999, 93 of
the 224 comp.lalnts received were against mortgage companies.
Further analysis of complaints against small loan companies and other lenders reveals that a substantial
portion of those complaints involve mortgage lending and selVlclng activities. Given the relative
importance and size of home mortgages for New Mexico homeowners when compared to other types of
consumer loans,· this complaint trend Is disturbing and Indicates the need for further study.
Better Business Bureau of New Mexico-
Exhibit 2 - p. 10
10
"
The Better Business Bureau of New Mexico receives 7,500 to 10,000 oonsumer complaint telephone
calls per year, of which approximately 2500 result in formal written complaints. Relatively few of these
complaints involve lending practices. The Bureau received 25 formal lending related complaints for the
three (3) year period ending September 9,1999. These 25 complaints Involved seiling practices, service
Issues, credltlbHllng Issues and refund practices. None of these comptalntslnvolved high rates of tees.
Consumer Credit Counseling Services of the Southwest-
The Consumer Credit CounseJJng Services of the Southwest (CCCS) provides counseling services to
consumers having financial problems. The CCCS does not receive, process or resolve oomplalnts;
however, a recent survey of its consumer clients In New Mexloo and Arizona reveals Important
Information about consumers in financial distress.
A breakdown of CCCS's most recent annual survey of 28,475 referred consumer clients brought to light
the follOWing reasons for referral:
11,646 Poor money management/excessive spending

9.482 Reduced Income/unemployment
2,850 MedicaVaccldentldisablllty
2;744 . Poor bUdget and credit advice
2,078· DlvorcelfaiTIlly situations/personal conflict
292 Death of family member
242 Substance Abuse
Consumer Complaint Conclusion

The analysis. of formal consumer complaints does not reveal a high number of Interest rateffee complaints
against smaUloan companies in relationship to the farge volume of loans made throughout the state. The
stUdy committee did not conduct a consumer attitude survey and dId not receive any specific New MeXico
complaint information from consumer advocacy groups.
Most Favored Lender Doctrine & Rate Exportation

This section of the report briefly describes a very important Issue and Interstate market development, the
"Most Favored Lender Doctrine" and" Rate Exportation". Much of this summary has been drawn from a
report sUbmitted by Stephen Schaller, eNG, Inc. and discussions during the Committee's meetings and
deliberations. .
. Two f.ederallaws, The National Bank Act and the DeregUlation and Monetary Control Act, treat National
and State chartered banks as well as other financial Institutions acceptIng federally insured deposits as
"most favored lenders". This designation permits these Institutions to charge Interest rates equal to the
HIGHER of the Interest allowed to lenders In the state where the bank I InstItution Is domIciled or 1%
above the discount rate on commercial paper In the bank's Fed.eral Reserve District. A bank's "most
favored lender" status is "exportable" acfoss state lines. This permits the Institution to charge interest
rates as allowed In It's "home" state to borrowing customers located in other states regardless of the
Interest rate law In the borrower's state. So, the "home" state law of the bank with respect to interest rate
limitation, If any, preempts the law of the borrower's state. .
Just as many banks today Offer credit cards through the mall from their "home" states" to customers
across the country at rates permitted by 1helr home state regardless of rate limitations in the consumers
state, so to, can they export the Interest rates permitted In their home state for other consumer loan
products including crosed end consumer loans such as Payday" and "Car Title" loans. Banks and other
U
FDIC Insured depository Institutions which issue credIt cards and/or make closed end consumer loans are
locating their institutions in home states with no rate limitations and are offering their credit cards and/or
closed end oonsumer loans (l'payday"/"car title") across state JInes nationally without rate restriction.
Exhibit 2 - p. 11
11
State laws limiting rates in the borrower's state of domicile are thereby preempted.
Banks and other FDIC insured depository InstItutIons wishing to Issue and market credit cards nationally
are doing it directly from their home office located in their unrestrioted home state. In order to originate
closed end consumer loans without rate limitation into any and all other states, they simply establish
strategic partnerships with national check cashing companies, payday lenders, car title lenders and other
originating entitles with offices In any and all states in which they wish to lend. Such partnerships
eliminate the need for the institutIon to create expensive branch offica loan production offices In foreign
jurisdictions while still being able to fund closed end consumer loans ("Payday'rcar title") without Interest
rate limitation. Courts have approved this practlcaln a series of reoent casas enumerated In Mr.
Schaller's report.
Thls.report also Identifies and describes a number of specific operating strategic partnerships that are
presently originating and funding closed end consumer loans on an interstate basis without interest rate
limitation. This illustrates "real world" examples of how banks and other "most favored lenders" could
circumvent prospectively any New Mexico law(s) attempting to limIt or cap Interest rates.
The futility of individual state attempts to limit intersst rates within their borders given the reality of the
present Interstate lending legal environment Is demonstrated within the report. It would appear that any
effective legal attempt to limit Interest rates on a national basis and I or restore legislative self
determination to the states wlII require changes to Federal law,
Given the reality of the present Interstate legal landing environment described, What would be the
potentlal.consequenceof New Mexico Imposition of interest rate cap limitations? Would the rate limit be
so low that New Mexico based and locally owned small loan lenders could not Offer the loans on a
profitable basis, thereby eliminating these lenders and I or their products?
In thIs scenario, would the only lenders offering higher cost very small closed end and other consumer
loans In New Mexico, at rates exc8edlng New Mexico law, be those nationwide chain lenders that have
strategic partnerships with "most favored lenders" based In states without Interest rate limitations? Would
such reduced competition actually result in higher cost "monopoly II pricing of consumer loan products to
New Mexico consumers? What economic benefit or enhanced regUlatory control would be derived in New
Mexico by driving locally owned and operated small loan oompanles and their employees out of business
and/or Into unemployment?
In short, what benefits would New Mexico derive from driving It's small loan Industry out of state to "most
favored lenders" with their strategic national originator network partners offering consumer loan products
at Interest rates exceeding New Mexico laW?
These are some of the questions that would undoubtedly be considered In potential future legislative
deliberatIon considering Interest rate cap limitations.
Important Information & Findings

A large, diverse, growlng and highly competitive lending industry is delivering a full spectrum of
consumer loans and services In New Mexico.
2 The price for foan products and services In New Mexloo Is determined by the cost of business
and strong competitive market conditions. There Is no evidence of monopoly control of pricing.
New Mexico consumers benefit by receiving low cost products and services.
3 An analysis of formal complaints rec·elved by FlO, the New Mexico Office of the Attorney General,
the Better Business Bureau of New Mexico and Consumer Credit Counseling Services of the
Southwest, reveals a relatively low number of consumer complaints against lenders given the
magnitude of consumer lending activity In the state.
Exhibit 2 - p. 12
12
"
However, this finding does not measure or quantify overall consumer satisfaction or
dissatisfaction with loan products and/or services, since only tormal complaints were analyzed.
Also, an emerging, persistent and disturbing trend In consumer complaints InvolVIng mortgage
lending activity Is evIdent. .
,)
4 There Is a great need to Improve consumer awareness and education in lhe selection of the le8st
costly and most beneficial loan products and services. Consumer financial literacy must be
raised so borrowers may make informed decisions necessary for their financial well-being.
5 Lenders are providing appropriate formal consumer loan dIsclosures. AU formal written Federal
Truth in Lending and other applicable consumer disclosures appear to be consistently provided to
New Mexloo loan customers.
6 The Federal Truth in Lending Annual Percentage Rate caloulatlon and disclosure by Itself may be
inadequate and misleading as the sole disclosure for the aotual cost of very small, short-term,
closed-end loan products. More explicit oonsumer disclosure and Information regarding the
nature and oost for very small, short·term, closed-end loan products may be desirable to make
sure that the consumer understands the transaction and the cost.
7 The fastest growing segments otconsumer lendIng are In mortgage lending and very small short
term loan products Including "car title" and "payday" loans.
8 The cost, as expressed In federally required annual percentage rates, for very small shorl·term
loans is higher than longer tenn Installment credIt. However. when a thorough analysIs Is made. a
number of clear economIc facts emerge which dictate the pricing of these very small loans with .
maturities of thirty-one (31) days or less. .
The fixed and variable costs of these extremely small short term loans must be recovered in order
for them to be economically viable. These loans are not designed to be outstanding for a year or
longer.. They are emergency, short, small. convenient oash flow transaotlons. Disclosure rate
comparison based upon a simplistic expression of the federal Truth in Lending annual percentage
rate is misleading for these loaos.
9 In 1981 the New MeXico legislature virtually eliminated limits on Interest rates. Rates and fees are
determined by the written contract between the borrower and the lender. Lendlng'regulatlon
presently focuses on federally required consumer disclosure. the mediation of consumer
complaInts, lender licensing and Jender regUlation.
10 Consumer complaint analysis reveals the fact that In some Instances consumers are signing loan
documents without reading and/or understanding what they have signed.
11 Ultimately the cost of lending and the competitive loan market determines the availability of and
the price of credit Artificial limitations on Interest rates and fees below market reality oan only
reduce or even eliminate availability of credit.
12 The growth of very small, short term closed-end lending is a relatively neW loan product
phenomenon In New Mexloo and throughout the country. These loans have apparently caught
the attention Of consumers seeking an alternative to tradilionallong·term loans. Very small, loans
such as thoso offered by payday, oar tltlo, and installment lenders usually are secured for a short
term need such as a family cash flow shortage or emergency purpose. In most Instances,
consumers view these loans as a quick and convenIent source of funds to bridge "short·term"
needs.
Exhibit 2 - p. 13
13
.,
Industry surveys indicate that the demographic profile of small loan borrowers have combined
household Incomes In excess of $30,000, average 35 years of age, average four or more years at
the same residence, average four or more years with current employer and more than 30 percent
own their homes.
13 There Is a strong sentiment among several committee members to re-wrlte the Small Loan Act to
keep small lenders able to operate and be regulated exclusively within that act. The Idea would
be to centralize New Mexico statutes relating to the small loan business within a singular act.
Additionally, the Mortgage Loan Company and Loan Broker Act requires revision.
14 The potential hIgh cost of very small. short-term, closed-end loan renewals or rollovers beyond
the original term could be mitigated through limitations and/or repayment of principal.
15 Lender qualification and financIal requirements In the Small Loan Act need to be reviewed a(ld
strengthened. . ,
16 It was determined that the Director has sulficient statutory authority within The Small Loan Act to
promulgate additional, reasonable regulations and orders for the administration and enforcement
ot the aot.
17 Consumer education 'and training must be Increased. The "Focus on the Future" program
described in the Consumer Group Report must be expanded beyond New Mexico High Schools
and should be available to other consumer groups and the general population. Other existing
training programs and new programs should be designed and implemented. The goal Is to raIse
the financial Iiteraoyof the consuming public so that It may make Informed and wise financial
decisions.
18 Several consumer group Interested parties have recommended that the Division conduot a
separate stUdy of "payday loans" or "deferred deposit tranIt8ctlons". The state of Indiana has
conducted a special study encompassing 47 licensees. 5,350 files and over 5,400 loans. The
findings InclUded a high number of loans/renewals per customer per year and some extremely
high APR's. The resources of the Division do not accommodate such a special study and the
recommendations put forward by the Director should address the underlyIng issues.
19 Federal law enabUng Most Favored Lender Doctrine & Rate Exportation, permit banks and other
depository institutions whose deposits are federally Insured (FDIC) to Issue credit cards and
make loans based upon the Interest rate limitation, it any, In their home State of DomIcile which
significantly impacts our lendIng environment. Congress Is presenlly reviewing Ihls issue and it
appears that only new. Federal law can clarify the situation and/or return Interest rate limitation
authority to the states.
Conclusion
The short term. small closed·end loan has demonstrated Its ability to function In the lending marketplace
and Is successful when appropriately used as a short- term prodUCt. These loans are not designed for nor
should be used for long-term purposes and cannot sucoessfully be used to address long term family
bUdgeting and credit needs. An Industry report proposes the analogy of using these loans as one would •
use a taXi. It would make sense to hire a taxi to go across town but not to travel across the country.
Several members of both the Lender work grol!p and the Consumer work group Identified oertaln lender
and consumer concerns and best practices for lenders, particularly In the very small. closed end segment
of the business. Some lenders suggested further considerations and recommendations for Improvements
Including "best lending practices".
Exhibit 2 - p. 14
14
Some of the Ideas expressed Included additional consumer disclosure, rollover/renewaillmitatlon,
advertising improvements and consumer store signage, consumer education and information
dIsseminatIon, improved employee educatfon, consumer rIght to cancel transaction, adoption of Industry
code 01 conduct, elimination of loan splitting, enhanced lender financial requirements for licensure and
other Ideas to "Improve" the consumer lending environment. FollowIng considerable discussion and
deliberation, It was determined that further universally accepted improvements could only be implemented
through additional research, possible promulgation of regUlations and statutory changes.
Recommends'llons
The Director shall continue the revIew and study of "very small, short·term, closed end lending" issues
and give conslderatfon to promulgating regulations In the following areas:
.1. AddressIng the renewallrollover of very small. short term, closed-end loans so as to eliminate the
potential of borrowers having such higher cost loans outstanding for an extended perIod of time Is
worthy of consideration
2. Addressing the practice of "loan splitting" amongst affiliates or subsidiaries of specIalty lenders to
the same borrowing consumer.
3. Implementing a "free" consumer twenty-four (24) hour right of rescission for very small short-term
closed-end loans and/or a "cooling oft" period preceding dIsbursement of funds.
4. Special written disclosures to consumers for very small, short. term; closed·end loans clearly
describing 1he nature of the loan, the flnanoe charges or cost for the loan durIng the initial term of
the loan and expressly stating the potential hIgh cost of renewing the loan. Such disclosure
would be provided to the applicant and signed before the Initial loan or renewal Is processed.
5. Prominent display of slgnage posted In each lending location that offers very small, short term,
olosed-end loans that Includes easily understood InformatIon describing the loan product, the
costs, the repayment reqUirements, and consequences of not repaying the loan.
6. Development of an Information piece by companies for consumer's in financial need describing

the very small, short·term, closed-end loan products and 1helr appropriate use.
7. The redesign and implementation of the new and/or renewal licensing process for small loan
0'
lenders. The new process could include Identification and authorization the specific loan
products to be offered.
8. Requiring small loan licensees to have an employee education and training program inCluding its
policies and procedures regarding employee Interaction with and dIsclosures provided to all
applicants. . . .
9. Addressing affiliated car title lenders and payday lenders that operate within close physical
prOXimity to one another.
On the statutory front the DIrector sugges1s to the following statutory changes:
Exhibit 2 - p. 15
15
1. Rs-writing The Small Loan aot to consolidate all New Mexico statutes relating to the Small Loan
business within one act and to keep all small loan operations within that act. Additionally, having
the act amended to Identify different small lending segmenls and address potentially different
statutory and regulatory treatment for each segment.
2. Revising The Mortgage Loan Company and Loan Broker Act. The financial qualification entry bar
should be raised along with the demonstrated experience and lor competency of the licensee.
Olher recommendations:
1. A general recommendation is to a9dress the statewide need for educating and training the
"borrowing public", While youth are being introduced to programs for personal financial
management like "Focus on the Future", It would be constructive to expand suoh education to
adults.
2. The Director recommends that the legislature provide surticlent budget resources to Flq so that
the DIvision can continue to fulfill expanding regulatory mission.
Report Conclusion.
This consumer lending study has been a highly ihforma1lve, challenging and rewarding experience.
The Committee was composed of a large and diverse group of professionals.representing New Mexico's
lending Industry, its consumercitIzens and State government. Through our meetings, discussions,
debates, research and analysis. we all learned a great deal about consumer lending In the state, .
Important lending Industry facts and economic realities, important consumer Issues and concerns, the
legal environment and the regulatory environment.
It is hoped that the legislature will benefit from the Information provided.
Although there was no universal consensus, indeed there was no consensus within committee working
groups on certain controversIal issues such as interest ratelfee cap limitations, the Introduction of a
separate new staie disclosure for certain loans, the prohibition of certain lending practices such as
renewals/roUovers and rescission and other Issues, a number of very constructive Ideas emerged to
improve our lending environment that arelncl\Jded in the recommendation section of this report.
In addition to the Director's Report, a number of issue specific reports Including the working group
participants information, a separate "Minority Report" received after the drafting of the final report, and
other enclosures provides relevant information and background on consumer lending In New Mexico.
This addition information is available on disk and hard copy through the Financial Institutions DivIsion.
AcknOWledgments
Exhibit 2 - p. 16
16
".
At this time the Director would like to acknowledge and thank each Study Committee Member. Working
Group member and leader, m·getlng participant, contributor and Interested party that provided input for the
project. The Study and report would not have been possible without them. A special thanks to Minda
McGonagle who prOVided invaluable administrative support that was critical to scheduled meetings,
coordination, document production, correspondence, drafting and report production and all other
Committee activities and communication.
Participants & Interested Parties
Study Cpmmlt1ee participants

Financial Instllutlons Division Bill Verant . Sanla Fe, NM
AARP James DIckens Santa Fe, NM
Better Buslnes. Bureau of NM Jerry Shipman Albq., NM
Brundage Management J (CILA) Andrew Morris San Antonio, TX
CheckMate Linda McEvoy Phoenix, AZ
CNG Financial Corp. .Slephen Schaller Mason,OH
CollectRlte, Ino. Bill Dunn Albq.NM
Consumer Installment Loan Assoc. (CILA) Minda McGonagle Albq., NM
.Crazy Sam's Mark Bludworth Albq., NM
E-Z Payday Loans Stephen Daney Albq.NM
focus on the Future Foundation SkipCow8n AlbQ. NM
Law Offices of Richard N. Feferman Richard Feferman Albq.,NM
NM Attorney Generars Office Frank Welssbarth SanlaFe, NM
NM Financial Services Assoc. Stella A. Miller Albq.NM
NM .Independent Financial Services Ken Scruggs Phoenlx,AZ
NM Title Loans Bob Reloh Atlanta, GA
Royal Management Corp. A.P. Gentry
Boerne, TX
Security Finance Corp. Jeanne Davis
Las Cruces, NM
Southwestern Payday Loans, Inc. Kenneth Miller
Champaign, IL
UNM School of Law Tim Canova
Albq. NM
USA Tille Loans, Inc. Rudy Somers.
Alamogordo,
Interested parties and Contributor.

MRP Capitol Clly Ta&k FQroe Sondra K. Match Santa fe, NM
Consumer Credit Counseling Services of the Southwest Lee Pattison Albq., NM
Consumer Installment Loan Assoc. (CILA) Marla Shoals Albq•• NM
Consumer Installment Loan Assoc. (CILA) Dan Weaks Albq., NM
CNG Financial Corp. Bob BarbarQU8Se Sanla Fe, NM
Crazy Sam's Stan Chlras Aurora, CO
Fair Lending Center, Institute of Public Law·UNM Vioki PlevIn Albq.,NM
First Security Bank Paul Bouehelle Albq., NM
Indeplmdent Community Bankers-NM JarryWalker Aztec, NM
L&W Investments Tim Emminger Ruidoso,NM
NM Automotive Dealers Association Raymond BerUbe Albq.,NM
NM Bankers Assoc. . John Anderson Albq., NM
NM Credit Union League Ellen Hoover Albq., NM
NM Independent FinancIal Services Assoc. Mickey D. Barnett Albq. NM
NM Mortgage Bankers Association David Jansen Albq.,NM
NM Pawnbrokers Industry, Inc. Ken Schultz Albq.,NM
NMPIRG Jeanne Bassett Albq.,NM
NM RetaIlers Assoc. Bob Gold Sants Fe, NM
NM 'l'ltle Loans NsncyKlng Santa Fe. NM
NM Title Loans John Unds/'INood RUld.oso, NM
NM Title Loans Gary KUpatric Santa Fe, NM
StraUon & Cavin, PA Hal Stratton Albq.,NM
World Acceptance Corp. Chuok Gardner San Antonio, TX
Exhibit 2 - p. 17
17
Study Committee and Resource Materials
Special Interest Reports Generated During Study
Lending Indus·try
Banks
Credit Unions
Mortgage
Pawn
Retail Credit
Car Title
.Deferred Presentment Services (PayDay)

Consumer Finance
Installment
Federal and State laws
Complaints and Tables
Consumer PerspectIve
Focus· on the Future
Financial Institutions Division
Operational Tables
Most Favored Lender Doctrine
National Reports
Reports Submitted after Conclusion of Study

Consumer Advocates Minority Report
Note: Available on dIsk and hard copy at standard Regulation and

Licensing Department fees;
Exhibit 2 - p. 18
18
",
House Memorial 36
Study Committee Resources and
Materials
Index
Consumer Interest Groups

. Consumer Perspeotlve _....... .......,. .Pg 2
Information Reque$t by FlO Director Pg 4
Response Report TO FlO Director's Report Pg 5

legal Environment, ,Pg 9
Complaint Analysis . Pg 14
Lending industry
Application Of the Most Favored Lender Doctrlne, Pg 22
(Rate Exportation)
Market Funded Lenders Pg 25
Deferred Payment
Title
Smailinstalirnent
Consumer Finance
Mortgage
Depository Instltutions, Pg 55
Banks
Credit Unions
Other Lenders,:--:---:- ,Pg 58
Pawn Industry
Retail Credit
Information
Meetings & Partlclpants, ,Pg 70
Available Resources Pg 71
FlO Gr~phs &Tables Pg 72
Exhibit 2 - p. 19
I
.-.
Consumer Perspective
Submitted By Skip Cowan, Focus on the Future Foundation
The New Mexico oonsumer wlll be the ultimate beneficiary or victim of any legislation passed by our State
Legislature. It is therefore Important that legislators are aware of the opinions of the "average" consumer
In.New Mexico with regard to lending practices of small, medium and large tending Institutions in the
state. These opinions are not necessarily the opinion of the writer, but are comprised of the opinions of
. the varIous consumer groups that have participated In formal discussions with regard to House Memorial
36 study and potential future legislation Involving the regUlation of lending In the state.
The primary concerns of the oonsumer center around fees oharged for loans, rather than Interest rates.
There does not seem to be a strong push for Interest rate caps In the slate. Most groups believe this
would be detrimental to business In the state, as well as, to Individuals who, for lack of good credit
practices, have ~he need to borrow money at higher than "primary" Interest rates. There is, however, a
strongconcem for the amount of fees charged for loans, especially for renewals of outstanding loans.
These fees can sometll"fles push the annual percentage rate (APR) beyond a point that is "conscionable",
. according to more than one consumer advocate group.
It is Interesting to note, however, that there are very few consumer complaints filed with the State
Attorney General's office. the Financial Institutions Division of the Regulation and Licensing Department
and the Albuquerque Better Business Bureau with regard to high fees or interest rates. The complaints
seem to be of the nature that would Indicate a lack of understanding on the part of the consumer or a lack
of reasonablelinformatlve educatIon by the lender for the borrower. In other words, "the borrower wasn't
aware of what he/she was getting into when he/she entered Into the agreement with the lender." This
might lead to the conclusion that we need legislation In New Mexico to protect us from our own "lack of
knowledge" regarding lending practices In the state. Most consumer groups advocate more regulation
rather than legislation. .
First and'(oremost, consumer groups are in favor of education for consumers that may be a customer of
one or more lenders In New Mexico. This education should be at all age levels, beginning with high
school age students, up to and including senior citizens of the state. Consumers believe the educational
effort should be mandated by tM state and funded by the organizations that desire to do business withIn
the state. A portion of this educatIonal process is already in place.
"Focus On The Future" Is the title of a oomprehensive financial eduoation paokagefor high school
students In New Mexico. Developed through the private seclor with state oversIght, the program Is
admInistered by Focus FoundatIon a New Mexico non-profit corporation dedicated to helping New Mexico
youth succeed. This program is offered to high school students throughout New Mexico. The program,
divided Into five modules, includes a module on credit and credit management. This seems to be an ideal
vehicle where "entry level" consumers can receive a basic education In lending, Interest rates, fess, and
the general lending practices of the various types of lenders In the state.
The program was developed for hIgh school seniors to promote financial literacy in New Mexico. The
Financial Institutions DIvision, spearheaded the effort for the State and coordinated the formation of a
taskforce Including both pUbllo and private sector representation. The initial program developed by the
taskforce was a "train the trainer" concept, where teachers would be taught the· materials for later
disseminatIon to theIr students. This Is the concept employed by most "flnanolailiteracy" programs In the
United States, and It is not a very effective method.
The taskforce recognized this problem and through the leadership of the Financial Institutions Division
was able to develop a program that Involves teachers, students, parents and professionals from various
financial Industries throughout the state. Focus On The Future brings the program to teachers through
volunteer speakers and a project titled "Raise Your Financial ta. Day." Modules Include the above
mentioned Credit and Credit Management, Buying A Home, tnvestlng and Financial PlannIng, Insurance
and Banking. This method has proven to be one of the mosllnnovative in the U.S. New Mexico's program
Is a model for other states to copy and implement for their young people.
Exhibit 2 - R. 20
2
-,
.This program can be easily replicated for senior citizens In the state, and can be presented at senior
citizen centers throughout the state. A comprehensive fraud prevention module should be added for
senior citizens to protect them from "predatory" practices of some organizations both insIde and outside
New Mexico.
The "Working" population of the state would be best educated through brochures and other educational
materials provIded by the lenders at the various business sites where these lenders do business within
the state. This literature should contain detailed Information, with simple examples, of how the lender's
lending practices might impact a potential borrower. It should also oontain Information regarding
alternatives to solvIng the potential borrower's short·term financial needs other than a loan from the
lender. A section Indicating where a potential borrower might recelvefree c·redil counseling or free
consumer educatIon should be included in the literature. A signature 11M, indicative of the borrower's
possession of the eduoatlonal material, should be Included in all/oan applications. This literature and Its
contents shou.ld be mandated by the state and funded by the organizations that desire to do business
Within the state. .
The two types of lenders that most concern oonsumer groups within the state are those categorized,
generally, as "pay-day lendets" and "title lenders." The main conoern surrounding these lenders Is the
APR's that occur 8S a result of the "roll-over" or renewal of existing loans. Consumers are aware that
these are fees rather than Interest rates, but the perception of the "average" borrower in the state Is that
these fees are part and parcel of the annual percentage rate charged for the loan.
Consumer groups suggest that the number of times a loan may be renewed without the principal of the
loan being reduced be regUlated by the state. They believe that three to four renewals or "roll-overs" of
any given loan made by 8 "pay·day" or "Itle" lender, without reductIon of principal should be mandated by
the state as the limit. The lender could charge the normal fees for the loan and the renewal thereof up to
the maximum of the mandated "roll-overs" or renewals, From that point forward, the prIncipal of the Joan
must be reduced in order for the loan to be renewed or "rolled over." The maximum fees that could be
charged would be the same percentage amount as the actual percentage amount of the principal
reduction. .
An additional area of concern for the oonsumer is the education of the lender's employees. Consumers
suggest that the state mandate a minimum educational reqUirement for employees of lenders in New
MexIco. This could be done within the lender's organization or by the state. Lenderswould have to
demonstrate that their Internal educational programs meet the minimum standards set by the state,
One final area of consumer concern is the registration process for lenders within the state. Consumers
would favor a mora s/rlngent application process along with sUffer regulation and enforcement of state
lending regulations. Fees charged and or penalties levied could be used as part of the funding for
consumer education.
Exhibit 2 - p. 21
3
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,~:"t}::~REGU LATION G.~~d

..... :;: .'. '..:& LICENSIN' Robin DoIIO' OUeD
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1l1l't7f:v'J:lJJ=D~
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Dear
As we move forward with the HM 36 Lending Study Committee, It Is becoming

clBilr thet we need to obtaIn more accurate·and speCific lnformatlon on several
(ronts. .
An important area I want to further explore Is the nature, scope (lnd quantIty or
consumer problems Involved In lending transactIons. We have obtaIned helpful
Information from the Attorney General's office but I believe It Is necessary to
collect from II broad range of sources. Given this, I am requesting your
iissl5tanl;e.
Please PrOVide me with Information about Issues and the problems thilt hi/ve
been brought to you and your organization. Specific InformatIon on the types,
qUi:!ntlty, tlme period and resolutions or attempted resolutions prOblematlc or
loan transactions and lending priletlces Is needed. Also, while national statlsUcs
and reports are helpful, It Is the New Mexlco ellperlence that Is especially
valuable. With this In mind, your commentary along with the data collected Is
especially Important,
ThIs Jnformatlon wUl be an Important part of our September mee.tlngs and would
Jlke to have your Input by August 30.
I apprecrate your efforts In compiling the data and developing the accompanying
commentary. If you have any questions please contact me.
Thank you In advance,
WIlliam Verant
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Information Request Recipients

MRP Consumer Credit Counseling Service allhe SOuthwest'·
J8mes Dickens Lee Pattison
MRP Capitol CIty Task Force Fair Lending Center Institute of Public Law
SOndra Match Vicki Plevin
Exhibit 2 - P';'2
'.
House Memorial 36
. Consumer Lending Study Committee Minority RepDrt
January 2000
Submitted by:
James Dickens, AARP
Frank Welssbarth, for the Olfice of Ihe Attorney General
Richard Fe'erman. Attorney at Law
Sondra K. Match, AARP
Vicki Plevin, Director, Project Change FaIr Lending Center/Institute of Public Law, UNM
Jeanne Bassett, Dlrector,New Mexico Public Interest Research Group (NMPIAG)
• Serious consumer problemS are caused by or made worse by the unregulated rates charged
for small loans, .
Small high-cost, short-term cash loans put consumers at unacceptable risk of, perpetual debt, and
coercive collection. practices. A fast-growing sector of the lending Industry Is delivering these loans to
New Mexico consumers, Payday loan and car title Joan companies charge triple-digit. Intlitrest rates for
oash advances to vulnerable borrowers~ .
Coercive collection practices are Inherent fn both payday lending and car title lending. If a payday
loan customer cannot repay the loan or afford to roU it over, the lender can deposit the check and cause
. an overdraft on the consumer's account. Payday lenders have been acoused of threatening or using
criminal "hot-check" prosecution In other states to keep customers rolling over loans. In some states,
payday lenders sue defaulting borrowers under civil bad check laws that Include triple damages. Car title
lenders repossess vehicles and sell them to settle the debt.
The Office of Attorney General reported complaints about the high Interest rates on car title loans and
InablJltyto repay one-month loans; misrepresentation of loan terms and failure to disclose Interest rates;
and abusive repossession practices. Complaints against "P:' small loan companIes Included failure to
properly credit payments and collecllon harassment. Complaints about"BH small loan companies
Identified high origInation fees when loans are refinanced and debt ooll9Gtlon harassment. The
complaints on payday loans addressed the high cost of loan roll-overs.
. However, complaint data alone does not provide a complete pIcture of consumer welfare In the hlgh-.
cost loan market. For example, the Tennessee Department of FInancial l"sliMions reported to the
Tennessee legislature In 1999 that 56% of licensed payday lenders violated the Tennessee Deferred
Presentment Act In the fIrst nine months the law was In effect, a period during which only 23 written
complaints were flied by consumers. .
• New Mexico needs a USUry Clip to help protect consumers from the eDIt of exorbitant short
term loans.
The prIce for short-term loan products and servloes In New Mexloo is determined, in part, by
opportunity pricing, or UWhat the traffic will bear." Consumers who have few credit options due to
insufficient credit, laok of savings. debt burden, discrimination. and the absence of low~cost alternatives
will pay high rates to borrow quipk cash.
Vulnerable borrowers have very little bargaining power for loans. While rates and fees are
determined by contract now that the New Mexico legislature repealed Interest rate caps, the rates
Exhibit 2 - P 23
s
charged are dictated by the lender, not negotiated on an even basis by equal parties to the contract.
These are contraots of adhesion, not the result of negotiation.
• Profitability 8'S1818 wllh caps on short-term Inter". lo,ns.
There Is ample evidence that settIng a typical small-loan rate cap such as 36% factors In the relatively
high costs of small loan lending and allows for the recovery of fixed costs for making the loan. Colorado. a
state that collects Industry-wide statIstics, found that payday lenders charge-off only 3% of the loans
made from 1996 to 1991 While their loans averaged 485% APR. Loan renewals cloud the Issue of
. profitability and a rlsk-priclng." A person who borrows $85 for a two-week loan, subject to a $15 fee, may
pay $15 every two weeks for four months to keep the check afloat before ultimately defaulting. The
lender has received $120 - the equivalent ot repayment of principal plus $35 finance charge, which
amounts to a 217% yield on that 4-month $85·loan. Yet. officially. this is a "defaulted" loan, because
none ot the $120 reduced the principal; It all went to service the 460% price tag. .
• Ih' "comR,1itive" pricing of credit may exist for the high-end credit merket but 18 noticeably
lacklria for mlny New Mexico consumer••
One reason competitive pricing Is lacking in New Mexico is due to the increasing lack of access to the
traditional banking system. Industry consolidation has led to tewer and fewer locally owned and operated
banks and thus an increasing lack of understanding or concern by the banking Industry of local needs for
credit and capItal. Service fees on bank accounts have Increased tremendously In recent years.
According to the 1999 Federal Reserve Survey ot Consumer Finances, 15 percent of families or 39
million Americans do not have a checking account. Many banks no longer offer 'lIfa-lIne' accounts
(acoounts offered with low fees for lOW-Income persons).
There has been a dramatic growth In the subprlma market of the mortgage lendIng industry
nationWide, The Federal Trade Commission. In testimony to the Senate SpecIal Committee on Aging.
stated that over 90% of all sUbprlme mortgage loans were made In or atter 1993 and that, by the end of
1996, the total value of outstanding Bubprime mortgage loans exceeded $350 billion. The growth of this
subprlme market makes It even more essential that lenders In the industry should be requIred to comply
with fair lending rules and Interest rates.
Minority peoples are disproportionately steered to subprime lenders. and consequently pay higher
Interest rates and loan fees than do non-Hispanic white mortgage holders. Based on analyses of 1998
Home'Mortgage Disclosure Act (HMDA) data, Communily ReInvestment Act (CRA) small business/farm
lending disclosure data. and Interviews with New Mexicans across the state, the Project Change Fair
Lending Center found minorIty peoples. regardless ot income level. more likely to be denied home
mortgage loans than are non-Hispanic white people. In some areas of the state, women, regardless of
inoome level are more likely to be denied home mortgage loans than men. Subprlme lenders were found
to have a higher market share of loans to people of color in New Mexico for all Income levels.
• APR dllclosure to consumer. should be 'ssured In ," mIlliGan transactfons.
The Consumer Lending Study Committee Majority Report misrepresents the function and purpose of
the Annual Percentage Rate (APR) disclosure required by federal law for all forms of credit. The APR Is a
standard unit of cost comparison that enables the borrower to make an Informed decision about the best
loan available regardless of the term of the loan. It Is no wonder that lenders charging 300% for title
loans and over 500% for payday loans would want to hide that fact from the public,
Although there is no debate about the need to Improve consumer skills and knowledge about
family financial management; a recent stUdy completed by AARP found that 78 percent of all consumers
already knew that a bank Is required to disclose a loan's APR, and 75 percent of consumers understood
that a bank must Inform potential borrowers of the total dollar amount of the fInance charge for a loan.
The APR Is a widely accepted and understood consumer tool.
Exhibit 2 - p. 24
6
Whhout the federal Truth in lending Act {TILA)-requlred APR and finance charge disclosures, consumers
in the high-cost credit market would be shopping for funds without a olue to relative cost. The New
Mexico legislature oannot repeal federal law or define payday lending out rrom under TILA.
The APR Is an aocurate price tag for any form of lending. The Federal Reserve Board has proposed
offIcially stating that TILA applies to payday loans. as every court decision addressing the Issue has
upheld. Moreoyer, were payday loans and car title loans exempt from TILA-dlsclosures, these lenders
would have an unfair competitive advantage over other lenders. Credit card cash advances, pawn
1ransactions, refund anticipation loans are all required to disclose APR.
• New Mexico lenders ma~ not be complying with the spirit or tbl lItter of the Truth In Lending
Act, according to complaint' flied with the New Mexico Attorney General', Office.
Only a comprehensive Inspection of licensed lenders would provide a basis for the MajorIty Report's
assertion that lenders are in full compliance with TllA. A Cincinnati Post surl/ey of payday loan outlets In
Ohlo;for example, revealed that only 1 of 10 establishments provided correct APR disclosures. The
Michigan Attorney General recently flied a Notice of Intended Action against a.maJor payday lender,
alleging use of "misleading" TILA disclosures.
We do not dispute that some consumers are sIgning loan documents without understanding or
reading what they have signed. A balanced report would also mention Instances where consumers are
misled about the cost of loans. The Attorney General's complaints Indicate that lenders are also at fault
for falling to fully inform their customers about the cost of credit.
• Rather tbln relylna ·on Industry report,. the Department must conduct a stUdy of New Mexico
payday and car tltl,·loan practlcel and custom,r demographics. .
Payday loan customers average around $25,000 annual Income aocordlng to independent
surveys. slgnifioantly tess than the industry'S demographic profile. Data on debt levels and savings rates
should be added to get a clearer picture.
The Majority Report claIms that payday loans and car title loans are short-term cash flow
1ransactions, Although this claim Is made by the Industry, Investigations by regulators in other states
indicate that payday loans result in roll-overs and refinancing Ihat turns these purported ''till your next
payday" loans Into obligations that take months, often years, to repay. The Indiana Department of
Financial Institutions found that 91 % of payday foan customers renewed their loans and the average
number of renewars was 10 per customer in one year. An illinois Department of Finanolallnstitutlons
inspection of payday lender flies found that the average customer had 13 loan oontracts per year on file.
. This type of analysis must be produoed for New Mexico before the legislature can rely on industry.
assertions With respect to the average length of payday loans. The design of payday loans and car title
. loans ensures perpetual debt. A customer so desperate for credit to pay 500% Interest is unlikely to be
abre to repay the loan on the next payday with enough left over to live on until the follOWing check Without
needIng another loan.
Exhibit 2 - p. 25
7
..
House Memorial 36
Consumer Lending Study Committee Minority Report Recommendatlone
January 2000
1. Enact p reasonable .mallioan Interest rate cap.

The tremendous growth In the short term lendJng industry requires legislation that protects vulnerable
consumers from predatory interest rates. We support setting a reasonable interest rate cap to prevent
usury in New Mexico. For example, 36% Interest cap would not hamper indListry's ability to provide an
0'
array legitimate products for borrowers.
2. Rewrite the Small LODn Act.

The Small Loan Act should bEfrewritten to consolidate all New Mexico statutes relating to the Small Loan
business. We oppose carving out title loans and payday loans to legitimize triple-digit Interest. Payday
loans are just small loans. The only reason for using a live "check" Is for colleotlon purposes. We support
upgrading the Mortgage loan Company and Loan Broker Act. .
3. Require all short-term lenders to post tees and APB,

The Director and/or legislature should require ai' short-term lenders to post their tees and the APR for
typical transactions In all advertising and at the place of bUsiness. Just as the IlShumer box" is required
by federal law to disclose the oost of credit cards In all direct mall solicitations, the high cost of shorf.term
loans should be advertised for payday loans and title loans. New Mexico has the responsibility to enact
state laws that strengthen the requIrements of the Truth In Lending Act.
4. Enact strong oheck cashing legl8latlon.

Legislation should be enacted that prohibits exorbitant Interest rates and fees, numerous rollovers, and
abusive oollectlon practices. It should be Illegal to make small loans based on personal checks held for
deposit, beoause these transactions lead to perpetual debt and coercive colleclion tactics. Loan-splitting
for the purpose of charging higher interest rates or exceeding loan limits shOUld be regUlated. The
payday loan trade group proposal Df a 24-hour right of rescission. Is public relations, not a realistic option
for consumers. Dlsolosure requirements do not replace substantive protections.
5. Provide adequate bUdgetgrv resource. for research and pUblic education.
Resources should be provided for research, such that public policy can be written with full knowledge of
current small loan lendlngpractloes In New Mexico. Researoh should include a thorough Investigation of
the Industry. Resources should also be available for consumer education.
In addition, the FlO should receive adequate resources to require and review annual reports that provide
Information neoessary to supervise the small loan industry. Any reSUlting reports developed by a
government agency for distribution to the public should be independent of Industry influence and
developed with Input from consumer organizations, financial counselors, and educators.
Exhibit 2 - p. 26
8
The Legal Environment; Consumer Lending in New Mexico
Submitted by Frank D. Weissbarth, Assistant Attorney General, Consumer Protection Division
The legal envIronment in which consumer loans are made is a complex and continuously evolving
tapestry of federal and state laws, regulations and oourt decisions. The law Is never static. It responds to
changes in market conditions, shifts in the prevailing political and philosophical winds and to the endless
creativity that certain people exhibit in devising new ways to. fleece their fellow citizens.
. It is impossible to understand the current state of the law wfthout some historical background.
The history of usury and consumer credit regulation Is a history or the tension between the belief that the
lending of money at interest Is predatory and Immoral and the fact that money lending Is necessary for the
flow of commerce. For hundreds· of years, going back to biblical times, the major western religions
condemned the charging of any Interest at all. It was considered wrong for one man to profit from the
needs of another. There were also praotlcal reasons for the prohibilion. In hard times a borrower could
lose his property and be sold into slavery to pay his debts.
At the same, time, however, the complete abol"ion of lending money at Interest is not a realistic
solution to the problems that lending can cause. It one person has money, and another needs money,
some kind of loan arrangement is in their mutual self·lnterest. As a result, today the Issues Involved in
,the regulatIon of consumer credit are not Whether it is permissible to charge interest, but rather how much·
interest Is appropriate and what conditions should be Imposed to prevent the abuse of borrowers while at
the same time permltllng loans to be made.
Modern consumer protection Jaws take three main forms. The first consists of laws that require
dlJclosure of material loan terms. An example of this kind of law Is the federal Truth In Lending Act. The
idea behind such laws is to proteot consumers by gl\ling them the Information they need to make informed
decisions. The second group of consumer protection laws are those that prohibit practices deemed to be
unlalr, deceptive or just plain wrong. An example of this kind of law is the New Mexico Unfair Practices
Act. The final group of consumer protection laws are those designed to promote competition In the
marketplace. The best-known examples of these kinds of laws are the federal and state antitrust laws.
A. FEDERAL LAWS AND REGULATIONS

Historically states have regulated the maximum rates of interest and terms on whioh loans could
be made. thirty years ago, the federal government stepped Into the consumer lending picture In a big
way, and federal laws and regUlations are now a major component of the legal framework in which
consumer loans are made. Faderal laws do not address the cost of credit Rather, they focus on
providing disclosure and on preventing oertain abusive lending practices. For· example, the Truth In
Lending Act establishes the fundamental minimum standards for disclosure tor consumer loans. Similarly,
the Fair Credit Reporting Act and Fair Debt Collection PractIces Act set minimum standards for the
busIness practIces of credit reporting agencies and debt collectors. What follows Is a brief summary of
the major lederal enactments related to consumer lendIng.
1. Truth In Lending Act. The Truth In Lending Act (''lILA'') Is the principal federal law related
to consumer lending. It reqUires lenders to disclose essential loan terms and the cost of
credit In a standardized format that Is Intended to help consumers understand the true cost of
credit and make meaningful comparisons and choices between dIfferent loan products. It
also regUlates how consumer credit may be advertised In order to prohibit unfair or deceptive
advertisIng of consumer credit. FInally, It creates a 3-day right to cancel certain credit
transaetlons that result In a lien on the borrower's home. TILA does not regulate the cost or
terms of credit. It Is enforced by the Federal Trade Commission and provides private civil
remedies for consumers, including attorney fees.
2. Fair Credit Reporting Act. This Is the federal law that applies to credit reporting agencies
(credit bureaus). It addresses prlvaoy Issues, gives consumers access to their credit
histories, establishes limits on how long negative credit information can be retained, and
provides mechanisms for consumers to dispute incorrect entries In their credit histories. It is
Exhibit 2 - p. 27
9
"
enforced by the Federal Trade Commission and provides private civil remedies for consumers,
includIng attorney fees.
3; Fair Debt Collection Practices Act. This Is the federal law that protects consumers from
deceptive and abusive collection practices. It prohibits such practices as late night phone calls,
third party contacts and the use of collection forms that simulate court papers. It applies to debt
collectors, but not to creditors collecting their own debts. It is enforced by the Federal Trade
Commission and provides private civil remedies for consumers, Including attorney fees.
4. Fair Credit Billing Act. This federal law sets out a procedure for consumers to dispute credit
card billing errors and improper or unauthorized oredlt card charges.
. 5. Real Estate Settlement Procedures Act (f1 RESPA JI
). Among other things, thIs federal law
requires mortgage lenders to give borrowers a "good faith estimate of closing costs" and requires
closing costs to be disclosed In a standardized format on what Is known as a "HUD·1" form. It
also contains anti-kickback provisions Intended to deter lenders from paying kIckbacks to
mortgage brokers to Induce borrowers to enter into overprIced mortgages. . .
6. Federal Trade Commission Rules. Two Federal Trade Commission rules, the so-called
"Holder In Due Course" rule and the Credit Practices Rule are also important. The first generally
provides that any holder of a retail Installment oontract Is subJect to all claims that the buyer could
assert against the seller. The second provides for ~Isclosures to CO-Signers cautioning them
about their potential liability. It also prohibits confession of judgment clauses, waivers of state law
debtors' exemptions and makes It unlawful for lenders to "pyramid" late fees by oharging late fees
on late fees. Enforcement Is by the Federal Trade Commission.
7. Home Ownership and EqUity Protection Act (UHOEPA"). This federal law Is designed to
combat predatory lending practices resulting trom the abandonment of low Income and minority
communities by mainstream lenders. It applies to high cost. non-purohase money mortgages. It
prohibits or limits the ability ot high cost mortgage lenders to Impose certain loan abusive loan
terms. These Include prepayment penalties, the Aule of 78ths, negative amortization and certaIn
balloon payments. It also provides that payments to a home Improvement oontractor cannot be
made to the contractor alone, to prevent the contractor from being paid before the work has been
satisfactorily done. Violations of HOEPA are subjeot to the same basic remedies as Truth in
Lending Act. violations.
8. Equal CredH Opportunity A~t. This Act is· designed to ensure that all consumers are
given an equal opportunIty to obtain credit based on relevant factors such as income, expenses,
debt and credit history. It prohibits creditors from making credit decisions based on race, sex,
marital status. age or because some or all of a person's income conaists of public assistance.
'rhe law Is enforced by· various federal agencies 1hat regulate federally chartered financial
Institutions and by the Federal Trade Commission. There are also privatEJ civil remedies including
attorney fees and actual and punitive damages.
9. Federa' Llmltatlona on State Laws. . Federal law also contains numerous other
provisIons 1hat Impact on consumer lending In New Mexico. Federal law not only protects
consumers. In certain areas, It limits the ability of states to enact or enforce laws that a state
might consider to be In the best interests of its citizens. For example. federal law generally
prohibits states from Imposing limits on residential mortgage Interest rates and trom banning "due
on sale" provisions. Similarly, a legal doctrine called the "most favored lender" doctrine, permits
..... national banks located In states with permissive or no limits on interest rates may "export" those
rates to other states where the bank also does business. This is the reason that most credit card
solicitations come from banks located In states with no limits on credit card interest rates.
While the exportation of rates was Initially limited primarily to credit cards, there now appears to be
something of a trend In some regulated states tor high Interest lenders, like payday lenders, to affiliate
themselves with national banks located In laws with no In1erest ceilings in order to charge ra1e8 in excess
of those permitted by the regUlated states' usury laws. See, Appendix B. What Is troubling about this
from the perspective of states is that the doctrine limits the ability of states to control their own lending
laws and allows hIgh cost lenders dressed up In national bank charters to deregulate consumer credit
nationwide, regardless of what policy judgments the legIslature a particular state may have made
Exhibit 2 - p. 28
10
concerning permissible interest rates. Simply put, the doctrine enables the legislature of one state to
exert substantial control over the lending polioyof another.
The extent to which exportation of interest rates will be permitted by the federal courts is the /Subject of
ongoing litigation, but the trend Is towards increasing exportation in an Increasing variety of loan types.
B. NEW MEXICO LAW

For many years New Mexico comprehensively regulated oonsumer lending. A series of laws
established specific requirements and maxImum Interest rates for different kinds of loans. Higher Interest
rates, up to a maxImum 36%, were permitted for small loans. while other types of loans. such bank
installment loans or car loans, were capped at lower levels.
The stated purpose of the law was to create an environment where borrowers would be protected from
charges that were "el<orbltant In relation to those necessary to conduct a small loan business" while still
permitting small loans to be profitably made. NMSA 1978. §58-15-1.
In 1981, lhe New Mexico legislature abolished virtually all limits on interest rales. At the same
time, however, it left in place an empty legal framework whose principal reason for being was to enforce
compliance with a rate structure that no longer ex;sted1• As a result, New Mexico's current legal
environment for consumer lending regUlates neither the cost of credit nor the kinds of lending practices
that can rssult in exploitation and abuse of consumers In the absence of any limits on the amounts'
lenders may charge. There is no statutory maximum rate of Interest and there Is very little In the way of
other consumer protections. New Mexico Is one of a small mlnotlty of states that do not regUlate the cost
of consumer credit.
The laws summarized· In paragraphs 1 through 8. below, are the principal. New Mexico
enactments that regulate extensions of consumer credit. New Mexico also has a number of laws
designed primarily to regulate depository financial institutions for the purpose of protecting their solvency
and the safety of deposits. These laws regulate Instilutions that may make consumer Joans, but they
typically do not regulate disclosure or the cost and terms of credit. This second group of laws Is
summarized in paragraphs 9 through 12.
1. Small Loan Act, NMSA 1978, 1§58·150-1 through 58·15-31. This Aot regUlates lenders
making loans of $2,500 and less.
a. Disclosure Requlremenls. The Act prohibits false, misleadIng and deceptive
statements about charges and loan terms In advertising. It requires small lenders to post a schedule of
the rates charged by them on a percent per annum and percent per month basIs. The Act authorizes the
Direotor of the Financial Institutions DiVision ("FlO") to reqUire that charges be stated fully and clearly in
such a manner as the Direotor determines necessary to prevent misunderstanding by prospective
borrowers. .
b. Prohibited Consumer Lending Practices. The law prohibits prepayment
penalties In small loans. It also prohibits the sales of certain types of insurance.
c. Restrlcllons on Interest Rates and Feel. None.
Note. As It has been administratively Interpreted over the years, the Small Loan Act contains a major
loophole that effectively negates many of the consumer protection features of the Act. Section 56·15-19
authorizes small/enders to make loans under other laws, Including the general Money, Interest and Usury
law. §§56·8-1 at seq., to borrowers as long as the borrower does not have an outstanding loan made
under the Small Loan Act. Historically, the reason for this prOVision was that the maximum Interest rates
permitted under the Money, Interest and Usury law were Significantly lower than those allowed by the
Small roan Act. When Interest rate ceilings were abolished by the legIslature In 1981, §5S-15-19 was
transformed from a benign provision that encouraged small lenders to make lower cost loans Into a carte
blanche that permits small lenders to evade the oonsumer protection requirements of the Small Loan Act.
2. Money, Interest and Usury, NMSA 1978, §§5&o8·1 through 56-&-21
a. Disclosure Requirements. None.
b. Prohibited Consumer Lending Practices. None.
c. Restrictions on Interest Rates and Fees. None. Prior to 1981, the principal
purpose of this law was to set maximum interest rates for certain types of loans. Between 1981 and
I See NMSA 1978. §S8-1S-1. the statement of purpose for the Small Loan Acl. a copy of which is attached liS
Appendix A.
Exhibit 2 - p. 29
11
1991, essentially all limits on loan interest and all disclosure requirements were repealed. Although the
law still contains provisions prohibiting the charging of excessive interest, the prohibitions are essentially
meaningless since there are no longer any limitations in the law on the cost of credit, except as follows: (I)
§56-8-3 limits the Interest due on a contract that does not specify a different rate to 15%; (ii) §5S-e-4Iimlts
the interest rale on jUdgments to 8 % % to 15% (depending on the type of claim and the defendant's
conduct) In the absence of a written instrument specifying a higher rate; and (III) §56-8-7 limits the amount
loan brokers can charge, collect or receive for negotiating or securing a loan to an amount between 6%
and 2% plus $20, depending on the amount of the loan and on whether the broker Is a registrant with FlO.
3. Motor Vehicle Sal88 Finance Act, NMSA 1978, §§58-19-1 through 58-19-14
II. . Dllclosure Requirements. The Act contains a number of disclosure provisions.
b. Prohibited Practices. The Aot prohibits fraudulent misrepresentations.
c. Reltrlctlons on Interest Rates and Feel. None. Until It was repealed In 1981,
§5S-19- 8 set limits on interest rates for car loans.
4. Residential Home Loan Act, NMSA 1978, §§56-8-22 through 56-8-30
b. Prohibited Consumer Lending Practices. Provides that prepayment penalties
in home loans are unenforoeable. This provision has probably baen pre-empted by federal law with
r~speot to certain types of "alternative" home loans.
c. Rel'rlc.lons on Interest Rates and Fe••• None.
5, Retaillnstaillment Sale8, NMSA 1978, §§56-1-1 through 56-1-16
a. Disclosure Requirements. The law oontalns detailed dlsolosure requirements.

However, It also provides that any creditor who complies with the federal Trul~ In Lending Act and
Regulation Z Is deemed to have complied with the New Mexico Act. §56-1-15. As a practioal matter, all
creditors must comply with the federal disclosure requirements, and that Is what Virtually all of them
. appear to do.
b. Prohibited Consumer Lending Practices. §5S-1-5 prohibits a number of
creditor abuses including: (I) acceleratIng the maturity date of the contract in the absence of a default; (II)
confession Of judgment and wage assIgnments; (iii) waivers of rights of acllon for Illegal collection
actlvnies; and (iv) agreements by the buyer not to assert claims and defenses arising out of the sale. .
c. Restrictions on Intereat Rates and Fees. None. As originally enacted, the law
dId regulate the amount creditors could charge. These limitations were repealed In 1981.
6. Bank Installment Loan Act, NMSA 1978. §§58-7-1 throLlgh 58-7-9
b. Prohibited Consumer· Lending Practices. §5S-7-7 prohibits lenders from
making loans to borrowers wllh an outstanding loan under the Small Loan Aot, unless the small loan 18
paid and released when the bank installment loan Is made. The historic reason for this prohibition Is that
higher Interest rates were permitted under the Small Loan Act than under the Bank Installment Loan Act.
c. Restrictions on Interest Rates and Feel. As originally enacted, the law did
regulate the amount of interest creditors could charge for these kinds of loans. The limitations were
repealed In 1981. The law stili regulates loan origination fees and other fees, but It does not regulate
interest rates.
7. Pawnbroker. Acl. NMSA1978,§§5S-12-1 through 56-12-16
8. Dlsolosur. Requirements. The law contains disclosure requirements geared to
the·unique circumstances of pawn transactIons.
b. Prohibited Consumer Lending Practices. §56-12-14 prohibits a $erles of
abusive practices against borrowers as well as practic9$ that likely to result in the pawning of stolen
property. The s~otion also limits the maximum amount of a pawn loan to $2,000.
c. Restrictions on Interest Rates end Fees. The law limits the maximum pawn
service charge (interest rate) to the greater of 10% of the principal amount of the loan or $7.50 for the first
month of the loan. In succeeding months, the maximum pawn service charge Is 4%. .
Exhibit 2 - p. 30
12
8. Unfair Practices Act, NMSA 1978, §§57·12.1 through 57-12·22
a. Disclosure Requirements. None, but the Act generally prohibits misleading
and deceptive lending practices and prohibits lenders from making material omissions when doing so
deceives or tends to deceive the borrower.
b. Prohibited Consumer Lending Practices. Unfair, deceptive and
unconsolonable trade practices. These are Jegal terms of art whose meaning has been fleshed out in
countless court decisions Interpreting §5 of the Federal Trade Commisslon.Aot.
. c. Restriction. on Inter.st Rates and Fees. The Act's prohibition of
unconscionable trade practices may limit Interest rales and fe9s In certain cases. There are no reported
! New Mexico appellate decisions dealing with the issue of unconscionable in the context of consumer
. lending. .
9. BankIng Act, NMSA 1978, §§58·1-1 through 68-1·85. This Act regulates state-
chartered banks. There are currently 36 such banks.
8. Disclosure Requlrementl. None
b~ Prohlbned Consumer Lending PractIces. None.
c. Restrictions on Interest Rates and Fees. None.
10. Consumer Credit Bank Act, NMSA 1978, §§58-1A-1 through 58·1A·8. This Act
regulates credit card banks located In New Mexloo. There are no such banks at this time.
a. DIsclosure Requirements. None.
b. Prohibited Consumer Lending Practlcet. None.
c. Restrictions on Interest Rates and Fees. None. (This Act Incorporates §§56·8-1 through 56·8·
30 by reference. See §5B-1A·5).
11. Savings and Loan Aot, NMSA 1978, §§58-10·1 through 58-10-111. This Act regulates
state-chartered S &L's. There Is currently only one.
a. Disclosure Requirements. None
b. Prohibited Consumer Lending Practices. None.
c. Restrictions on Interest Rates and Feee. None.
12. Credit Union Act, NMSA 1978, §§5&-11-1 through 58-11-65. This Act regulates state'
chartered credit unions. There are currently 26 such Institutions.
. b. Prohibited Consumer Lending Practices. None.
c. RestrIctions on Interest 'Rates and Fees. None.
Exhibit 2 - pj 31
What consumers are complaining about; A summary of consumer
lending complaints filed with the Attorney General and
recommendations for legislative. or regulatory responses
Submitted by Frank D. Welssbarth, Assistant Attorney General, Consumer ProtectIon Division
A. COMPLAINTS
During the period from January 1, 1999 through August 10, 1999, the Consumer Protection
DIVision of the Attorney General's office received more than four hundred (400) consumer complaints
invol.vlng credIt practices. Most of the complaints Involve matters that are not related to the central focus
of House Memorial 36. Examples Include unsolicited credit card offers, harassment by collection
agencies, advance tee loan 9chemes, credit card billing disputes, and credit reporting errors. Many
consumer complaints also Involve retail installment contracts, especially for the purchase of vehicles.
These were deemed to be outside of the scope of the sludy. A number of complain1s involved mortgage
loan companies and brokers. Again, these were deemed to be outside the soope ot the study.
Thirty-nine (39) complaints involve direct extensions of credit made by finance companies, title
loan oompanies or payday lenders. These complaints are directly related to the central focus of House
MemOi'laI36. They are summarized In Appendix A. . .
The largest number of complaints (16) Involved car title loans. Title I.oans are typically for a thirty
(30) day periOd. The lender secures the loa" by taking the title to the borrower's car. Maximum loan.
amounts are usually limited to 30% of the borrower's eq\J11y In the car. The interest rate for virtually all
title loans is 300%. If the borrower falls to pay, the lender repossesses and sells the car. Consumers
complained that the Interest rate8 for title loans were too high and that they were unable to payoff the
loans. They also complained that lenqers misrepresented loan terms and tailed to disclose Interest rates.
In addition, consumers complained about abusive repossession practices Including destruction or theft of
properly, and In one case, ·an alleged assault.
The second largest group of oomplalnts (14) conoerned "A" small loa" oompanles. These are
generally older, established finance companies that make smallloan$ in excess of $1,000 as well as
other types of loans. Interestingly, most of the complaints against these oompanles Involved mo~gage
loans. The most frequent complaint was that the lender had failed to properly credit the borrower for
payments made. Other recurring complaints were collection harassment by the lender and high loan
origination fees (In excess of 10 points) for mortgage loans.
There were 5 complaints against "8" small loan companies. These are generally newer finance
companies that make relatively short-term installment loans of less than $1,000 at APR's in excess of
100%. Consumers complained about being charged substantial origination fees eaoh time a loan was
"rolled over" or re-flnanced•. Debt coUection harassment by the lender was another theme of lhe
complaints. .
The smallest group of complaints (4) Involved gayday lenders. Payday lenders lend small
amounts of money, usually $250 or less. Loan terms are typically short, 2 weeks or less. Generally there
Is a loan origination fee In the range of $20-$25. As a result, APR's often exceed 500%. Three of the
compl.~ints were about the cost of loans that had been 'Ironed over" muhiple times.
B. RECURRING PROBLEMS AND RECOMMENDATIONS
There are several recurring themes in the complaints flied with the Attorney General that may
warrant legIslative or regulatory attention.
1. Debt Collection Practices of Lenders
Consumers registered a significant number complaints alleging abusive or unfair oollectlon
practioes by lenderS. The kinds of practices reported are not adequately addressed by exIsting law.
Neither the federal Fair Debt Collection Practices Act nor its New Mexico counterpart. the Collection
Agency Regulatory Act, NMSA 1978, §§61-18A-1 et seq., apply to creditors collecting their own debts.
Exhibit 2 - p. 32
14
What this means is that while collection agencies are expressly prohibited from engaging in deceptive or
abusive collection practices. lenders are not. In view of the frequency of collection complaints against
lenders, It appears to make sense to prohibit lenders from engaging In these kinds of practices.
2. LOBn Renewals or "Rollovers"

Another source of complaints was the practice of repeatedly renewing or "rolling over" loans,
particularly high cost loans such as car title loans, payday loans and high interest installment loans. The
interest on these kinds of loans accumulates so rapidly that unless they are promptly paid off, consumers
may be placed in a. financial hole from which there Is no escape. For example, a consumer who takes
out a title loan for $1,000 must pay the lender $1,250 within thirty days. If the consumer pays only the
interest on the loan ($250 per month) for 12 months, the consumer will have paid a total of $3,000 in one
year for a $1,000 loan. . • . and1he consumer will slll1 owe the lender $1,000.
Consumers also complained about beIng charged additional loan origination fe8S when loans
were loan Is rolled over. For example, If B consumer takes out a twp"w8ek payday loan for $200 with a
$25 loan origination fee and rolls over the loan five times, the oonsumer must pay $125 in addition to
Interest In order to borrow $200 for ten weeks. The moral of the story is that steps need to be taken to
limit the number of rollovers ~nd the fees charged In connectIon with rollovers and to reqUire a paydown
, of loan principal.
. 3, Disclosure
Disclosure remains a problem. Many borrowers who took out high-cost loans appear to have
either misunderstood or been misled about the cost of credit. For example, some car tItle borrowers were
apparently told that the Interest rate on 1helr loans was 25%, but It appears that they were not told that the
interest rate was 25% per month, which works out to a true Interest rate of 300%. However, even if
consumers were told that the Interest rate was 25% per month, It would not be unreasonable for a
borrower to believe thai the Interest rate was 25% per year. This Is because: (I) Interest rates are typically
dIsclosed on a yearly basis; and (II) 25% roughly oorresponds to the annual interest rate paid by
consumers with poor credit for high Interest car loaris. It would be reasonable fora borrower to think that
the 25% figure referred to the annual rate of interest for the loan.
Stronger disclosure requirements are one way to reduce this kind of misunderstanding or
deception. The Small Loan Act authorizes the Director of Financial Institutions Division to reqUire that
charges be stated fully and clearly In such a manner as the Director detennines necessary tc? prevent
misunderstanding by prospective borrowers. The Director should exercise that authority to reqUire high
cost lenders to make explicit pre-sare disclosures, orally and In wr~ing, advising prospective borrowers
that: (I) the proposed loan Is a high-cost loan; (if) the Interest rate, fees and APR charged for the loan; (III)
the term of the loan, I.e. 30 days or two weaks; (IV) a concrete example of what the loan will cost (such as
the example of the $1,000 title loan, above); and (v) that there are other forms of credit that may cost
less.
4. Closing the Loopholes In the Small Loan Act

Requiring more disclosure for high cost small loans will be meaningless unless the legislature
also closes the loophole contain in NMSA 1978, §58-15·19, that allows small loans to be made under
laws other than the Small Loan Act. When Interest rates were regulated, this provision served the benign .
pt.lrpose of encouraging lenders to extend credit under other statutes, all of which had lower rate ceilings
than the Small Loan Act. New MeXico abolished Its limits on Interest rales in 1961, and since that time,
the principal effect of §58-15·19 has been to give lenders a way of circumventing the Small Loan Acfe
borrower protections. In the absence of statutory ceilings on Interest rates, §58-15-19 should be
repealed.
6. The Cost of Credit
A significant number of complaints involved the cost of credit. Consumers believe that 'hey are
being charged excessive amDunts for their loans. Aneodotally, at least, there appears to be evidence to
support the consumers' beliefs. In the investment arena, the business of high-interest lending is touted
.as being slgnlflcan1ly more profItable than conventional forms of lending. It Is also hard to see the
economic Justification for a title lender chargIng 300% interest on a loan secured by a vehicle when
businesses making motor vehicle installment loans are charging interest rates ranging from 8% to 30%
and extending much more credit on the security of the vehicle.
a. A Cooling Off Period for High Cost Loans
Exhibit 2 - p.. 33
IS
There appeared to be a general recognition among members of the HM-36 working group that
borrowers sometimes enter into high cost loan transactions that are not right for them. Examples include
a person who needs an Installment loan, but instead takes out a title or payday loan which she cannot
repay within the term of lhe loan, or a person who enters inlo a short-term Installment loan when he
reallstloally needs a longer time period to payoff the loan. Many members of the working group felt that
requiring a cooling off period in which the borrower could cancel the loan would provide a mechanism for
alleviating these kinds of problems. Under such a proposal, a borrower Who oanceled the Joan and
returned any funds advanced by the lender within the cooling oU period would be relieved of any
obligations under the loan agreement.
b. Setting Limits on the Cost of Credit
From the perspective of the Attorney General's offloe, it Is past time for the legislature to re-visit
the question of capping Interest rates. The Issue has become acute in the past few years, There has
been a rapid growth of high-cost lending In New Mexico. Several factors contribute to thIs. First, some
or the kinds of high.Interest loans that are being made today, such as car title loans and payday loans, did
not exist a few years ago. Second, other factors In the financial services Industry, such as the relatively
recent bank practice of charging extremely high fees for bounced checks, may create increased demand
for shoi1-term credit. Finally, New Mexico, because it does not regulate interest rates or loan fees in any
way, is an attractive place to do business for lenders deterred by other states' tougher requirements.
This growth of high Interest lendIng In New MexIco has both fed off and helped to create an
increasing demand for credit at any prIce. Improving oonsumer education, particularly In the schools, is
part of the solution, but It ought to be apparent that no amount of public interest consumer education can
offset the effects of advertising and other societal pressures encouraging consumers to borrow,
regardless of the oost in dollars and disrupted lives.
The purpose of laws that ·set limits on the cost of credit, such as New MexIco's until 1981 , Is the
protectIon of the borrower. It has been recognized for centuries that consumer borrowers and lenders do .
notenter Into credit transactions on an equal footing. For example, a debtor who has lost his job and Is In
default on his mortgage may agree to almost any terms to obtain new oredit and to (however temporarily)
avoid losing his home, Usury statutes have historIcally been Intended to protect such needy borrowers by
setting some lImit on the amount they may be asked to pay for a loan.
In today's consumer credit market, lenders, not borrowers, draft the loan documents, and the
terms of credit contracts offered to consumers are non-negotiable. While in theory a consumer who does
not like a particular lender's terms can take his business elsewhere, In practice "elsewhere" may be hard
to find, because of the similarity of terms offered by other lenders. Moreover. the complexity of today's
consumer credit contracts, the non-negotiability of credit terms and the increasing number of new and
ever more arcane forms of consumer credIt continue to erode the notion that it Is possible to protect
consumers through disclosure alone. It Is Increasingly difficult to understand, much less make meaningful
. cost comparisons, between the multitude of types of consumer credit available in the marketplace.
Usury laws are not Int~ndad to and do not Umlt the availability of credit for most borrowers.
Rather, like most laws, they are Intended to set limits at the margins of human behavior. For most
borrowers, market forces and comparison shopping result In reasonable interest rates. Unfortunately, .
however, the same cannot be said for people who are desperate or particularly vulnerable. An obvious
. example Is the case of the man who has lost his job and Is about to lose his house, but there are others.
One· of the consumer complaints reviewed for this report Involved a mentally handioapped man who was
allegedly Induced to refinance a small loan many times, incurring a 8ubstantlalloan origination fee each
time his loan was renewed. This Is an abuse thaI cannot be prevented through disclosure, but it could
easily be addressed thrqugh a substantive limitation of the maximum cost of credit. Usury laws are
designed to proteot people who are desperate or unsophisticated from entering Into transactions that are
harmful to themselves, to others, such as creditors and family members and to society as a whole.
Usury laws are not a panacea. laws governing credit practices need to address other factors.
Similarly, disclosure Is a major component of a legal system designed to foster fah~ credit practices. but it
Is not the whole answer. Providing for more consumer education, Improved Information about loan terms
and prohibitIons directed at specific practices are all Important steps. They will help those who have the
ability tQ help themselves, but they are not the complete picture. In the absence of usury laws, desperate
and vulnerable consumers will remain subject to exploitation and abuse.
Exhibit 2 - ~634
Over the past tifteen to twenty years. we have come to 1ake it as a truism that interest rates are
based on risk and that ''the market" Will correct abu~es. To accept this view, however, It is necessary to
define the term "abuse" ~o that it does not Include 300% secured loans (title loans) and small loans made .
at effective rates that start at 100% and go up from 1hare to 2,000% or more. In a discussion of whether
the pricing of consumer oredit Is driven by risk or by opportunism, a leading commentator wrote:
It Is appropriate (though not "politically correcr these days) to recognize that
"risk-based" pricing of consumer credit today occurs In an environment fundamentally
dlffarent than In the first six or so decades during which the consumer credit market grew
Into a significant sector of the financIal services Industry. Until the past fifteen-to
eighteen years, there were outside limits on "riskMpricing" in the consumer marketplace.
The sky was not the Umit; usury ceilings were.
In the$e days, we tend to assume lhat deregulation is the natural order of things.
We forget two major points:
" Outside limits on the price of debt have been part of the legal system of many
cultures over many centuries. Usury cellings served the moral function of "protecting the
needy from the greedy." In these days, When so many of us use credit as a convenience,
not from need (therefore making It an avoidable cost), It Is easy to Ignore the moral
dimension, and think only of them as an economic concept.
However, when one sees "payday" loans, priced at effective interest ratss of as
high as 400% [we have seen effective rales of over 2,300% In New Mexico] being
justified to uheJp someone pay a routine utility bill," one can't help but think of the moral
purpose of usury laws.
• The last time we experimented wilh unlimited pricing for debt, the market went
too far, leading to a reenactment of usury ceilings.
When deregulation of home mortgage Interest rates was debated nearly 20 years
ago, the specter of overreaohing was raised. At that time, the response was that "the
market" would take care of things, and that if there were problems, courts could invoke
unconscionability doctrine. Those responses ignore the faot that the necessary
precondilions needed to make the market operate according to theory are frequently not
present In the consumer credit marketplace. Moreover, there are many reasons why
unconscionability Is not an adequate control, not the least of whIch Is that access to Ihe
judicial system is, 8S a practical matter, too limited for the people most likely to be caught
up In an unconscionable transaotlon.
In a Ume when the prime rate is 6%, but urisk·based" credit card rates are 22%
24% (or more); when fully secured home equity loans are priced at 10 points, and subject
to note rates from 16% to 24% (and various games like packing and flipping drive the
actual cost higher); ... when ,•. the effective rates on short-term, small sum loans start at
150% and go up from there, It may be appropriate to ask whether "risk-based" pricing has
the capacity to be misused as an Intellectual Justification for lendIng praotloes 1hat, from
time ImmemorIal, have been the SUbject of oppobrlatlon, rather than something society
shouldbe enc.ouragtng. 2 ...
c. The "Exportation" of Interest Rates .

No discussion of usury laws oan be complete without mentioning the legal and polley concerns
raised by the f.ederal most favored lender doctrine and the "exportat.lon" of rates by federally chartered or
Insured 1lnanclal instItutions. Under this doctrine, natIonal banks and certaIn other federally regulated
financial Institutions are permitted to export the interest rates permitted by their home state to other slates
where they do business. For example, many banks have moved their credit card operations to
2 Kathleen B. Keest, Deputy Administrator, Iowa Consumer Credit Code. 1998.
Exhibit 2 - p. 35
17
:
Deregulated states such as South Dakota and are "exporting" the deregulated sates lack of regulation
nationwide. This Is the reason so many of the credit oard solicitations we receive in the mail come from a
relatively small number of states.
While the exportation of rates was Initially limited primarily to credit cards, there now appears to be
something of a trend In some regulated states for high interest lenders, like payday lenders, to affmate
themselves with national banks located in laws with no interest ceiling in order to charge rates In excess
of those permitted· by the regUlated states' usury laws. See, Appendix B. What is frightening about this
from the perspective of states is that it limits the ability of states to control their own lending laws and
allows high cosllenders dressed up In national bank charters to deregulate oonsumer credit nationwide,
regardless of what policy judgments the legislature a particular state may have made concerning
permissible interest rates. .
Some lenders take the position that In view of the most favored lender doctrine and the ability of
national banks tQ export unregulated Interest rates to regulated states, any state limitation of Interest rates
serveS only to put lenders based in the regUlated state at a competitive disadvantage, since they are
limited in what they can charge while out-of-state lenders are not. From the perspective of the Attorney
General's Consumer Protection Division, however, this is simply a justification for a race to the bottom of
the barrel of credit regulation. States can and shOUld, to the extent that they Bre able, take the 8tflPs they
deem to be necessary to protect their citizens from practloes they deem a~uslve.
6. Reporting Good Credit

Some consumers take out high castloans because they have experienced credit problems in the
past. These consumers are unable to obtain low cost leans because of their credit histories, as reported
by cr~djt bureaus, Indicate Ihat they have not paid their debts on a timely basis In the past. Such
consumers borrow money from high cost sources for two reasons: (I) they are unable to borrow money
from other sources because of their poor credit hIstories: and (i1) to re-establish a record of payment that
will enable them to borrow money more cheaply In the future. By failing to report that loans have been
paid off on a timely basis, a lender can unfairly prevent consumers from Improving their ability to obtain
credit. At the same time, other lenders and businesses who might extend oredit to such consumers n
they were able to access an accurate record of their repayment history, are unwilling to do so because
their reported credit histories do not reflect good payment. Unless lenders are required to report good
. credit, an unscrupulous lender could '1rap" consumers in a cycle of high cost debt by failing to report that
they payoff loans on time. As a matter of fundamental falmess to consumers and other lenders, lenders
should be required to report good credit to credit reporting agencIes•.
Exhibit 2 - p. 36
18
Office of the Attorney General Complaint Tables by Lender Type
TITLE LOANS
"lend~r TvD8ofLoan .OOtnnliirrit"
Lender A tltlslaan Borrower unable to afford Lender not IIcenssd.
payments.
LenderS tllleloan Repossession. Dispute
about payment
LenderC title"loan Intereat rate is oulrageous. Lender nollicensed.
Lendsr skipped and
borrowsr was unable to pay
off loan. When lender re-
Burfaced. asked for more
money.
Lender 0 title loan lnterest rale Is outrageous
Lender 0 tItle loan Lender mIsrepresented

Inlerest rate ae 25% Whin It
was actually 300%.
RSpa8s8asion. Debt
collection threats and
harrassment. Lender
contacted Sid parties about
debt•
Lender 0 IllIeloan .Interest too high. Unable to
pay. DIdn't underslend loan
terms.
Lender 0 tllle loan Paid for 1 ~ years. Unable
to payoff loan. Lender did
not disclose that Intereat
rale was 300%. ObSllrVed
that other borrowsl8 were
not told what Interesl rate
was.
Lender D title loan Repossession. Personal
belongings were taken tram
" "oar by repo company
Lender D title loan Lender failed to honor
written setUement
agreement.
LendarO tilleloan Borrower was not told thai
loan was for a 30 day term.
Paid for months. Interest
rale 100 high. Car
repossessed.
LeooerO lille loan Repossession. Repo man
assaulted borrower.
lender 0 IIDe loan Unable to afford loan
payments. RepossessIon.
Repo company seriously
damaged I/ehlcle.
LenderE title loan Debt collection harassment
by lender
LenderE tlile loan Inlerest rate 100 high.
r Borrower did not
understand that payments
were only for Interest, nol
principal.
LendetF title loan ColleCtion harassment by
lender.
.. Exhibit 2 - p. 37
19
Lender G tllle loan U'nable to payoff loan.
Repossession.
PAVDAVLOANS
Lender TweofLoan .Comaliiritt Misceilaneoul
LendsrT Payday loan Lender asked Dlstriot 2 day loan term
Attomey to proseoute
borrower on bad check
oharge. DA refused
beoause there was no
Intent to defraud and
because no Jury·would
convict with 2300% APR.
LenderU Payday loan Payday loan rolled over.
Lender deposited
borrowers check knowing It
; was not good In order to run
~, up bad check fees. Dispute
>
about renewal terms and
bad check fees.
Lender V Payday loan Payday loan rolled over.
Borrower did not
understand loan. Seems to
have thought It was an
Installment loan She
borrowed $200. Was
supposed to pay back
$240. . Instead, kept
making $40 payments and
I"lrlncloal never went down.
LenderW Payday loan Payday loan rolled oVer 11
times. Bortowet thinks he
paid too much and couldn't
possIbly owe amount
clalmerj bv lender.
SMALL INSTALLMENT LOAN COMPANIES

Lender .1'YI$:of:.Lo:an. :. :·:Comb'ali'it'"· .. . Mla«leUaneoul
LenderH Smell Installment loan Loan changed from bl·
weekly to monlhly.
Borrower thInks she was
Improperly charged $60 to
refinance loan·
Lender I Small Installment loan 3"' party complaint alleging
lhatlender took advantage
.of mentally handicapped
man by repeatedly roiling
over loan and adding $25
fee each time.
Lender J Small Installment loan Lender Induced borrower to Complaint suggests !hat
roll over loan many times lender charged borrower for
without,disclosing that $25 credit life Insurance on a
fea was added each time $100108n
losn was rellnanced
. Lender K Small Installment loan CollectIOn complaint.
Hara881ng phone calls at
work and using collection
I documents that simulate
t
court DaOsts.
Lender L Small Installment loan Collection complaint.
Repeated calls at work alter
borrower gave lender
:
written notice to stoo
Exhibit 2 - p. 38
20
'.
FINANCE COMPANIES
Lender Tvoe of Lean· ',Complaint ..Mlsoellaneous
Lendsr A Mortgage refjnance. Exoesslve closing COSIS and 10 point orlglnallon fee.
fees.
leMerA Mortgage/debt Ellcesslve origination costs 11.1 point origination fee.
consolidation and fees. Failure 10
disclose fees (whIch are
almost 2x amount slated in
Good Faith E~~lmate of
Closing Costs .
Lender B Mortgage Lender failed to properly
credit payments made by
borrower.
LenderC Installment loan Overcharged Interest and
late'e8s.
Lender C Mortgage Borrowerdld not
understand how mortgage
,
amortIzation works.
Lender C ? Failure to credit payments
made bv borrower.
Lender 0 Installment loan Borrower paid off loan.
Lender oame after bOrrower
for more money 7 years
later.
Lender E Installment loan Collecllon complain!. 3~
party collection conlaots.
Lender F Manufactured home loan Consumer claims 'hey sent
her a notice that oredlt was
denied even though she
never applied for a foan and
had no dealings wilh the
lender.
LenderG Mortgage/mobile Ilome Lender colleoted more
money than It was entitled
to receive and thlm re'used
to give borrower title 10
mobile home
Lender G Mortgage/mobile home Aepoeseselon. DIspute
about deflclencv Judament.
LenderG Mortgage/mobile home CollectIon harrassment.
Overcharges. Failure 10
''work with" borrower after
her husband died.
LenderG Mortgage/mobile home Lender 'alled to release.
mortgage after borrower
oald It off.
Lender G 7 Lender failed to properly
credit Davments
Exhibit 2 -11. 39
·'
Application of the Federal Most Favored Lender Doctrine to the
Consumer Loan Industry (Rate Exportation)
SUbmitted By Stephen Schaller, Check 'n Go of New Mexico, Inc.

Federal and state courts have consistently held that the National Bank Act (the "NBA")3 treats
federally ohartered banks and the Depository Institutions Deregulation and Monetary Control Aot 1980
(the "DIDAIJ)4 treats state chartered banks and other financial Institutions accepting federally-insured
0'
deposits as "most favored lenders" Ihat may properly charge Interest on loans at an interest rate equal to
the higher of the following: (i) the interest rate allowed lenders in the state where the bank Is domIciled or
(il) 1% above the discount rate on 90·day commercial paper In effect at the Federal Reserve Bank in the
district where the bank is located. A bank's "most favored lender" status Is "exportable" across state lines
In the sense that the NBA and the DIDA preempt the state law of the borrower's home state, so long as
the state law bE:llng exported from the bank's home state constitutes an "interest rate," as such term Is
defined in NBA, the
..
DIDA, and the court cases interpreting same.
.
6
Just as banks offering oredit cards are typically domiciled in states suoh as Delaware and South
Dakota where no Interest rate caps exist for revolving oonsumer loans, banks offering the types of closed·
end consumer loans that are the subJeot of this Report oan be - and, with accelerating frequency, are
domiciled In states with laws favorable to closed-end consumer loans.. No legal distinction exists between
the ability of banks to export the credit card raw of their home state and the ability of banks to export the
closed-end consumer loan law of their home state because, in both Instances, the law being exported
from the bank's home state relates to the "interest rata',8 of the loan.
While banks issuing credit cards to consumers residing In foreign states typically conduct their
business through the mail, banks originating closed-end consumer loans to consumers residing in foreign
states typically conduct their business through a network of stores located in foreign slates and owned by
the bank's strategic partner, which Is typically a check-cashing company, consumer finance oompany, or
other non-bank entity. Courts have approved this practice In a series of reoent cases dealing w"h the
issue of whether the strategic partner's stores are considered (i) "branch".offlces of the bank, in which
case the most favored lender doctrIne would not apply to the consumer loans, or (II) loan production
facilities, in which case the mos1 favored lender doctrine would apply to the consumer loans such that the
Interest rate law of the bank's home state would control. 7
Consumer advocates criticize court deolslons approving 1hese types of strategio partnerships, argUing
that such judicial expansion of the most favored lender doctrine (i) is inconsistent ~Ith the laglslative
3 12 U.S.C. §§ 65~66.
4 Pub. L. No. 98'221, 94 Stal. 161 (1980), codified throughout Title 12 of the U.S. Code. 9.g., § 1831d(lI) (slate commercial banks);
§ 1465(g) (aavings and loans): § 1785(g) (federally Insured credit unions); and § 1736/·7a (mortgages).
5 Ssa Marquette y, First of Omaha §erv, Com, 439 U,S. 299 (1978) and Smllev y. embank 'Soulh Dakota), N,A" 135L. Ed. 2d 25,
116 S. CI, 1730 (1996). $" also, Greenwood Trusl Co. y. MA8889hYfieUs, 971 F. 2d 818 (1 OJr. Mass., 1992), cotto denlBd, 122 L.
Ed.2d 129, 113 S. Ct. 974 (1993), ,ev'" 778 F, Supp. 21 (D. Mass., 1991); Tlkkaneo v. Cmbank (Soulh Dakola) N,A" 801 F. Supp.
270 (D. Minn., 1992): and Copeland v. MSNSA Am, Bank. N,A" 907 P,2d 87 (Colo., 1995), cert. denied, 135l.. Ed, 2d 189, 116 S.
Ct. 2496 (1996).
8 Allhough a particular fee or charge must constlMe an "Interest rate" under !he NBA or the PIDA as a condilion of being exportable
under the most favored lender doctrine, courts have broadly Interpreled the term "Interest rale" to Includs many fses lind oharges In
additIon to simple Interest, such as late charges (sse, '.g" Goshl v. Mellon Bank fOE). 826 F. Supp.12S9 (E.P. Pa., 1993) and
Nilson y. Cilibank (Squib Dakota), N.A., 794 F. SUPP, 312 (D. Minn., 1992»; credit card over the limit ("OTL.") tees (S88. 8.g.,
Walson v, Flrsl Union Nlt'l Sank, 837 F. Supp. 146 (D.S.C., 1993) and Hill y. Ch8mlcal Bank, 799 F. SUpp. 948 (D. Mlnn" 1992);
cesh advance fees (88S, (J.g., fisher v, First National "Ink, 54$ F. 2d 255 (Sin elr., 19n)); melhods of compullng Interesl (s8e, 9,g.,
Firat Nitlonal Bonk In Mena v, Nowlin, 509 F.2d 872 (S Clr" 1975) and Grunbeck y, plm, 31Virtgs Bank, 848 F. Supp. 294 (D.N.H.,
1994»); bonus or commissions paid to lenders (S88, e.g., Cronkleton \/. HaU, 68 F. 2d 384 (8 CIr.), c,tt. denIed, 290 U.S. 685
tl
(1933)}: and closing cosls (sse, B.g" NQl1bwav lan,s v. Hackley Union Nat'l Bank-& Trust, 464 F. 2d 855 (e Clr" 1972».
111
7 Sea, e.g" Cade v. H&R Blook, Inc" 43 F. 3d 869 (4 elr., 1994) (court approved Ihe praotlce of a bank providing high-rate, talC
refund anticipation loane through a network of slores looated In foreIgn stlltes and owned bV a tax preparation company). see also,
Christiansen v, BeueJlera! Nat'18gnk, 972 F. Supp. 881 (S.D. Ga., 1997) (Delaware·domlciled bank did not create "branch" offlcBS In
the consumer's home statlt (Georgia) by extendIng loans through offices 01 a tax preparation company; consequently. Delaware law
preempted the law of Ihe consumer's home state, under whloh latter law the loans would have exceeded the respecllve usury and
small Joan Interest rate caps) and Basile v. H&R Block, Inc" 897 F. Supp. 194 (E.D. Pa., 1995),(courl hsld that !he law of the
consume~s home state was preempted by the law of the bank's home state pursuant 10 the mosl favored lender doclrlne because
the network of tax preparation offices through which the loans were elllended by the bank did not constitute "branoh oflloss"_
Exhibit 2 - ~. 40
22
.;
'. Intent 01 the NBA and the 01 DAs and (Ii) violates principals of federalism and democracy.9
. Nevertheless, consumer advocates admit that recent court decisions have placed a judicial
imprimatur on what the advocates describe as a ~race to the bottom" to determine which state will have
the most lender-friendly ,consumer loan laws available for exportatlon. 1o The National Consumer Law
8 In describIng Cad!! y. H&R Block, Inc" supra at footnote 5, the Natlonal.Consumer law Center on pags 64 of The Cost or Credit;
Regulation and Legal Challenges, stales: "Given current technology, this cIse ~ raises frightening Implications lor the future. II
major finance companies, tradItIonally lending subJeotto special usury laws such 8S email loan laws and consumer finance laws
con18lnlng consumer protectIons, can establish a national bahk In a deregulated atate and "export" unregUlated small loans from
Ihere, federal preemption will have gone farU:ter !han anyone - Congress Included - ever envisioned."
I /d. at footnole 124 ("It Is undemocratlo·because the legIslators or the exporting states are not accountable to citizens In other
statss, !hough their righls are determined by that "foreign" body, In contrsst, all citizens can hold Iheir federa/leglslators
accourltable at the polls, If they disapprove of fad,ra/ preemption of their rights under stale law. It 1$ upon thIs basic fact that the
exportation doctrine ~tumbl9S on Its own terms. Were Congress (In 1864 or 1978) ssked If Ihey lmended 10 let lhe Delaware state
legislature set the standards for consumer protectlon nallonwlde, Ills extremely dOUbtfullhsy would have said yes, and
conlltltutlonal scholarship suggests they could not have. e/. Irwin v. Cltybank (Soulh Dakota), Clearinghouse No. 50,419, No. 9112
2557 (Pllnn. Ct. Com. Pless., opInion lI/adDeo. 9,1993) citing Lawrenoe H. Tribe, American ConsU!utlonal Law, § 5·17 (1988)."
10 Id. at footnote 121 ("South Dakota and Delaware, at the beginnIng of the exploelve'growth of the financial services Industry
around 1980, sought to attract that Industty as part of theIr economic development strategy. They wanted to ·provlde Ithelr] clUzens
with Ihe Jobs and benefits 8 large natlonat credit card operallon oan provide (attracted by the ability to export limitless o~edlt oard
ratss to other etatos)," whll", It should be noled, prolectlng their local banks. Independent Commynlty Bankers' Ass'n 01 S p. y.
Board Of Gpyernors Faders! Reserve System, 838 F. 2d S6e, 976 (8" Olr., 1988). Cf. Eckman, The Delaware Consumer Credit
Bank Act and E"llRQr1lng Interest Under § 621 of the peposltorv Instltullons Deregulation and Mona!arv Contro! 6ct of '980, 39 Bus.
L. 1284 (1984). It worked, too. South Dakota's tax revenue from banks went from $3.2 million In 1980 to almost $27.2 mllllon In
1987, wtth the comparable flgurea for Delaware rising from $2.4 million to almost $40 million. At least through 1988, other states
trying the same gambit had less success. Th! EconomIst, July 2, 1988, pg. 28. Nonetheless, the strategy has had the effect Of
weakening the rQSCllv9 of states which wish to ret~ln strong consumer proteaUon" as the local banks argue (hat having to comply
Exhibit 2 - ~341
.'
". Center, for example, While describing the application 6f the most favored lender doctrine to the consumer
loan Industry as "insidious,"11 concedes that federal and state courts have Interpreted the NBA and the
DIOA In a manner that allows the exportation of consumer loans through the types of strateglo
partnerships described above. .
The Consumer Federation ot America describes this trend in considerable detail in its September, 1999
report, Safe harbor for Usury: Recent Developments In Payday LendIng. According to the CFA,
"[p]artnerships between banks and companies In the fringe bank market are a growing trend In the
payday Joan fJeld,"12 The CFA, w.hile lamenting that "[t]ederalleglslatlon is needed to prevent the use at
national bank and thrift charters to evade state small loan rate caps and usury laws,,,13 concedes that
banks suoh as Eagle National Bank, Crusader Savings Bank, Axcess Bank "are partnerlng with check
cashers, pawnshops, and other fringe bankers,,14 to provide loans to consumers residing In states with
unfavorable oonsumer loan laws. As the CFA's .report demonstrates, the applioatlon of the most favored
lender doctrine to the consumer loan Industry Is not merely an exercise in prospective Intellectual theory.
The practice Is aotually oocurring today In states such as Arizona, Pennsylvania, Texas, and Virginia. 15
with such laws puts them at a compellllv8 disadvantage to the exportIng bQnks, whIch do not. This Is one of the factors behind the
continuing push for deregulation at the state Javar. even though the lowest Interesl ratee In decades mean statutory IImltalions no
longer squeeze lenders' margins, as they did in the 1970s and 19808.") .
t1 Footnote 33 of National Consumer Law Canter's treatise, The Cost of Credit: Regulation and legal Challenges (1998
Supplement) ("Another Insidious example of the tenlacle of the exportation octopus concerns finance companies obtaining nallonal
bank status. They operate lhelr maIn bank office In a slate that exempte payday loans from smaillosn act restrictions (Including
uSUlY caps) and then make these loans through a national network of cheok-cashers.j
12 CFA's September, 1999 Report, Safe Harbor for Usury; Recent Deyelopments In Pavday Lending," pp. 9-10.
13 Id.
1. /d.
16/d.
Exhibit 2 - ~4 42
Deferred Presentment Services Industry
Submitted by Check 'n Go of New Mexico. Inc.
TABLE OF CONTENTS
Section
I. DESCRIPTION OF DEFERRED PRESENTMENT SERVICES
II. APPROPRIATENESS OF USE OF ANNUAL PERCENTAGE

RATE AS ~MEASURING STICK" FOR EVAlUATING
COST OF DEFERRED PRESENTMENT SERVICES
III. EMERGENCE OF MARKET DEMAND

j
IV. MIDDLE·CLASS CUSTOMER PROFilE
V. REGULATORY ENVIRONMENT
A. Small Loan or Installment Loan Statutes
B. stand-alone Deferred Presentment Statutes
C. Integrated Check-CashIng Statutes
O. Comparison of Deferred Presentment Transaction
Service Fees Authorized by State Law
VI. CONCLUSION S99 AppendiX
Appendix A Comparison of Deferred Presentment TransactIon

Service Fees Authorized by State Law·
Appendix B Community Financial Services AssocIation of

AmerIca's "Best Praotlces"
AppendlxC Community.Financial Services Association of

America's "Model Legislation"
Exhibit 2 - p. 43
25
•I
I· ~!.'~:
I. DESCRIP'r10N OF DEFERRED PRESENTMENT SERVICES.
Deferred presentment services, also known by the moniker "payday loans" or "payday advance
services," represent perhaps the fastest-growIng segment of the consumer finanoe industry.'s In a
deferred presentment transaction, the operator cashes a personal check tendered by the customer and
agrees In writing to defer presentment of that check until the customer's next payday, which is typically
about two (2) weeks later.
The amount of the customer's oheck comprises both the transaction proceeds distributed to the
customer and the operator's Finance Charge. In the states where operators may provide deferred
presentm~nt services in an economically-viable manner. state law accounts for the Short-term, small
amount, and unsecured nature of the transaotion (i) by refusing to calculate the amount of the authorized
Finance Charge as a per annum Interest rate (except in those states where consumer loans are not
sUbject to inte.rest rate caps) and (ii) by electing, Instead, to calculate the amount of the authorized
Finance Charge by mUltiplying the amount of the transaction proceeds or the amount of the customer's
check by a percentage. which typically 15%·25%.
The streamlined underwriting process (I.e.. verifying that the customer has an active bank
acoount and a steady source of Income) and the Willingness of operators to provide deferred presentment
services without reviewing the customer's credit report allow the transaction to be completed in about ten
(10) minutes. .
II. APPROPRIATENESS OF USE OF ANNUAL PERCENTAGE RATE AS "MEASURING STICK'~

FOR EVALUATING COST OF DEFERRED PRESENTMENT TRANSACTIONS.
While the Finance Charge (i.e., the cost of credit, represented as a dollar amount) paid by the
customer for a deferred presentment transaction Is relatively low when compared to other types of
consumer credit transactions because the average transaction amount Is only about $200, the Annual
Percentage Rate (I.e., the cost of credit, represented as a yearly Interest rate) of a deferred presentment·
transaction Is relatively high when compared to other types of oonsumer credit transaotions beoause
measuring the cost of a two-week oredittransactton with a "measuring stick" designed to measure the
cost of annual credit transactions necessarily distorts the true cost of a deferred presentment
transactio~ .
Because many of the largest companies providing deferred presentment services limit Ihe
number 01 times a deferred presentment debt may be refinanced or renewed (commonly called a
"rolloven even In the absence of a state law provision limiting or prohibiting rollovers. 18 an entirely apt
analogy can be made between the usefulness of deferred presentment servIces as a short-term financing
vehicle and the usefulness of a taxicab as a short-distance motor vehicle. Just as a passenger would
never measure the true cost of a taxicab fare for a short trip across town based on the cost of riding in
that taxicab across the country, most deferred presentment customers do not measure the true cost of a
deferred presen1ment transaction based on the Inaccurate assumption that the customer is taking out a
year-long obligation.
18 By surveyIng the number 01 retail stoJefronts IIC~S8d by various state regulators, the Industry estimates that more than 7,000
deferred presentment lo08llon8 elllst today, with roughly 100 new looatlons opening monthly.
17 "ExpressIng the terms of this 1ype of transaction [I deferred presenlment transaction] 88 an APR Is not 8 fair comparIson. An
APR Is a caloulatlon made over a 12·monthl365 period. To attempt to compare the ~sts 01 a transaction that has a maximum life of
30 days and caloulate It as though It has a 366-day Ura,ls clearly illogical." 1999 analysis of A8425, CaUfornla Assembly on
Consumer Protection. Governmental EfficIency and Economfc Development.
18 While New MeNlco lew ~oe5 not Umlt or prohibit rallovers, members of th& deferred presentinGnt Induslry'B n.8tional trade
association, the Community Financial Services Associallon of America ("CFSA"I, adhere to self·pollced "Best Practices· that, among
other things. limit the number of times a CFSA member may allow B customar to rollover a deferred presentment transaction debt to
the lesser of three (3) times or the number of times allowed by applloable law. A copy of the CFSA's Best Practices is attached as
~herelo.
Exhibit 2 - p. 44
. 26
Thus, while operators disclose the APR of deferred presentment transactions in conformance
with the federal Truth-In-Lendlng Act ("TlLA,,).19 the APR of deferred presentment transactions is tess
fairly compared to the AF'R of long-term consumer loans and Is more fairly compared to the APR of other
types of cash-advance transactions for whloh TILA does not re~uire disclosUre of the APR. Such other
types of cash-advance transactions include ATM transactions,2 dishonored check charges,21 and late
fees on credit card payments.22) .
III. EMERGENCE OF MARKET DEMAND.
_ Consumer demand for deferred presentment services increased during the early to mid 19908
-concomitant with the Increase In the cost of many of the other types of cash-advance transactions
mentioned above. Indeed, the primarydrlving force behind the emerging market demand for deferred
presentment services 15 consumers' oollootlon realization that satisfying a small debt for which they have
not bUdgeted by paying a deferred presentment services Finance Charge Is cheaper than (I) paying the
debt late or not paying the debt at all, and thereby Incurring contractual late fees and penalties and, more
. importantly, risking the loss of a valuable good such as a car or a vatuable service such as a utlUty;23 or
(ii) tendering to the creditor a check drawn on Insufficient funds.24 and thereby incurring a dishonored
check fee to the oustomer's bank (typically about $20)26 and also Incurring a dIshonored check fee to the
creditor (typically an additional $25). Simply put, deferred presentment customers have "done the math"
and recognIze that the cost of paying a $100 debt wIth a dishonored check would be about $43 (I.e., the
bank's $18 dishonored check fee plus the merchant's $25 bad check fee) while the oost of paying the
same $100 debt with the proceeds from a deferred presentment transaction would be $15-$20 (I.e., 15%
20% of the transaction proceeds).
Depository institutions themselves have helped fuel oonsumer demand for payday advanoe
services by continuing to inorease returned oheck charges and by adopting fee-generating policies such
as so-called high -to-low check processlng,28 These policies have exacerbated the existing trend among
traditional consumer lenders of underservlng particular market segments perceived as unprofitable. For
example:
• The continuing consolidation of depository institutions and the closing of redundant branch locations .
creates a physical absence of these financial Institutions in many geographical locations. The
deferred presentment industry fills this geographical void.
10 Sections 1601 -1655a of TltIe 15 of the Unlled.Slates Code and Regulation Z (Part 226 of Tille 12 of the Code 01 Federal
Rttgulations).
20 A $100 automatlo teller machine lransacllon lora fee 01 $1.50 would have an APR of 547.5%.
~l A$100 bounced check that causes s $22 returned check charge would have an APR of 8.030%.
22. A $25 late fee on a $50 credit card balance would have an APR 01 18,250%.
23 Consider lhe fees Incurred when uUI!ty paymenl8 are 1stI'. Typloal re-slartup costs lor electi'lcllV and phone servlee begin at $30,
and many providers also demand a $50-$100 deposit.
2' Last year. 19°,{, of all Americans bounoed al leaat one chsck. and the maJority of IhosB bouncing B check bounced more than
ono. Natlcnal survey conducted In March of 1999 by Wlrthlln Worldwide, cno of the nation's leading opinion research firms, which is
headquartered In McLean. VirgInia. .
.n As quOted In the Consumer Federation of America's June, 1998 report, Bounced Ohecks: BII/lon Dollar Profits, "According to the
Federal ReSel'\l8 Board's Annua' Report to the Ctmgr88$ on Retail Fess snd S81Vlces of Depository Institutions (June.1997), large
banks assess bounced check fe8S 01 $20.29; medium-sIzed banks' average fees are $18.97; and small banks charge $15.05."
.:& See, e.g., How Banks Make the Most of Bounced Checks, February 25, 1999 Wall Street Joumallexplalnlng how a growing
number ot banks have adopted the policy 01 presenting oustomer checks for payment in order Of nle largest to smallest In order to
Increase the likelihood that some checks will bounce),
Exhibit 2 - p. 45
27
• Traditional lenders and finance companies rarely, if at all, offer a loan product with a loan term as
short as two-weeks and with an amount fInanced as small as $200. 27 Indeed, a consumer in need or
a small amount of oash for a short period of time is often ill-served by traditional lenders because
traditional lenders may attempt to "upsell" such oonsumer to a larger loan product than the consumer
either needs or wants. Thus, absent the deferred presentment Industry, many consumers who need
only a payday advanoe of a few hundred dollars would be cajoled by traditional render~ Inlo
refInancing their house or otherwise taking on far more debl than is necessary to address the
consumer's small, short-term cash need.
• . While other consumer landers may serve so-called "SUb-prime" borrowers, the deferred presentment
industry Is nearly unique in its willingness to provide cash to consumers without reviewing those
consumers' credit reports, a praotlce that enables deferred presentment operators to serve those
consumers with non-existent or tarnished credit histories that deposJlory Institutions - and many other
consumer lenders - would decline based on theIr credit record. .
While the emergence 01 the market demand for deferred presentment services Is primarily explained
by the economic factors described above, one psychological factor is certainly worth mentioning.
partioularly when explaining why many consumers who have access to small amounts of cash via a credit
card advance prefer to obtain such cash through deferred presentment services. To the extent deferred
presentment customers have a credit card In the first place or have not exhausted their credit limit on the
credit card{s) theY do havs, many deferred presentment customers reoognlze that they lack the self
discipline to pay-oft a revolving credit transaction debt In a timely manner and they therefore appreciate
tM dato-eertain repayment requirement of a deferred presentment transaction because such a closed
end credit Iransaction forces them to exercise the financial discipline they mighl otherwise lack.
IV. MIDDLE-CLASS CUSTOMER PROFILE,
The deferred presentment industry markets its services to middle-class consumers who have an
active bank account and a steady source of Income but who do not have enough money In their checking
account to meet an unexpected debt for which they have not budgeted, such as a car repair bill, an
unusually-high utility bill, an uninsured medical expense, or a security deposit for rental housing.
Deferred presentment. customers are not overly necessitous, as evidenced by the remarkably low
percentage of deferred presentment customers who file for bankruptcy.28
Importantly, the profile of a deferred presentment customer Is distinguishable from that of a check
cashing customer In that a check cashing customer is typically "unba.nked" (i.e., does not maintain a
ohecking account or other traditional banking relationship) and, hence, relies on fringe banking outlets to
cash payroll, government benefit, or other third-party cheoks. 29 Indeed, the follOWing demographic profile
of the average deferred presentment customer3Cl places such average customer squarely within the
American middle-class.
• Average age Is 35.8 years;

• Average annual household Inccime is $33,187;
~7 "Commercial banks generally do not make unsecured loans for less than $3,000 to $5,000 and then only to high credit-quality
consumslS," Th8 Emerging Bus/ness of Deflmed Pressntment, an Aprll1, 1999 reporl by Jerry L. Robinson, CPA, 01 Stephens Inc.,
an Ai!<llnsas·baaed Investment banking finn. Member NYSE. NASD, SIPC.
21 According to the Tenne,Bss8 Department 9' Flnllnolallnelltutlons' Report to ths 10'" Gsnsra/ Assemb/y on the Dsfened
Presentment Services Act, Issued this year, only 3% of the 12,400 pending bankruptcies In Tennessee showed debts to deferred
presentment companies - this In a state with one of the nation's hlgheet bankruptcy rates.
28 While some provldera of deferred presentment services also offer check caehlng services on their menu 0'prodUcts, most
companIes that offer deferted presentment services on a national basis are mono-line companIes that specIalize in deferred
prellenlment services and do not oner other consumer finance products.
ao Demographic profile results arEl bosetl on national consumer data (for the 12·monfh paried ending June of 1999) from a nallenal,
mono-line deterred presentment oompany wllh nearly 500 branohes.
Exhibit 2 - J;1. 46
28
• . Average time in current residence is 4.5 years;
• Average time In current employment Is 4 years; and
• 32.8% own their homes.
Because middle-class .consumers have· always •• and will always .- face short-term cash flow
problems from time to time31 and because other alternatives to solving those cash flow problems have
become rncreasingly expensive during the past decade, deferred presentment services have become a
popUlar short·term financing vehlole among oonsumer In New Mexico as well as across the country.3.2
v. REGULATORY ENVIRONMENT•.
. While federal law applies to certain aspects of consumer lending •• such as requiring disclosure of
the cost of credtt33, prohibiting discrimination on certaIn prohibited bases,34 and prohibIting certain sharp
collection praotices when debts are collected by thlrd-parties35 - Congress has historically reserved for
state lawmakers the job of regulating the cost of consumer credit. This rule certainly applies to the
deferred presentment industry, where one of three types of state statutes regulates the Industry and
prescribes the amount of the authorized Finance Charge. .
A. Small Loan or Installment loan Statutes.
In New Mexico •• as well as In Colorado. Delaware, Idaho, Illinois, Indiana, Kansas, Minnesota,
Missouri, New Hampshire, Oklahoma, Oregon, South Dakota, Utah, Wisconsin, Wyoming -. deferred
presentment services are treated as a consumer loan and, as such, are subject to the Interest rate caps
set out in applicable small loan statute, installment loan statute, or the uniform consumer credIt code.
Beoause lhe applioableconsumer loan statute In the aforementioned states either allows the
borrower and the lender to agree in writing to any Interest rate (I.e.• the statute sets no artificial Interest
rate cap) or allows the lender to assess a sUfficiently-high minimum finance Charge, operatQrs can offer
deferred presentment services In these states In an eoonomically~vlable manner, The amount of the
service fee charged for deferred presentment services In these states Is generally set by the market and
Is roughly equal to the amount of the service fee that is prescribed by the stand-alone statutes and the
Integrated check-cashing statutes described below. .
B. Stand-alone Deferred Presentment Statutes.
In Iowa, LouisIana, Montana, Nebraska, South Carolina, and Tennessee, deferred presentment
services are authorized by a statute that regUlates only one Industry, namely, the deferred presentment
.. Industry.. These statutes not only presoribe a Finance Charge cap but also set forth other consumer
protections that are specific to deferred presentment transactions. including the following: prohibiting a
licensee from criminally prosecuting a customer in the event the customer's personal check Is deposited
and dishonored by the customer's bank; limiting the number of. times a licensee may allow a customer to
$( More than hall of IllI Americans ocClaslonally laok funds needed to coveT all of lIlelr monthly expenses. Ten percent say 1hey
would have to 8ell perllonaf possessIons to get through a short-term oBsh llow problem. Another 10% say they do not know what
they would do. Pol! results are based on Interviews conducted from February 12-14, 1999, by Bruskln GOldring Rsssarch, an
Indepondent pollster based In· Edleon, New Jersey,
3Z More Ihan 24 million Americans (10% of the population) say they are somewhat or very likely to enter Into a deferred
to
presentment transaction solve a short-term cash flow problem. IbId.
~ See the federal Truth-ln·Lendlng Act, cited In footnote 4 above.

e. See the federal Equal Credit Opportunity Act, Tille VII of the Consumer Credit Protection Act and Regulation B (12 C.F.R, Part
202).
35 See the federal Fair Debt Collecllon Praclla9s A()t, 15 U.S.C. 1692. st seq.
Exhibit 2 - R. 47
29
rollover a deferred presentment debt, or prohibiting such rollovers entIrely; and requiring that the licensee
provide notice to the customer that deferred presentment transactions should be used only as a short-
term financing vehicle. .
C. Integrated Check-Cashing Statutes.
In Arkansas, California, Florida, HawaII, Kentucky, Mississippi, Nevada, North Carolina, Ohio,
Washington, and washington, D.C., deferred presentment servIces are authorized by a statute that
regulates b01h the check cashing Industry and lhe deferred presentment Industry. That is, lhese statutes
regulate both licensees who cash a customer's personal check and immediately deposit the check (I.e.,
engage In oheck cashing transactions) and licensees who cash a customer's personal check and defer
presentment of the check for an agreed-upon period of time. These check cashing statutes, which have
defe~red presentment provisions Integrated within them, often contain the same types at customer
protections described in Secllon V(B) above.
O. Comparison of Deferred Presentment Transaction Service Fees Authori;?;ed by State Law.
The chart set forth In AppendiX A Identifies examplas of Finance Charge that other states authorize
.for deferred presentment services. Because this table Is ror illustrative purposes, not all states are
represented therein. As vsed therein, the term "Amount Financed" means the amount of transaction
proceeds paid to the customer. The term "customer's check" means the amount of the personal check
that the customer writes to the provider of deferred presentment services, which amount Is the sum ot the
. Amount Financed and the Finance Charge. Thus, for example, If the customer writes a $115 personal
check In order to receive $100 of transaction proceeds, the "Amount Financed" Is $100, the Finance
Charge Is $15 and the amount of the "customer's check" Is $115.
VI. CONCLUSION.
Over the course of the past decade, deferred presentment services have become a statulorlly
entrenched, legitimate, and popular consumer finance product, and New Mexico consumers are best
served by state lawmakers allowing such services to remain an Integral part of New Mexico's consumer
lending landscape.
Deferred Presentment AppendiX A

compar 80nofDeferredP resentment Transact on servlce Fee. AutharIz.db,y State Law
State Authorized Service Fee for Deterred Presentment Serlllc.. Amount of Servloe
Fee for a $100
Payday Advance
Ohio The aulhorl2ed service fee Is an amount equal to the sum of (I) Interest In !he $15.00
amount of 5% per month or any·fraotlon 01 a month and (II) II loan origination fee
In the amount of $5 Der $50 of tha amount financed.
South Carolina The authorized Gervici fee IS an amount equal to t5% of the amount financed. $16.00
Secllon 34·39·180rel of the Sou1n Carolina Deterred PreeGnlment Services Act,
Washington The authorized service fee Is an amount equal to 16% of the amount flnanoed. $15.00
Seellon 31.45.07312\ of the Washlnalon Cneck Cashers and Sellers Aot.
Delaware The aulhorlzed servloe tae Is any fee agrelld 10 In wrillng. Seellon 2229 of the Market rate. which Is
Delaware Lloensed Lenders Act and Section 80·S22·003(2)(a) of the Delaware typIcally $t 5 • $20
AdminIstrative Code.
Idaho The authorized servIce fee Is any fee agreed to In wriling. Seolion 28-42-201(1) Markel rate. which Is
of tha Idaho Credit Code. tvDicallv $15 - $20
Illinois The authoriZed service fee 18 any tee agreed to In writing. Seellon 205 ILCS Market rale, which Is
670/15(a) of the.lIllnol8Consumer Installment Loan Aot. tvDloallv $15 - $20
Indiana 111e authorized service fee Is a minimum finance charge 'of up to $33 for both Markel rats, which Is
·consumer loans" (Section 24.4.6-3-201 (6)) and "supervised loans" (Section 24 typIcally $15 - $20
4.5-3-508(6) and (7)). See Seclion 24-4.6-1-106(2) of the indiana Uniform
Consumer Credit Code and 750 lAC 1-1-1 for Consumer Price Index adiustments.
Exhibit 2 - p. 48
30
Missouri Tile authorIzed service fee Is any fee contaIned In the deferred presenlment Market rate. whIch Is
company's fee schedule, which fee 80hedule has bllen flied wIth and approved by typically $15 • $20
Ihe Missouri Department of Financial InBlilullons (the ·State"). The Stats's
determination of whether to approve a submllted fee schedule is Informed by the
eldstlng market rates for deferred presentment seIVices In states contiguous to
Missouri
New Hampshire The authorized service fee Is any felt agreed to In writing. SectIon 399-A:3(1)(a). Market rate, which
tvolcallv Is $15-$20
Nevada The authorized service fee for transactions provided under Chapter 675, the Market rate, whloh Is
Nevada Installment Loan Act, Is any fee agreed to In writing. The Check-Cashing typloally $15 $20
and Deferred Deposit Services Ac1, NAC 604.101 st seq. and section 99.050 of
Ihe Nevada USUN Act.
New Mexico The lulhorlzltd .ervlce fee 10r tranlactlonl prOVided under the general Market rete, which
UIUry ltaMe 'S any fee agreecl to In writing. New Mexico Attorney General II typlctlly $18 •
OpInIon No. 85·1. $20
Oregon Tile authorIzed service fee Is any fee agreed to In wrillng. Section 725.340(1) of Market rate, \\Ihlen Is
the Orerron Consumer Finance Aot. typlcallv $15 • 120
South Dakota The aulhorlzed servloe fee Is any lee agreed to In wrillng. Secllon 154·4-44 of the Markel rate, \\Ihloh 15
South Dakota Installment Loan Act. tvDlcallv $15 $20
Utah TIle authOrIzed servIce fee Is any fee agreed to In writing. Sect/on 700-2·10'1 of Market rate, whloh Is
the Utah Consumer Credit Code. tvolcallv 515 S20
Wisconsin The authOrized service fee Is any fee agreed to In writing. Seclion 13S.09(7)(bp) Market (ate, which Is
of the Wisconsin Precomputed Loan Law and Section 421.201 (2)(bn) and Section typically $15 - $20
421.201(3) Of the WisconsIn Consumer Act.
LouIsIana The authorized Ilarviee fee Is an amount equal to 16.75% cHhe amount financed. $16.75
Secllon 3578.4tAl of1he Louisiana Deferred Pressntment and Small Loan Act.
Florida The authorized service fee Is an amount equal to the sum of (I) 10% of the $16.67
customer's oheck or $5, whichever Is greater, and (II) a $5 verification fee.
Section 560.309(4)(0) 01 the Florlcfa Check (fashlng and ForeIgn Currency
Exohange Ac1and Section 3C-S60.801 of the Florida AdmlnlWatlve Cod8.
Washington, The aUlhorlzed transaclloo fee.is an amount equal to the sum of (i) 10% of the $16.67
D.C. customer's check or $4, whIchever Is greater, and (II) a verlflcallon fee of (8) $5
for customer cheoks ranging from $0 • $2BO.00, (b) $10 for customer ohecks
ranging from $260.01 • $500.00, (c) $15 for oustomer checks ranging from
$600.01 • $750.00, or (d) $20 for cuslomer checks ranging from $750.01 -
$1,000.00. 8eollon 18 and Section 20(o)(l)·of the WashIngton, D.C. Check
Cashers Act.
CalifornIa The authorized servIce lee Is an amount equal to 15% of the customer's check. $17.65
Seotlon 1789.35(dl of the California Check Cashers Law.
~Iawall The authorlzBd service fee Is an amount equal tp 16% of the customer's check. $17.65
Section 41cl of the HawaII Check Cashing Act.
Iowa The authorized service fee Is an amount equal to the sum of (i) $16 per $100 of $17.65
the customer's check on the IIral $100 of lha customer's check and (II) $10 per
$100 of the customer's check on all additIonal amounls above the first $100 of the
customer's check. Seollon 633D.9C1l of tha Iowa D81aved DeDoslt Servloes Act.
Kentucky The authorized service fee Is an amounl equal to $15 per $100 of the oustomer's $17.65
check. Secllofl 368.10012) of the Kentuoky Check Cashlna Act .
Nebraska The authorized service ree Is an amount equal to 15% 01 'ha customer's check, $17.65
Section 46·918 01 the Nebraska Delaved DeDOs11 ServIces L1cenalna Act.
North Carolina The authorized service fee Is an amount equal to 16% of the customer's cheok. . $17.65
Section 53-28Hel of the North Carolina Check Cashlna Business Aot,
Tennessee The authorized transaction fee Is an amount equal to the lesser of (I) 15% of the $17.65
customer's check or (II) $30. Section 47-17-112(0) of the Tennessee Deferred
Presentment SeNlees Act.
Mississippi The authorized &eNlOe fee Is an amount equatlo 18% of the customer's check. $21.95
Section 75·6Ni19(4) of the MlsslsslDDI Check Castlere Act.
Arkansas The authorized servIce fee Is so amount equal to the sum of (I) 10% of the $22,22
customer's cheok and (II) $10, Seellon 4(0)(2) of the Arkansas Chock·Cashera
Act.
Montana The authorized service fee is an amount equal to 25% 01 the customer's check. $33.33
Sec1lon 12(2) 01 the Montana Deferred DeDOSlt Loan Act
Exhibit 2 - p. 49
. 31
Deferred Presentment Services Appendix B
Community Financial Services Association of America'. "Beat Practices"
To be a member In good standing of CFSA, a payday advance provider must abide by the following best
practices: . .
1. Full disclosure. A member will comply with all applicable state or federal disclosure requirements.
In the absence of specific state regulation. a member must fully disclose to the customer all details of
the payday advance transaction. A contract between a member and the customer must fully outUne
the terms of the payday advance transaction. Although most oustomers consider APR Irrelevant to
thi~ transaction, members agree to disclose the cost of the service tee both as a dollar amount and as
an annual percentage rate (APR).
2. Compliance. A member will not charge a fee for the payday advance service nor engage in any
practice designed to charge a fee that exceeds that authorized by applicable law: A member will not
charge additional add-on fees, such as a late fee, not authorized by state or federal law.
3. Truthful advertising. A member will not advertise the payday advance service in any false,
misleading, or deceptive manner. CFSA supports as a guideline for truthful advertising the
advertising regulations contained In the Federal Truth-in-Lendlng Act.
4. Encourage and promote conlumer responsibility. A member will Implement policIes and
procedures to help consumers avoid the creation of a cycle of debt with the payday advance service.
These policies will include notifying consumers that a payday advance Is a short-term cash flow tool
not designed as a solution for longer term financial problems, as well as warning customers of the
risks ihherent In mUltiple sImultaneous transactions. Members will utilize appropriate disclosures to
promote Ihese responsible consumer practices.
5. Limit/prohibit roll-overs. AlthOUgh a payday advance is a short-term solution to an immediate need.

we recognize that a short-term cash flow problem may take several pay periods in order to correct
Itself. ·In states where roll-overs are prohibited by applicable law, a member will not under any
circumstances allow a customer to do a roll-over. In states where a roll-over is permissible, a
memberwillliot allow Its customers to roll over a transaction more than three (3) times.
6. Right to rescind. A member will give its customers the right to rescind, at no cost, a payday advance
transaction on or before the close of the following busIness day.
7•.• ApproprIate collection practices. A member must collect past due accounts In a professional, fair
and lawful manner. A member will not use threats. Intimidation. or unlawful harassment to colleot
accounts. CFSA believes that the colleotlon limitations contained in the FaIr Debt Collection
Practfces Aot (FOCPA) should guide a member's practice In this area. .
8. No criminal action. A member will not threaten or pursue criminal actions against Its customers as a
result of the oustomer's returned checks or past due accounts.
9. Self-policing of the Industry. A member will participate In self-policing of the Industry. A member
.will be expected to report Violations of applioable law to CFSA, which will in turn bring the matter to
the attention of the violator. If the Violation does not cease, the violator will be reported to the state
regUlatory authority. Each member company agrees to maintain and post its own toll-free consumer
hotllne nUmber In each of its outlets.
10. Support balanced leglsl8tlon. A member will work with state legislators and regUlators to support
responsible legislation of the payday advance Industry that incorporates these best practices.
Exhibit 2 - p. 50
32
Deferred Presentment Services--AppendJx C
Community Financial Services AS80ciation of America's "Model Leglslatlon tt
101 Short title
This chapter shall be known and may be cited as the "Deferred Presentment Services Act."
102 Definitions
As used in this chaptef. unless the context otherwise requires:
(1) "CheCk" means a personal check signed by the maker and made payable to a person Iioensed
under thIs chapter;
(2) "Commissioner" means the commissioner of banking or financial Institutions;
(3) "Deferred presentment service" means a transaction pursuant to a written agreement between a
licensee and the maker of a check whereby the licensee:
A) Accepts a check from 'he maker dated on the date it was written;
B) Agrees to hold the check for a period of time prior to negotiation or presentment;
and
.C) Pays to the maker of the check the amount of the check. less the fee permitted by
Section 113(b) of this chapter.
(4) "Licensee" means a person licensed to provide deferred presentment services pursuant to this
chapter; and
(5) "Person" means an Individual. group of Individuals, partnership, association, corporation, or any other
business unite or.legal entity.
103 LIcense requirements
No person shall engage In the business of deferred presentment servIces without having first
obtained a license under this Act. A separate license shall be reqUired fOf each location from whIch such
business is conducted.
104 Qualifications for license
(a) To qualify for a license, an applicant shall satisfy the following requirements:
(1) The applicant shall have and maintain liquid assets of at least twenty-five
thousand dollars ($25,000) per licensed location determined In accordance with
generally accepted accounting principles, up to a ms)(imum of two hundred fifty
thousand dollars ($250,000) in liquid assets per licensed entity; and
(2) The financial responsibility, financial condition. business experience, character.

and general fItness of· the applicant shall reasonably warrant the belief that the
applicant's busIness will be conducted lawfully and fairly. In determining whether
Exhibit 2 - p. 51
33
"
this qualification has been met, and for the purpose of investigating compliance
with this chapter, the Commissioner may review and approve:
(A) The relevant business records and the capital adequacy of the
applicant;
(8) The competence. experience. Integrity and financial ability of any

person who is a member, partner. director, officer, or twenty-five
percent (25%) or more shareholder of the applicant; and
(C) .Any record of conviction, on the part of the applicant. or any

person referred to in subdIvision (2)(B), of any criminal activity,
any fraud or other act of personal dishonesty, any act, omission
or practice which constitutes a breach of a fiduciary dUty or any
suspension, removal or administrative action by any agency or
, department of the United States orany state, from participation
In the conduct of any business. .
(b) The requirements set forth in subdIvisions (a)(1) and (2) are continuing In nature.
106 AppUcatlon for license
Each application for a license shall be in wriling and under oath to the Commissioner, In a form .
prescribed by the Commissioner, and shall Include the following:
(1) The legal name, residence and business address of the applicant and, If the
applicant 18 a partnership, assoclallon, or corporation, of every member, officer
,and director thereofj
(2) The location at which the registered offIce of the applicant shall be located; and
(3) Other data and information the Commissioner may require with respect to the
applicant, its directors, officers, members, shareholders, managing employee or
agents.
106 Filing fees - Financial statemenls
(a) Each application for a license shall·be accompanied by:
(1) An application and lnvesllgatlon fee which shallnot be sUbject to refund but
Which, If the 1I0ense Is granted. shall conslllule the license fee for the first license
year or part thereof; and
(2) A balance sheet and Income statement for the preceding fiscal year end,
prepared In accordance with general.ly accepted accounting prinoiples. For a
newly created entity, the Commissioner may accept a balance sheet only,
accompanied by a projected Income statement demonstrating that the 1I091"1.S99
will have adequate capital after payment of start-up costs.
(b) The fee set forth In subdivision (a)(1) shall be applloable to each location.
107 Investigation -Issuance of Ilclnse--Postlng
(a) Upon the filing of an application In a form prescribed by the Commissioner, accompanied by the
fee and documents required In Section 106, the Commissioner shall Investigate to ascertain
whether the qualifications prescribed by Section 104 have been satisfied, If the ·Commlssioner
Exhibit 2 - ~ 52
finds that the qualifications have been satisfied, and approves the documents, the Commissioner
shall Issue to the applicant a license to engage In the deferred presentment services business.
(b) The license shall be kept conspiouously posted In the place of business of the licensee.
(c) A license issued pursuant to this section shall remain In force and effective through the remainder
of the fiscal year ending December 31 81 after Its date of issuance unless earlier surrendered.
suspended or revoked pursuant to this ohapter.
108 Nontransferabllfty - Change In control of license
(a) A license isS'ued pursuant to this chapter is not transferable or assignable.
(b) The prlor written approval of the Commissioner Is required for the continued operation of a
deferred presentment services. business whenever a change in control of a licensee Is proposed.
Control in the case of a corporation means direct or Indirect ownership, or the right to conlrol,
twenty·five (25%) or more Of the voting shares of the corporation, or the ability of any person to
elect a majority of the directors or otherwise effect a change In policy. Control In the case of any
other entity means the ability to exchange the principals of the organization, whelher active or
passive. The Commissioner may require informatio_" deemed necellsary to determine whether a
new application Is reqUired. Costs incurred by the .commIssioner in Investigating a change of
control request shall be paid by the person requesting such approval. .
(c) A licensee shall notiry the Commissioner fifteen (15) days before any proposed changes in the
licensee's business location or name.
109 Reports to Commissioner
Within fifteen (15) days of the occurrence of anyone of the events listed below, a licensee shall
file a written report with the Commissioner describing such events and its expected impact on the
activities of the licensee In the state:
(1) The filing for bankruptcy or reorganization by the licensee;
(2) The Institution of revocation or suspension proceedings against the Ilcensee by any state
or governmental authority:
(3) Any felony indictment Of the licensee or any of its members, dlreotors, officers, or
shareholders;
(4) Any felony oonvlctlons or the licensee or any of its members, directors, officers, or
shareholders; and
.(5) Such other events as the Commissioner may determine and identify by rule•
110 Expiration of license
Licenses issued pursuant to thi~ chapte~ shall expire on December 31 11 of each year. Each
license may be renewed for the ensuing twelve-month period upon application by the licensee showing
continued compliance with the reqUirements of Section 104 and the payment to the Commissioner of the
annual license fee on or before December 31 II of each year.
Exhibit 2 - p. 53
35
· .
111 Regulations - Examinations
(a) Tho Commissioner may promulgate reasonable regulatfons pursuant to applicable state law for
the enforcement of this chapter. A copy of any rule or regulation adopted by the CommissiOnEJr
shall be mailed to each licensee at least thirty (30) days before the date it takes effect.
(b) To assure compliance with the provisions of this chapter, the Commissioner may annually
examine the relevant business, books an~ records of any licensee. The cost of the examination
shall be paid by the IIcensEls and shall not exceed $500 per examination period.
112 Relentlon ofrecord8
-Each licensee shall keep and use In its business any books. accounts and records the
Commissioner may require to carry Into effect the provisIons of thIs chapter and the administrative
regulations Issued hereunder. Every llciensee shall preserve the books. accounts and records for at least
two (2) years.
113 Fees for service; Deferred presentment procedures
(a) Before disbursing funds pursuant to a deferred presentment servIces transaction a licensee shall
prOVide a clear and conspIcuous printed notice to the maker of the check Indicating the following:
That a deferred presentment service transaction is not intended to meet long·term financial
needs.
That the maker of the check should use a deferred presentment service transaction only
to meet short·term cash needs.
That the maker of the check will be required to pay additional fees if the deferred
presentment service transaction Is renewed rather than paid in full when due.
That reneWing a deferred presentment service transaction is not advisable and may
cause finanoial hardship for the maker of the check.
(b) A licensee may charge a fee for the deferred presentment service not to exoeed twenty percent
(20%) of the amount paid to the maker of the check by the licensee. Such fee shall not be
deemed interest for any purpose of law. No other fee or charges may be charged or collected for
the deferred presentment servIce. .
(c) The maximum amount a licensee may pay to the maker of a check In a deferred presentment
service transaction Is five hundred dollars ($500)~
(d) No licensee or person related to a licensee by common control may have more th·an two (2)
outstanding deferred presentment services transacllons With anyone (1) customer at anyone
time, nor may the aggregate face value of all outstanding checks from anyone (1) milker payable
to any licensee exceed five hundred dollars ($500). Each licensee may rely on a written
representa,lon of a maker regarding the existence of any outstanding ohecks for deferred
presentment held by any licensee other than the licensee receiving 1he representation.
(e) Before a licensee may negotiate or present a check for payment, the check must be endorsed
with the actual name under which the licensee /s doing business.
Exhibit 2 - fti 54
(t) EaCh deferred presentment service transaction must be documented by a written agreement
signed by both the maker of the check and the licensee. The written agreement must contain the
name of the licensee, the transaction date, the amount of the check, and a statement of Ihe total
amount of fees charged, expressed both as a dollar amount and 8S an annual percentage rate
(APR). The written agreement must authorize the licensee to defer presentment or negotiation of
the check until a specifio date,
(g) The maker of a check shall have the right to redeem the check from the licensee at any trme prior
to the negotiation or presentment of the check by making payment to the licensee of the full
amount of the check.
(h) A licensee shall not defer presentment or negotiation of any check for more than thirty-one (31)
calendar days after the date the check Is recel\!ed by the licensee. '
(i) If a check Is returned to the licensee from a payor financiallnstllutlon due to insufficient funds,'
closed account or a stop payment order, the Iicen~ee shall have the right to all olvll means
available and allowed by law to collect the check. The licensee may oontract for and collect a
returned check charge not to exceed twenty-five dollars ($25) and may recover any court costs,
Including reasonable attorney 1ees, Incurred as a result 01 the returned check. No other fees or
charges may be collected 8S a result of a returned check or default by the maker of the check in
timely payment to the licensee.
(j) A maker of a check who enters Into a deferred presentment service agreement shall not be
subject to any criminal penally relating to the check or the deferred presentment service
agreement unless the account on which the oheck was written was closed on the original date of
the transaction or Is closed by the maker before the agreed upon negotiation date.
(k) . No licensee shall engage in unfair or deceptive acts, practrces or advertising in the conduct 01 a
deferred presentment business.
(I) The amount paid to the maker by the licensee In a deferred presentment service transaction may
be paid in the form of the licensee's business check, money order, or cash. proVided, however,
that no additional fee may be charged by a licensee or any affiliate of a licensee for cashing the
licensee's check.
(m) Each licensee must conspicuously post In its licensed location a notIce of the fees Imposed for
the deferred presentment service.
(n) A licensee may renew a deferred presentment service transaction no more than three (3)
consecutive times, after which the deferred presentment check m~st be paid off in cash or its
equivalent by the maker or deposited by the licensee. Once the maker of a oheck has completed
a deferred presentment service transaction with a licensee, he or she may enter Into a new
'. agreement lor de1erred presentment services with the licensee. A transaction is completed when
a check Is presented 10r payment. depOSited, or redeemed by the maker by payment In full in
cash to the licensee.
(0) A licensee may conduct other business at a location where it engages In deferred presentment
service transactions unless It carries on such other business for the purpose of evasIon or
violation of this chapter.
(p) A licensee shall prOVide a notice In a prominent place on each deferred presentment service
agreement In at least ten (10) pOint type In substantially the following form:
Exhibit 2 - ~755
· '.
STATE LAW PAOHIBITS YOU FROM HAVING OUTSTANDING AT ANY ONE TIME,
DEFEARED PRESENTMENT TRANSACTIONS TOTALING MORE THANS500. FAILURE TO
OBEY THIS LAW COULD CAEATE FINANCIAL HARDSHIPS FOA YOU AND YOUR FAMilY.
(q) The maker of a check may rescind the deferred presentment service transaction at no cost to the
maker at any time prior to the close of business on the business day immediately following the
date of the transaction by paying to the licensee, in the form of cash or other immediately
available funds, the amount of money advanced to the maker.
114 Denial of license - Hearing
(a) ,If the Commissioner determines that an applicant Is not qualified to receive a license. the
Commissioner shall notify the applicant in writing that the application has been denied, stating the
, basis for denial.
(b) If the Commissioner denies an application, or If the Commissioner fails to aot on an application'
within sixty (60) days after the filing of a properly completed application. the applicant may make
written demand to the CommIssioner for a hearing before the Commissioner on the question of
whether the license should be granted. In the event of a hearing, the Commissioner shall
reconsider the application and, after hearing, Issue a written order granting or denying the
application.
115 Suspension or revocation of licenses
(a) The Commissioner may, after notice and hearing, suspend or revok.e any license ~ the
Commissioner finds that the licensee has knowingly or through lack of due care:
(1) Failed to pay the annual license fee imposed by this chapter, or any examination
fee Imposed by the Commissioner under the authority of this chapter;
(2) Has committed any fraUd, engaged In any dishonest activities or made any
misrepresentations:
(3) Has violated any provisions of this cha.pter or any administrative regulation
Issued pursuant thereto or has violated any other law in the course of such
licenses's dealings as a Iicenseej
(4) Has made false statement In the application for the license or failed to gIve a true
reply to a question In the application; or
(5) Has demonstrated Incompetency or untrustworthiness to act as a Ilcensee.
(b) If the reason for revocation or suspension of a licensee's Iiq~m6e at anyone (1) location Is of
general application to all locations operated by a license, the Commissioner may revoke or
suspend all licensees Issued to a IIcensge.
(c) A hearing shail be held on written notice given at least twenlY (20) days prior to the date of the
h.earlng.
116 Violations - Cease and desist order. - Penalties
If, after a hearing, the Commissioner finds that a person has violated this chapter. or any
administrative regulation issuedpt.lrsuant thereto, the Commissioner may;
Exhibit 2 - ~856 .
.,
(1) Order the person to cease and desist violating the chapter or any administrative rules Issued
pursuant thereto; andlor,
(2) ReqUire the refund of any fees collected by such person In violation of this chapter; and/or,
(3) Order the person to pay the Commissioner a civil penalty of not more than one thousand
($1,000) for each transaction In violation of this chapter or each day that a violation has occurred
and continues.
EFFECTIVE DATE:
Exhibit 2 - ~9 57
Title· Lending Industry
Submitted By New Mexico Title Loans, Inc.
Title lenders have emerged as a distinct consumer finance Industry segment over the last six years.
The growth of these companies has been propelled by the large consumer dIslocation and credit fallout
resulting from developments In the banking Industry.
The recurring wave of bal'\klng mergers has in turn caused branch closings, reducing local
accessibility In many communities and parts of our cities. Moreover, the wholesale waves of credil card
solicitatIons (often pre-approved) have led to many overextended borrowers whose access to traditional
credit has now been out off by these same InstitutIons. Now despite these balances being paid off, no
access to traditional sources of cred~ Is available. When the above is combined with a bank regulatory
framework at the federal level that· Is highly critical of any "sub·prlme credit" by a bank, It Is· easy to
understand the very large and growing customer segments that are 1uellng the demand for title loans.
Beyond this, when one considers the limited access to oredit by self employed tradesmen, contractors
etc. eto, (where Income Is harder to verify unlike a salary), the trend toward usage oHltle lenders is further
accentuated. .
PRQDUCT DESCBIP'rION
Most title loans are structured as 30·day contracts secured by a first lien on the borrower's car or light
truck. At the end of the thirty-day period, the entire balance Is due; however, the borrower may elect to
extend the loan by paying the charges only or the charges and a portion of the principal balance.
Typically these loans span a three to five monlh duration. Also, repeat customer business Is high once a
relationship has been established•. Borrowers tend to derive comfort in returning to a credit 80uroe wllh
which they are satisfied. ·rheaverage size loan Is in the $400-$600 range, but loans as low 8S $100 and
as high as several thousand dollars are not uncommon. The vehicles financed are usually between five
and twelve years old.
The single largest reason for default Is that the vehicle stops working. Given this, repossession Is not
aneconomJcally vIable decision on the part of the lender and the loan Is simply charged off. In those
Instances. however, when repossession does occur, the acoount Is referred to a third party
. bondednnsured recovery company such as one that the local bank or GMAC might refer an account to.
Upol'\ repossession of the vehicle after a la-day redemption period, the vehicle is sold at a public auto
auction. There are extremely few Instances when local law enforcement Is needed to settle a
repossession dispute, as repossession companies are direoted not to repossess the vehicle if it causes ·8
. "breaching of the peace:' Also, every attempt Is made to settle an account with the borrower for payment
In part prior to any repossession action.
.9f importance Is that the practice of the Industry leaders has been to look to the vehicle as the sale
aotion In the event of non-payment or default by the borrower. Unlike the payday lending segment, the
leading title lenders do not cause the borrower to take on personal liability beyond the vehicle. .This
means (I) no filing of jUdgements against the borrower (deficiency or otherwise); (il) no garnishing of the
borrower's wages; and (III) no involvement of local law enforcement or court systems in debt collection.
Loan evaluation consists of a thorough examination of the condition ofthe vehiCle, evaluatIon of the
vehicle's value, and determination of the borrower's ability to repay the loan. A detailed application Is
completed by each borrower Including checking of personal references and verlfloatlon of
income/employment.
Exhibit 2 - p. 58 .
40
CUSTOMERS AND USE QF PRoceEDS
Most title lenders adopt an unIntrusive attitude regardIng borrowers use of loan proceeds; however,
customers generally fall Into several categories as follows:
1 Unexpected FInancial Needs
Title loan customers do not borrow to finance luxuries; rather, as described by the earlier
demographics, these are middle Income households who would rather borrow to tide over an
unexpected financial need than deplete tlnanclal reserves. Typical usage would include
home repair (including heating, air conditioning, roofing), repair of the family automobile,
visitation of relatives, back to school expenses, etc. etc.
As the demographics show, these customers do not have access to bank credit cards so
that the title loan becomes the substhutlon product of cholce~ Another frequent example of
use Is to cover the expenses of family relocation from one apartment to the next. In these
situations, borrowers will typIcally use the title loan to bridge the gap between receiving their
. several months rent and security deposit from the previous landlord and the need to provide
the same to the new landlord.
2. self Employed Individuals
Given the very striot proof of Income and documentation requIrements of deposItory
Institutions, many In this customer segment prefer the simplicity of going to a title lender.
This is a large group Including self~emploY9d tradesmen, landscapers. movers and haulers,
. carpenters, electricians. tile Installers, etc. etc. These borrowers use Ihe loan as working
capital line of credit for their small businesses. For example, a mover will borrow against his
car to finalWe the hiring of laborers ana rental of a moving van. Once he Is paid for the Job.
the loan will be paid off. These people borrow often and repeatedly over the cou·rse of a year
typically with durations of two to four weeks at a time. As businesses, these tradesmen can
often deduct any interest paid as a business expense.
3. Other Usee 0' Funds
While the above two categories are cited often by borrowers. the overall uses of funds
from title loans are many, varIed, and cover the landscape. Other uses would Include
insurance settlement anticipation, small business borrowers bridging employee payrolls until
accounts receivables are collected, healthcare expenses, education expenses, etc. etc.
Exhibit 2 - p.. 59
41
Consumer Demographic Profile
RL Polk, a major demOgraphic analysis company, profiled tille loans borrowers nationally
to better understand customer characteristics. The highlights are summarized below.
Title lending is often confused with others in the

"Fringe Banking" arena (e.g. Payday Lenders.
Check Cashers, & Pawn Operators), where
household Income tends to be low. Title Losn 20.001> ---~~to;WN;fe6lf'
customers on the other hand are spread 1s'oO% tue'l...._.. ·•
throughout all Incomes. wIth the largest group 10.00% ~-,-
being $50,000 • $74,999. 5.00% •
Unlike other "Fringe Banking" participants who CUSTOMER A.GE

have been Criticized for lending to students and
the elderly, title loan customers most common .
Bge group is 35 ·44 years old,
!G.DD% -----------;1 n~
.co.DiI~ ", •.. 1
311.00% 17.10%... •...,.',

~.OO% I
10.0011 .I.wn... -I.. 0,001(, 6.1~11 • .\
1.00% r
O.OO'~ U .......- -..... L,..J-..,..-..............__
11-24 25.34 3!1.~ 45·&4 SS-e4 &.1-14 75'
Whil8lived
have ,tohaen'satIgBroouupseO·dftToithleeL,pocaunsbtoOmr(Oe~se~
sra9reeSat
their current residence 10 + y~a(s, I~.~. ._-;;~;;;:.~.
3D.IN,.
many
establish new residences covering security deposits, I 2J.00f0 .• ~ ••_._-_...
24.lDlf:
advance rents, and repairs. Normally, short time at ao.OOI ~klOll ... -_......... .• ••.
I
a residence Is a big negative i1\tradillonal bank lo.OOlIe.20it ._ --•••• -. :
credll scoring approaches. 1:::
IMO'A
--.
l·~~;rol6i1.~:&O;";~. i.
0.00% 1-' 2 S 4 I • , • .t lOt 1
v~ ~::..~~.:'" v'" VI" ~::.~:. v,.. •

...._ . _ ._ _ .. • • I.
The facts confirm that most TIlle l.oan customers

CREDit CAROS
do not have credn cards available to them.

thereby limiting their access to traditional 71.201Ii,
means ofshort term borrowing.

!lD.llillI
~: ~-::_. __0.:: ._ _. ' __ ::1'
4ClCOll - - "'.' .• '. .••- .- .., - ' - - '
::: . . _.....::::=-...:: . ::~.:.....".-.. '/
3000II •.• ~--- .....
:lO.Ol*' __ :..uJlilL._...... . . '1
ID.OlM , .1.Ul'/a.4.1C*.
~0lM
IoIIl<oCO.... _tf11l11 ,~....ClIIfI ~~Ctrd
eft Cool Card
"'" _._._ _. I
Exhibi - p. 60
42
ISSUES OR MAJOR CONCERNS
·In the broadest sense. Issues and concerns regarding this industry segment fall Into
several oategories as follows: (i) safety and soundness; (Ii) consumer disclosure and
education; and (iii) consumer protElClion. The following exhibit Identffies these In further
detail:
Area of .Concern . Issue
Safety and Soundness • Adequacy of capital soundness given holding of vehicle

titles
• Conflict of Interest if car dealer or repo company
granted license
• Tralnlna of lender's emDJovees
,
!
Consumer Disclosure/EducatIon • Adequacy of disclosures

• Availability of consumer Information regarding
borrowing options
• Problem resolution bevond locallendina office
Consumer Protection • Extreme cases of rollovers

• Proration of Interest on early payoffs
• Cross selling of fringe loan products
• Judaements and oarnlshments
RESPONSE TO ISSUEs/CONCERNS
Safely and Soundness
Under the ourrent statute It is required that '~he applicant has available for operation of
the business at the specl!ied location cash or its equivalent, convertible securities, or
receivables of $30,000 or any combination lhereof." The statute goes on to say that such will
.be maintained. The problem is that this provides little If any public protection against the
Insolvency or bankruptcy of a title lender. "rhls Is especially critical as title lenders physically
hold Iiened tillea of borrowers. In the event of Insolvency, receivership or bankruptcy.
borrowers acoess to their tille can be Impaired through proceedings of the bankruptcy estate
and potentIally conflicting ppsitions held by creditors of the title lender. As such. title lenders
need to be held to a higher standard of financial soundness. The eXisting statute Imposes no
such reqUirements as anyone with $30,000 can make $30,000 worth 01 loans and not have
an Incrementaf dollar left behind to support the title lending business. At a minimum. (his
should be modified to $30,000 net· worth per ~ so as to Increas9 the net worth
reqUirements. as the size of the exposure Increl,lses. The above net worth should be certified
by an Independent publlo accounting firm.
Secondly, there is an inherent conflict of Interest in having auto dealerships and

repossession firms also operating (either directly or through affiliates or Joint ownership) title
lending operations. The dilemma posed here Is while a title lender Is Interested In the
repayment of the Joan, the above b.uslnesses are likely to be interested in obtaining the
collateral at a below market price for resale. Tactics such as repossessing cars when a day
late to obtain the collateral have been seen in other states. As a result no licenses should be
awarded to applloants with this inherent potential confliot of interest.
Exhibit 2 - p. 61
43
Lastly, the training of title loan employees to comply with the laws of New Mexico Is an
important IngredIent for consumer protectIon. The DIvision of Financial Institutions could
review this training program during its' licensing review.
CONSUMER DISCLOSURE AND EDUCATION

The leading title lender in New Mexico has established a best practice of going far
beyond the legal disclosures in the loan contract. The Intent and benefit here is to have the
borrower fully understand the nature of hislher commitment prior to the signing of the loan
. contract. The followIng exhIbit provides such a document.
New Mexico Title Loans, Inc.

REMIND.ER TO BORROWER
1. This is a loan for a period of one month. At the end of the loan, the amount that you borrow, pIus
a finance charge of approximately 25% (depending upon the number of days in the month) will
be due. For each $100.00 that you borrow, you will be required to repay approxImately $125.00.
2. We encourage you to pay your debt on the maturity date listed on your contract. If. however, you
are unable to pay the 'entire amount due on the maturity date, Interest charges will continue to
aoorue until the principal is repaid In full.
3. You should plan to payoff your loan as quickly as possible 10 avoid excess charges.
:4. All interest due must be paid before any payment will be credited toward the reduction of
principal.
5. Your automobile has been pledged 8S security for the loan. If the Joan Is not repaid In fuJi,
Including the finance charge, you are subject to 101lng your automobile.
6. It is important that you plan your finances so that you oan repay your debt. If you choose to
extend your loan. ,with each monthly payment you should try to reduce the principal amount
by at least 25%. This means for eaoh $100.00 that you borrow, you should be prepared to pay
at least $25.00 In principal, plus $25.00 In finance charges on your maturity date, as It Is eXtended
from month to month.
7. , Please note this 18 a higher Interest loan. You should go·to another source If you have the
ability tQ borrow at a rate of Interest below 25 percent pel' month or 300 percent APR.
I have read the above "REMINDER TO BORROWER" and I understand its contents. I have borrowed
the sum of $ and I understand that at the end ot my loan, I· am due to repay
$ ..' I understand that If I do not pay the amount due that I am placing continued
ownership of my automobile at riSk.
BORROWER
DATE: _
Exhibit 2 - p. 62
44
".
Once signed a copy is given to the borrower and a copy kept in the loan file. This
approach mitigates future borrower confusion regarding the interest rate, the obligation, and
the risk of losing their vehlole if non-payment occurs.
Next, we strongly advocate the preparation of a brochure to be developed hand-in·hand

wilh the Division of Financial Institutions. This brochure should describe alternative sources
of borrowing. traditional reqUirements ot such sources and where to go (i.e. public and private
agencies) in the event of financial diffIculty e.g. Consumer Credit Counseling.
Laslly, there are times when problem resolution of an account is not happening In the
local office. We believe it Is In both the lenders and borrowers best interest to have a point of
resolution beyond the local. office manager. Conspicuous posting Of slgnage within each
office with an 800 number complaint line to the head offloe of each title lender would be
constructive. This Would provide a borrower with a method of problem resolution other than
through local store personnel.
CONSUMER PROTECTION
Inasmuch as title loans are- meant to be short duratIon borrOWings and are definitely not
intended to be long term debt or permanent debt. some Ilmlts need to be placed on 1he
Ultimate term or number of extensions of this debt. The study group has reviewed several
alternative approaches to doing this and believes that setling a limit to prevent infinite
rollovers Is appropriate.
Another consumer protection Is the proration of Interest; I.e. interest should only be owed
for the amount of time the debt has been outstanding. This Is a simple Interest approach to
title lending WhIch consumer advocates have long favored. The only exception to this might
be the passing through of a lien fee at cost.
A third Issue or concem has been the potent/al for over lending to the borrower. This is
exacerbated when a "payday lender" Is also in the title lending business. In this instance. the
potential for abuse Is high Inasmuch a borrower can walk out with two loans when only one
was Initially in mind. This Is akin to the potential that some other states have found for the
packing of credIt life Insuranoe. As a result these two typas of lending should be separated
geographically.
Lastly, it has baen the practice of the leading title loan companies not 10 file deflolency
jUdgements or pursue garnishment of borrower's wages. Experien~ed lenders look strictly to
the collateral value of the car in the event of default. The only exception Is where the
borrower has perpetuated fraud or is a first payment default where no attempt at repayment
was ever made.
RECOMMENDATIONS
Based on the foregoing, we believe the following recommendations are In order. Similar
10 the earlier discussion. these are categorized by area of concern.
. Safety and Soundness
RecommendatIon #11: Strengthen capital reqUirements to $30,000 net worth per location
to safeguard borrower interests and access to titles against threat of title lender bankruptcy
and to prevent fly-by-night operators from entering the business.
RecommendatIon #2: ConditIon state lending licenses such that no title lender or
principal or affiliate there.of will also operate a used car business or a repossession business
Exhibit 2 - p. 63
45
(particularly at the same localion as title lending operations) where potential serious conflicts
of interest can arise.
Recommendation #3: Have the Division of Financial Institutions review Internal training
programs of title lenders to satisfy themselves as to knowledge of New Mexico state
regulations. .
CONSUMER DISCLOSURElEDUCATIQN
Recommendation #4: Have the Industry adopt the New Mexico Title Loan "Notice to
Borrower,n This notice signed before the loan documents are executed goes far and beyond
existing federal and state reqUirements for disclosure and ensures that the borrower
understands In sImple language the terms and attendant risks of taking out a loan.
Recommendation #5: Develop along with the Division ot Financial Institutions (wilh cost
borne by the Industry) a brochure detailing borrowing options, thelrrel~tive cost and what
other options (public and private) are available In periods of financial need.
Recommendation #8: Post slgnage inside each lending office providing an avenue of
problem resolution beyond the local office. "rhls slgnag9 would boldly offer an BOO number at
the title lender's head office to discuss issues and serve as a point of local dispute resolution.
CONSUMER PROTECTION
Recommendation ##7: It Is appropriate to plaoe some limits to bar extreme cases of loan
extensions beyond a certain point. We believe that 1he Lenders Committee, working together
with the Financial Institutions Division, shOUld develop specific language and IImlts~
Recommendation #8: Proration of Interest should apply to all title loans and be the
earning method of choice. This is the fairest
. .
approach. to borrowers.
Recommendation #9: As a condlllon to any license approval, prohIbit both title lenders
and payday lenders from operating within 500 feet of each other even if such are operated by
the same or affiliate legal ownership (to prevent Inappropriate cross seiling of multiple loans
to the same borrower). .
Recommendatlon#10: Prohibit t[tll~ lenders from filing delinquency Judgements or wage

garnishments against borrowers unless there Is the incidence of fraud or first payment
default. ExperIenced title lenders should strlotly look to the vehicle in the event of default.
Exhibit 2 - p. 64
46
The Small Installment Loan Business
SubmItted By the Consumer Installment loan Assoclat[on
Small Installment loans (Slls) differ from single pay, "bullet" loans like payday and car title loans CCTL),
by among other things, being paid off In several equal monthly Installments of principal and interest. They
dlfler from large Installment loans among other things by virtue of their size. (under $1,000) and their
maturity (up 10 a year). "
Credit decisions are usually made by the office manager and are not based on oredit scoring teohnlques.
Instead, the manager looks typically at the loan applicant's stability (how long they've lived In the area
and worked at the same place), their ability to pay (based on a detailed family budget which should show
some SPare income after all expenses. Including debt service, have been met) and their willingness to
pay (determined by their credit history •• although almost nobody seems to have completely clean credit
, these days).
Although SILs may' be used to finance purohases they are not typically "sales finance" loans. Instead the
use of proceeds Is entirely at the borrower's discretion. A customer might use their account to fund back
to sohool purchases in August, Christmas presents In December, to fix the car or pay a medical bill In
April
Description of the Product
A small Installment loan (Sll) has the following oharacteristlcs;

1. Amount: Typloally between $100 and $2.500
2. .Term: Again, typloally between three and twelve months
3. Payments: Equal monthly Installments of prIncipal and Interest
4. Pricing: The pricing of SILs Is based on cost. The cost Is a combination of fixed and variable costs.
The variable costs (like cost of capital and bad debt expense) account for around 35% of
outstandlngs; this Includes around 20% p.a. In bad debt expense. Based on a model with 750 active
. accounts and receivables of $250,()OO, a typical office's fixed costs (including salary, rent and so on)
are approximately $166 per loan per annum. Thus on a $100 loan the APR would typically be over
200% p.a., on a $200 loan It would be around 120% and on $500 68%.
$100 $166 166 20 15
$200 $168 63 20 15 118%
. $500 $166 33 20 15 66%
$1000 $166 17 20 15 52%
$2500 $166 7 .2 15 24%
Note that on loans under $500 fixed expenses contrlbule the great part of oosts and thus It is not
accurate 10 speak 01 "risk-based" pricing or to expect any Impact from movements In wholesale
interest rates. One should also understand that APRs are primarily a function Of the size of a
loan and Its term, and do not indicate profitability.
5. Collateral: Some companies mostly make unsecured loans, while others reqUire collateral.
Usually this will consist of personal property. the value of which Is limited since the security
Interest Is typically voided In bankruptcy. At other times an Installment loan may be secured on a
car title. Overall. the recovery rate fl0m bad debts Is negligible in the Sll Industry.
Exhibit 2 - p. 65
47
Demographics and Loan Criteria .
Some customers have referred to their unused oredlt at a Sil oompany as their deposit account. They
have saved credit rather than cash for a rainy day. It follows that they are not rich people with surplus
funds. It is also typically true that they are people who have not felt comfortable or particularly welcome
in a bank. even If, as many do, they have checking aooounts.
On the other hand, not everyone can qualify for a SIL. An applicant must have reasonable Stability,
Ability, and Willingness to obtain a loan. Stability is usually measured by how long a person has lived or
been employed in a particular place. Ability to pay Is measured by doing a strict monthly budget of
income and expenses. Willingness to pay is sometimes harder to determine and Is measured by how an
applicant has paid other obligations as shown In theIr credIt report. It does not follow that oredit problems
. will prevent someone from obtainIng a SIL. Today almost nobody seems to have unblemished credit and
loanofflc9s will even take a risk on former bankrupts. .
i
DemographIc studies 01 borrowers tend to show that most come from lhose that work but are not i
particularly well paId. Employees of state and 100ai govemment, teachers, policemen and some living on
public assistance, Clerical and sales staff predominate. Varying levels of education can be found, but
again most have high school diplomas and often some further education without having completed a four
year degree.
The other point Is that they tend to be repeat customers, coming baok year after year. enjoying first name
relationships with offloe staff. Though finan.olally limited 8S to the!r optIons, they are by no means
unsophisticated or unaware of the product. Many Indeed own credit cards, which they prefer not to use.
In terms of personality, one might Infer that some simply prefer dealing with real people who will explain
their obligations over the experience of receiving bad news by mail.
RegUlatory Environment
State treatment of the SIL Industry falls Into four categories:

1. . Straight usury states: this approach, most common in the northeast, effectively prohIbits the Sil
Industry from operatIng. (Of c~urse, It cannot prohibit all small loans since the Payday business can
. export rates across state lines.) .
2. Modified usury or insurance states: thIs approach, most common In the south east, allows StL
companies to supplement a low nominal interest rate with a plethora of other fees or services.
3. High disclosed rate states: Texas and Oklahoma set a rate high enough to make other fees and
services unnecessary and then prohibit these other fees and services.
4. Deregulated states: This approach, most common in the western states but Il1cluding older
industrialized states like Illinois and MissourI, allows the market to set rates and borrower and lender
to agree terms without government interference.
Issues and Concerns Raised here or In Other Stat,.
s) Rate: Some observers, though generally not actual customers, seem to fesl that the Industry's rates
are too high and that they should be limited by state intervention in the form of an APR based cap.
b) Renewals: Some observers have argued that all small loans should be SUbject to restrictions on
rollovers. In order to prevent borrowers from falling Into "cycles of perpetual debt."
c) Loan splitting: some have pointed to the of multiple offices under common ownership in the same
town using a proooss whereby a higher APR Is Intentionally obtained by lending less than the
customer is qualified for then sending that person to another looation to obtain the remainder; thus
making multiple loans to a borrower resulting [n higher charges than had there been a single loan.
d) Some have objected that their good credit was not reported to the oredlt bureau and that they were
unable to establish good credit In the way they anticipated.
e) Garnishment has sometimes been abused by SIL operators who used It as an early collection tool
rather than a last resort.
f) Some borrowers may not understand the terms of their loans, despite mandated disclosures.
Exhibit 2 - p. 66
48
Response, and Best Practice,
a) The issue of rate Is a complex one, as Is the related issue of the appropriate role for government. A
number of points could be made here:
1. Government has no business interfering In pricing In a competitive industry, only where a
monopoly exists.
2. A~Rs are a function of amount and term and thus an inefficient Indicator of fairness or
profitability and an Inappropriate vehicle for government control. The consumer might be better served by
borrOWing under a higher APR if he can thereby pay less tQtaJ Interest and get out of debt quicker.
. 3. The rates though high are not unreasonable (once the expense structure Is understood)
anymore than other retail prices are unreasonable. The SIL business Is a retail business.
4. If usury rates were imposed, they would destroy the SIL Industry but not the payday
Industry, which can export ns rates across state lines and has significantly higher APAs than the SIL
industry. This would reduce consumer choIce but not Increase consumer protection.
. b) Renewals:The case for limitations on renewals Is usually and properly made only with regard to the
rollover of bullet loans like payday or title loans. It does not really apply to Installment loans, whIch by
virtue of their structure reqUire that principal be paid down each month. Indeed one of the proposals
clrculat~ for dealing with the rollover of bullet loans Is to oonvert them after, say, three renewals into
a species of Installment loan, where the principal is made to reducs'eaoh month. A borrower must be
allowed wllhout restriction to re-access the equity he or she has bUill up In an lnstallment loan after a
number of payments.
c) Filling the gap. This is a new challenge and a worthy one. which some oompanles are trying now to
mset. Historically In many states SIL companies have been limited In the amount they can advance
(sometimes less than $500) and the term of their toans (often capped at twelve months). In a
genuinely deregUlated state like New Mexico some are now beginning to make larger, lower APR
loans.
d) loan splitting: the presence of multiple offices In a city Is not In Itself sinister. Some operate that way
In order to accommodate theIr many customers without overcrowding their oHlees and prejUdicIng
standards of customer servIce. Some also make sure that they have no duplications. Others merely
operate their offIces Independently with no collusIon and no Intent to loan-split.
e) Nobody should advertise that they wltl help establish credit If they do not, in fact, report good credit to
the credit bureau. AFSA, the national trade assoolatlon, has considered adopting a Voluntary
Standard reqUirIng all members to report good credit. This may prove unworkable, but some milder
resolution (perhaps requiring all members to disclose up front what their policy on reporting Is) may
stili be adopted. The Industry Is studying the Isswi' and Is keen to be proactive In this arena.
f) Some within the SIL Industry would be happy to see garnishing abolished altogether as it generally
has the effect of raising bankruptoy rates, especially when abused. However, it is an especIally
valuable 1001 for retail merchants and others without a real collection capability. Instead the ellA has
proposed that Its use be restricted, perhaps to accounts over 90 Of 120 days past due. This should
solve the problem of its occasional abuse.
g) Nobody shOUld feel1hey have been talked into somethIng against their subsequent better judgment.
To this endOILA members have started to distribute a brochure to borrowers giving information about
various loan.product options and the t~lephone number of the CCOS, the OFI. the BBB, and the AG's
office. In addition, Its members are willing to offer a 24 hour rIght of rescission at no cost to people
who feel they may have made a mistake. Prepayment of any loan Is always possible without penalty.
In general, elLA members strongly support financial education in schools both In NM and nationally
where its national counterpart, AFSA, is a chief sponsor of the Jump Start Coalition.
Exhibit 2 - p. 67
49
/.
The Consumer Finance Industry

Submitted By the New Mexico Financial Services Association
The consumer finance industry Is a highly diversified and competitive Industry. The consumer finance
industry can trace its origins back to 1878. Finance companies vary In size and ownershl/il, from slngle
office Independently owned andoperated to multl·bllilon dollar companies with hundreds of branch offices
located throughout the country. Currently, New Mexico has a diverse group Of consumer finance lenders
operating within the state. Consumer finance lenders also vary In the products and services they offer to
the consumer. 'rhe consumer finance Industry has a long and reputable history of providing a valuable
service to consumers. whlfe at the same time strengthening local economies by providing capital to
purchase goods and services. The underlying purpose of the consumer finance lender Is prImarily to
finance consumer needs Including consumer goods, durables, automobiles. housing, education, and
emergencies.
The Industry Is often referred to as the "market funded lending industry" becauae It lends money to
consumers without relying on insured deposits. Here are some common characteristics of the market
fUrided lendIng Industry:
• Market funded lenders have excelled a1 developing underwriting techniques and risk management
. systems that have allowed them to meet the needs of millions of consumers nationwide who may
have otherwise been denied access to credit. .
• Market funded lenders have bean serving the unfilled credit needs of consumers for over 100 years.
• Market funded lenders have filled special niches in lending money through Innovation and flexible
produo1s and servioes.
• Market funded Jenders enhance and support local economies by providing oapital and enhancing
purchasing power of local consumers.
• Market funded lenders maintain a loyal customer base by prOViding specialized service and Individual
attention. .
Product Description
Consumer finance lenders offer a variety of products and services to their consumers. Some consumer
finance landers may offer several different products, while others may specialize In a particular product
line such as automobile or home eqUity lending. Some of the most oommon product lines offered by
consumer finance lenders inolude: .
• Traditional consumer finance loans

•. Aefall sales finance
•. Automobile finance
• Rear estate securedl home eqUity lending
• Credit cards
Traditional consumer finance loans offer consumers flexibility and often meat short term or Immediate
needs such as provIding cash for car repairs or unexpected medical bUls. These loans are generally
written on shorter terms and may be unsecured or .secured with some form of collateral such as an auto
or personal property.
Retail sales fInance credit transactions may be in the form of an Installment cOntract or open ended
revolving account. The revolving acoount provides flexibility and a means for the consumers to make
additional purchases on the same accountwllhout completing a new application each time. Retail sales
finance credit transactions provide available credit to consumers at retail outlets to purchases such items
as TV's. VCR's, lawn mowers, washing machines, dryers and other essential household items.
Exhibit 2 - go 68
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Consumer finance lenders through their retail dealers may offer attractive payment plans such as 90 days
same as cash or no payment for 90 days, Flexible payment plans provide consumers with greater
purchasing power and choice. .
Some consumer finance companies specialize in automobile financing. They have the expertise and the
willingness to provide credit on new and used vehicles, A huge credit void would exist if it were not for
consumer finance lenders providing necessary automobile credit especIally for those consumers with less
than ideal credit.
Real estate secured or home equity loans provide a substantial benefit to consumers. Consumers have
the opportunIty to consolidate credit oard bills, pay for college expenses, or remodel the home, Home
equity loans may be a more attractive option for consumers because the interest may be talC deductible.
Credit cards provide consumers with greater purchasing power and the benefit of manageable monthly
payments and the. opportunity for repeat purchases.
, ,
The term, size and security for a loan vary with each transaction and may depend on many factors. Both
legal and economic factors affect the size and term of loans made by consumer finance companies.
Loans can be secured or unsecured, open endlitd or closed end, Seourlty may range from personal
property to an automobile to a lien on real properly. The size of the loan and the credit worthiness of the
customer are two factors that help determine the security requIred for a loan.
CustOmer demographics
Consumer finance lenders provide loans to people of all Income levels and from all social economIc
backgrounds. II would be highly inappropriate to "label" or "stereotype" the consumer finance customer.
The diversity in the consumer finance industry's customer base is another example of how successful the
Industry has been In providing oredlt with an Individual touch.
gustomer use of proceeds
The list is unlimited. For example, the Industry prOVides loans In the sprIng for home Improvements, in
the summer for a family vacation, In the fall for back to school shopping and In the winter to cover
. Christmas expenses. The Industry provides money for college expenses and to pay unexpected medical
bills. The Industry also provides loans to purchase electronics, home computers, lawn and garden
equipment, boats and other essential and recreational Items. Maybe a temporary disability has caused
someone to fall behind on his or her bills and they need short term asslstanoe until they can get back on
their f~et. Regardless of the need, consumer flnanoe lenders continue to prOVide a neoessary and
valuable service to consumers nationwide and in particular to New Mexico consumers.
Issue. of malor concern
The major Issues of concern are competition, bankruptcies, regulatory and legislative burdens, and costs
associated with delivering services.
Competltion- The consumer finance industry Is a highly competitive market. In addition to competing
against other consumer finance lenders, the Industry has seen increased competitIon from banks,
mortgage brokers and credit oards Issuers tryIng to reach consumers In a marKet they have ignored for
many years. .
Bankruptcy· The number of bankruptcy filings nationwide continue to rise and this disturbing trend
continues to be an obvious Concern for consumer flnanoe lenders,
Regulatory and legislative burdens- -rho consumer finance industry is a highly regUlated industry. The
consumer finanoe companies are required by law to be licensed and regular exams are conducted
Exhibit 2 - p. 69
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annually. Also. the industry faces the uncertaInty of new 'eglslatlon being enacted each year, some
·whioh may have a negative impact on the industry.
0'
Cost of delivering services- The cost of delivery of services to the consumer continues to be a concern for
lenders, particularly for the national chains who utilize branch offices located in local ~ommunities,
Response to conpirns and best practlc8B
Competition· The consumer finance lenders must continue to provide personalized service to Its oustomer
base white at the same time utilizing the advances in technology to meet the changing needs ot today's
consumer. The Internet is forcing /enders to evaluate their product lines and marketing strategies.
Although competition is fierce In the consumer finance Industry, competition is welcpmed and encouraged
as competition means more choIces and better prices for consumers.
Bankruptcy· The consumer finance Industry supports the federal legislation intended to provide .
bankruptoy reform. Locally. consumer lenders oontlnue to evaluate and Improve their undelWrltlng
standards and criteria. Some companies have elected to utilize credit·scorlng models to minimize
defaults caused by bankruptcies. Consumer finance lenders must also continue to educate their
customers on lhe dangers 0' credit abuse and the long- term effects of bankruptcy.
Regulatory and legislative burdens· The consumer finance Industry supports regulatory oversight and
annual examinations. Theinduslry views its relationship with the New Mexico State Banking Department
as a mutual partnership designed to encourage economic aotivity while maintaining reasonable consumer
protections. However. excessive regulatory burdens on industry can Inadvertently result in higher costs
to consumers. Many of New Mexico's consumer fInance lenders are members of the New Mexico
FinancIal Services Association. Through the Association, the Industry works to educate lawmakers and
supervisIng officials on Issues that affect the industrY. .
Cost of delivering services- Many companies believe that the best avenue for delivering financial products
Is by eSlablishing branch offIces to serve customers locally. However. there is an extensive cost
associated with this dlstribulion method. Many companIes, in partioular the larger nallonal chain
companies, are looking for ways to control overhead costs by centralizing certain business op~ratlons,
while at the same time maintaining the branch office structure.
Recommendatfons
The consumer finance Industry stronglv believes In a deregulated market environment. Market forces,
InclUding competition, can effeetlvelycontrol prices and protect the Interest of consumers. A deregulated
environment ultimately provIdes the consumer with more choices. better prices, and greater access to
credit
Exhibit 2 - Y270
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Mortgage Lending In New Mexico '

SubmItted By the New Mexico Mortgage Bankers Association
The membership of the New Mexico Mortgage Bankers Association Is quite varied; Voting members
Include all types of for-profit and not·for profit mortgage lenders including banks, thrifts, credit unions.
mortgage bankers and mortgage brokers.
The net worth of these mortgage lenders varies from substantial to Insignificant. The experience level
and expertise of mortgage lenders also varies substantially. Individual lender volume can vary from one
loan per month to 200 loans per month. Many mortgage lenders are national or regional companies with
branch operations in New Mexico. Some mortgage lenders are Incorporated and headquartered in New
Mexico.
The size of the lender and where it Is inoorgorated influences the type of seNlee it provides. As an
example, brokers are typically small and sell all of their loans "servicing released", which means the
borrower will make their monthly payment to a different mortgage company. Additionally, the oloslng of a
broker's loan is typically funded by another company, which in turn services the mortgage after closing.
Banks, thrifts and mortgage bankers typically fund their own loan closings. However, some of these
lenders retain the loan servicing accounts, while other lenders sell their loans servicing released.
The mortgage business Is not an easy business to be in. In faot the mortgage Industry Is very
complicated and It Is very expensive to operate a fuJI service mortgage company. Consider these
statistics Included in the Mortgage Bankers Association of America 1997 Cost Study. The per loan cost
to produce Is as follows:
Personnel Expense $1,584
Occupancy $140
Data Processing $65
Other Direct Expenses till
Total Cost Per Loan $2508
Mortgage lenders of all kinds sell the vast majority of their loans Into the Secondary Mortgage Market.
Historically the major outlets In the secondary market have been Ginnie Mae, Fannie Mae and Freddie
Mac. The Insurance or guarantee of the loan Is typically FHA, VA or Private Mortgage Insurance (PMI).
The secondary market has recently evolved so that essentially any kind of loan can be sold. The
subprime market is an example of this evolulion. A subprime loan Is typically a loan In which the borrower
has credit quality below what is reqUired by the agencies listed above. These loans may require larger
down payments and have higher Interest rates. Brokers have excelled at subprime lending. The
evolution Of the subprlme market has served to ,Inorease the size of Ihe overall mortgage market by
serving borrowers who prevIously may have been ineligible for a mortgage.
The mortgage Industry has an enormous Impact on the primary markets In which It operates. The vast
maJority of homeowners cannot pay cash fora home. The mortgage Industry facilitates homeownetshlp
for Individuals With vastly different circumstances. IndiViduals may have low Income or high Inoome,
substantial down payments or no down payments, gOOd or bad credit. There Is a mortgage loan available
for just about everyone. Terms vary depending on the Investment quality of the loan.
The secondary market for mortgage lending Is the vehicle that moves money from investors to mortgage
borrowers. Billions of dollars were lent to New MeXico homeowners in 1998 by the mortgage Industry.
Thousands of New Mexicans could not be homeowners without this Industry. The vast majority of the
loans are Investment grade mortgages meeting the minimum standards of Fannie Mae, Freddie Mac or
Ginnie Mae. Loans meeting the standards 01 these agen.cles are packaged and sold In Mortgage Backed
Securities. These securities are typIcally sold to Investment Banks on Wall Street to the highest bidder.
. The Investment Bank then sells the bond to a permanent investor, which has available oash. The highest
Exhibit 2 - p. 71
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bid price translates Into the Jowesllnterest rate available for the New Mexico homebuyer. This Is how
money from around the world Is made available to potential homeowners In New Mexico. .
The size of the mortgage industry in New Mexico and its Impact on the state are sUbstantial. Here are
industry first lien volumes for four New Mexico counlles for calendar year 1998.
~ $ of 111 liens
Santa Fe 7,017 $1,095,599,402

Valencia 2,701 $255,407,434
Sandoval .5,421 $602,419,790
Bernalillo 29,073 $3.332.6Q2.!j84
1998 Four County Total 44,212 $4,299,989,610
ThEise county volumes represent a very large percentage of the total state mortgage volume. InformatIon
about volume levels in the state's smaller counties Is not readily available. .
A mortgage transaction Is complloated and the process can be confusing to borrowers. Furthermore a
typloal borrower may have only a couple of mortgage transactions In their lifetime. Sorrie borrowers fully
understand their transactions and others understand very little. Soma mortgage lenders do a gr,at job in
helping borrowers un.darstand Ihe complexitIes of the transaotion, while others do not do a great job.
AdditIonally, some transactions are more complicated than others are. A mortgage refinance to a
borrower with fIfty· p$rcent equity in the property and great credit Is an easy transaction. A loan to a first
time homebuyer with no down payment and poor oredlt Is a complicated transaotion. Fixed rate
mortgages are easier to understand Ihan adjustable rate mortgages. Additionally the borrower must
. decide whether to lock or float their Interest rate while the loan Is in process. If the borrower decides to
take the Interest rate rIsk they are always disappointed if Interest rates rise. They are pleased only If
rates decline. Trying to guess what Interest rates will do is a very difficult and frustrating proposition.
Mortgagor satisfaction with their lender Is a function of all of these factors, As a rule, the industry does a
wonderful job In facilitating homeownershlp.
Borrower dissatisfaction with mortgage lenders Is absolutely the exception, not the rule. Hypothetically
five hundred complaints in a year would be terrible. The Industry prefers no dissatisfied customers.
However, five hundred complaints could be conSidered excellent service. Consider the four county
mortgage transaction statistics noted above. If you estimate that these (:ountles represent 15% of the
state mortgage volume, then there were approximately 59,000 first mortgage transactions In New Mexico
In 1998. If one percent were dissatisfied there would be 590 complaints, which is aihuge number of
complaints. However, It would be a tiny percentage. 'rhe big number Is the nl)mber of sallsfled and well
servEJd New MeXicans. A satisfaction rate of 99% would produce 58,41 ohappy homeowners.
The New Mexico Mortgage Bankers Association (NMMBA) Is proud of the service provided to New
Mexico by its membershIp. The NMMBA has a very strict code of ethicS, Which all members are
required to sign. The association's main purpose Is to provIde members with the educational training they
need to keep up with an increasingly complicated business and to provide exoellent servIce to
homebuyers In New MeXico.
The NMMBA welcomes the opportunity to provide even better service to New Mexicans by working with
the Administration and the Legislature to further reduce customer dissatisfaction.
Exhibit 2 - p. 72
S4
New Mexico·s Banking Industry
Submitted by the New Mexico Bankers Association
New Mexico banks are a combination ot State chartered and Federally chartered commercial banks. All
banks in New Mexico are F.D.I.C. members, which means each depositor Is Insured for up to $100,000.
This Insurance is used normally In the case of a bank failure.
State chartered banks are fully examined at least onoe every 18 months by the Financial Institutions
Division, the F.O.l.C., and/or the Federal Reserve. National banks are at least examined by the Office of
the Comptroller of the Currency. ·Banks, based on size, are also given separate exams by other
examining teams In the trust and technology areas.
Banks also have separate exams by other examIning teams who monitor CRA efforts, which are
community reinvestment Initiatives set forth in the Community Reinvestment Aot of 1977. They also have
Fair Lending exams, which determine the bank's availabilitY of credit across all social strata as set forth In
the Fair Housing Act, the Equal Credit Opportunity Act, and the Home Mortgage Disclosure Act.
Financial analysts estimate that the average bank must comply with more than 6,000 pages of
regulations, statutory language, policy statements, regulatory commentary, and legal analysIs. The
Impact of this regulatory burden on customers has been less credit availability and higher costs. Banks
are the most regulated and examined businesses in our economy, prlmarlly because of their importance
In funding major growth and expansion endeavors In a sound marmer for individuals, cities, counties, and
states. Banks are considered a trustee for all Public and indiVidual deposits.
There is not an "average profile" for various banks' lendIng profiles. A bank's lending portfolio Is baslcallv
comprised of 1he following elements:
1} Commercial Lending 5) Indirect Consumer Loans

2) Real Estate Lending 6) Credit Cards
3) Construction Lending 7) Agricultural Lending
4) Direct Consumer Loans
Each bank has totally different percentages of loans, by type, which are determined by ourrant community
needs. Some banks in New Mexico have a high percentage of agricultural loans, yet little, If any, indirect
consumer lending. likewise, most urban banks tend to have larger percentages of commercial
·constructlon and real estate lending than do rural banks.
Because banks provide F.O.l.e. coverage to depositors, regulators are extremely diligent In examIning
the quality of each portfolio, including collateral, ability to repay, cash flow, credit history, etc. Very often,
these requirements increase the cost to the borrower but, Importantly, protect the depositor,
Safe'!y and Soundness is the passing grade for banks but, at the same time, banks must invest and lend
In everY area of their community. Naturally, certain unsecured loans create a higher risk and prObable
loss, which necessitate higher rates.
Banks do not generally allow rollovers or renewals of loans without the customer at least paying all·
accrued Interest due. Normally, a percentage of the principal must be repaid. Regulators are very
opposed to multiple rollovers without prinCipal reduction, as well as payIng interest due.
Truth·in-Lendlng, which requires banks to disclose all feas atlached to a loan of which the Interest rate Is
a part, piUS Credit Bureau reports, recordIng fees, etc., are usually not significant to banks becEJuse of the
higher average amount of its loans. However, smaller unsecured consumer loans show high annual
percentage rates, not interest rates, because fees such as credit reports distort the rate. In general, our
consumers understand thIs and consider the reasonableness of total fees charged, by category, and not
the annual percentage rate (APR).
Exhibit 2 -~ 73
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Credit Union Lending in New Mexico

Submitted By the New Mexico Credit Union League
About Credit Unions
Credit unions are not-for-profit cooperatives, which are owned and operated by theIr members. After
meeting e)(penses and reserve requirements needed to ensure financial stablllty..credit unions return all
net earnings to their members. The NatIonal Credit Union Administration (NCUA) places an 18% ceiling
on roan Interest rates .for Federally-chartered credit unIons. In addition, credit unions are democratically
controlled by their members. All members, regardless of the size of their accounts, are entitled to one
vote to elect their credit union's volunteer board of directors. There are 56 credit unions In New Mexico.
How to Become a Member

. Depending on how a credit union is chartered, membershIp In a credit union may be obtained three
different ways: by association (such 8S a churCh), by employment, or by residence In a clearly defined
community. The associatIon, employee group, and community group must be specifically defined in the
oredlt union's charter or in a charter amelidment. The decision to accept a group Is made by the credit
union's regulator (either the NM Department of Regulation and Licensing or the National Credit Union
Administration.) .
Member Demographlc8
New MeXico-specific demographic data on credit union membership Is unavailable. However, a 1996
nationwIde study of credit union members provides the following data:
Average Age 44.5

. Gender
Female 49%
Male 51%
Married 75%
Average Number in Hshld. 2.8
Employment
Full Time 64%
Ouallncome Hshld. 48%
No Wage Earners 9%
Retired 16%
Lending Practices
The consumer lending prooess includes an application, a credit bureau report, verification of employment,
- and assessment of collateral, character, and capacity to repay the debt. Credit unions must comply with
all federal fair lending regUlations and disolosure reqUirements.
If the quality of the borrower does not meet underwriting standards, a loan Is likely to be denied.
However, some credit unions have implemented risk-based lending programs. Under these programs.
Interest rates on loans refleot the risk that the lender Is assuming in granting a loan. The poorer the
.quallty of the borrower, the greater the risk, thus a higher Interest rate Is offered. This Is an appropriate
practice because all oredlt unIon members must share the expense for loans that are oharged off-elther
with lower rates on savings or higher overall Interest rates on loans. In addition, an appropriate incentive
tn8t encourages financial responsibility is reflected In a risk-based lending approach.
Collection activity on a consumer loan accelerates as a delinquency continues. Notices are usually sent
after the loan Is delinquent for 15 days; calls begin between 15 and 30 days; written notification of future
action Is sent between 30 and 60 days; and, at 90 days; delinquent loans may be turned over to ~gencles
or attorneys lorcoll9ctlon.
Exhibit 2 - p. 74
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A Case Study of Credit Union Lending

Many credit unions in New Mexico do not offer' credit cards or mortgage loans. However, for the
purposes of this report, we profiled 8 New Mexico credit union that offers several loan products in their
portfolio. nis credit union's portfolio consists of the following types of loans: .
46% real estate (mortgage, home equity, etc.)
40% auto
8% credit card
4% unsecured
2% CD secured, other miscellaneous loans
Credit unions tend to charge a similar rate Of interest on loans. The National CredIt Union Administration
(NCUA) places an 18% ceiling on loan Interest rates. State chartered credit unions are under no such
restriction but follow the' 8% guideline set by the NCUA. Currently, for our profiled credit union, the
average rate for a new car loan Is 7.15-7.65%; the average rate for a signature loan is 14%; the average
rate for. a first mortgage Is 7.5%: the rate for a credit card Is 10.9%.
Providing loans comes with a cost for all credit unions. A study, conducted by the Raddon Financial
Group, prOVides a breakdown of "the cost of doing business" for our profiled credit union. 'The data
provided by Raddon Financial Group, which conducts studies forcredit unions and other financial service
providers across the country, fully allocates all costs associated with making loans.
The following Is a summary of the Raddon Financial Group's conclusions for our profiled credit union
(CU). "Peer" refers to the credit union's peer group, which are credit unions with a similar field of
membership and asset size. "Reg," refers to'reglonal average. "Nat." refers to na1ional average.
111 Mortgage Home Equltv Auto Consumer Unsecured QredltCard
CU $613 431 149 147 91 81
Peer $531 441 162 160 100 94

Reg. $568 406 148 142 89 80
Nat. $645 454 162 153 96 88
Our profiled credit union also provides "start·up loans" for credit union members who have not established
credit. These loans are usually $500 or less with a 15% interest rate.
The average loan balance for this credit union varies per type.
18t Mortgage Home Equity Auto Consumer Unsecured Crediteal'd

$97,000 22,300· 10,200 5,300 2,600 2.000
Conlumer EducatIon
Consumer education Is a routine function of our profiled credit union as well as all other credit unions.
Many credit unions hold seminars 10r their membership on lending. bUdgeting, and financial responsibillty~
They also work ctollely with the Consumer Credit Counseling Service to assist members In restructuring
.. their debts to accommodate loss in income due to unemployment or other hardships. Consumer
education materials are displayed in most credit unions In New Mexico~ Credit union professionals often
present programs on financial responsibility and management to schools and youth groups.
Exhibit 2 - p. 75
57
{
The Pawn Industry

Submitted by the New Mexico Pawnbrokers Industry, Inc.
(NMPII)
. Pawnshops have a long world history and a long history In the State of New Mexico. They are also one of
the most regulated businesses to be found. In New Mexico, pawnshops are the only lending InstitutIon
subject to a usury provision in their state statue.
Today, statutory regulations of banking and finance are based on the legal foundation established by
pawnbrokers. Many of the first leaders in the banking Industry had roots In pawn brokerlng. As was the
case 3.000 years ago, pawnshops continue to be a source of convenient credit for individuals in need of a
short-term loan.
LegIslation Is Cf;lntlnuously introduced that effects the Pawnbroker and their customers. Most of this
legislatlon Is Introduced by well·intentloned legislators or oonsumer advocates, who have no "real"
understanding of the pawn business or the needs of the pawn customer. Sadly, the effect of increased or
stiff regulations actually works to harm consumers more than protect them.
In 1998, the Credit Research Center, Georgetown School of Business, Georg9town University, complete
and published their study PAWNBROKING in the U.S.: A Profile of Customers. A synopsis of the stUdy Is
attached as (eXhibit 1). Their conclusion about the Pawn Industry, Its customers, and action taken by the
legislators·
"While it may be popular to reduce rate ceiling and Impose other
restrictions on pawnshops, once laws are enacted and prove to harm
the very consumers they were meant to protect, it is difficult to
return to beneficial oompetitlve markets. Consumers who have been
disadvantaged by restrictive legislation are unlikely to have advocaoy
groups who will argue for a return to higher rate calling {or no rate
ceiling at all)."
The statutes that effect pawnshops and their customers /n New Mexico have been in effect; with only
minor change, since 1978. While the Pawnbrokering Industry across the U.S. has grown Immensely In the
last 15 years, there has been very little change In the number of pawnbrokers In New Mexico. Yet, during
this saine period the State has seen a mushroom In the number of small loan companies, payday loans,
check cashIng and car title loan companies. The unquestionable reason for this disparity Is the tight
regUlations Imposed on the pawnbroker. CRO states •
"If pawn brokering. a business that has served consumers for
thousands of years, Is to continue to be a vital and stabilizing
economic force In communIties throughout the natlon... /t
becomes critically Important for pUblic policy makers to create
a legislative framework that encourages oompetitlon, ...new·
firms to enter the business and existing tlrms to open new
branches..." (exhibit 2)
Pawnshops are actually four businesses, Intricately linked, to form one operation. If any of the links are
broken the remaining structure falls.
1. They lend money, based on collateral presented, not on the credit worthiness of the
borrower.
2. They assess and appraise a wide variety of goods for loan value, and possible resale value.
3. They securely store and maintain the pledged merchandise in as good or better condition
than presented.
Exhibit 2 sf 76
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4. They are a retail, new and used merchandise operation Chat has to maintain a rapport in a
variety of genre such as: .
··Flne Arts including diverse cultural arts

··jewelry
·-guns and related accessories
··electronics Including televisions, stereos.
computers, fax machines
·-hardware and tools both professional and
. amateur grade
--musloallnstruments IncludIng all accessories
··blcycles, cameras, household appliances, eto., etc.
It Is a system Chat on Che surface seems to hold less risk than other small loan industries. ThUS, many
feel the fees collected should be less and/or regulated. But consider the following:
• The goods pawned may have an Insufficient value to cover the loan and accrued
Interest.
• MerchandIse may not work properly If left with the pawnbroker to long. TV's are
Intended to be played. and the bands on VCR's dry out.
• Merchandise may become obsolete or out of style by the time default occurs. Just
look at the computer Industry and how fast you have to update your computer
to stay up with technology,
• Merchandise may be stolen. Nationally, less than 1/1 0 of 1% of merchandise 1aken in

pawn Is proven to be stolen, but If you have advanced $500 or $1000 on somethIng
and It Is confiscated It Is a significant loss. When m$rchandlse Is confiscated It Is
normally only the Pawnbroker who loses out. The merchandise Is returned
to the claiming party. Because the amounts involved are normally low, most District
Attorneys will not prosecute and It is not cost effectIve for the Pawnbroker to bring
civil action.
• If merchandIse Is lost. broken, or stolen while In the Pawnbrokers care, the
Pawnbroker Is Uable for the replacement value. not the pawn value.
• Most Pawnbrokers are using their own, not borrowed, capital to make pawn loans.
There has to be a reasonable rate of return to compensate for the risk.
• Due to the uniqueness of the business, the Pawnbroker generally has a hIgher cost
of doing business, such as:
··hlgher fent or building cost due to extra square footage
needed;
··stronger security to protect merchandIse In pawn, .
such as: alarms. vaUlts for guns and jewelry, security
patrol, camera and video monitors;
··Intense and broad based training for Pawnbroker and
em ployees, as well as specialty equipment such as
diamond and gold testers;
··hlgh risk of a "oash based" business•.
The oredit rIsk has been shifted to the items pledged and not the person. This has a very positive impaci
for the pawn customer, as pointed out by Steve Alexander, Senior VIce President of Fleet Bank, and a
member of the CRC advisory counCil. This shift of risk has an Interesting Implication regarding which
consumer pays for credit losses. In the case of cash loans, the lender charges the Interest rate
appropriate to each risk class...When (consumers) default. the consumers who do pay their debt bear the
cost Of the defaulters credit fosses,...ln the case of pawn shop loans, consumers who default lose theIr
Exhibit 2 - p. 77
59
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collateral. If lhe loan-to value rallos are optimal, they bear the cost of their default by sacrificing the
dlfferenoe between the market value of their collateral and theIr loan. Hence. consumers who do not
default pay theIr Interest; redeem their collateral and do not subsidize defaultrng consumers as iii the
aasaof cash loans.
There are many other frequently asked questions that are asked about pawnbroking. We have included
them and the answers, 8S provided by the National Pawnbrokers Assoc. in (eXhibit 3).
The CRe Monograph #34 also sights the effecls of various regulations on Pawnshops. Some of these
are:
• REDUCED INTEREST RATES: Reduces the gross monlhly yield to lhe Pawnbroker.
which reduoes ,the required return on the investment. The Pawnbroker compensates
by denying very small loans; shIfting emphasis from simple tools, VCR's, common
household appliances to higher end electronics or jewelry; lend less. in relation to
value.
• RETENTION OF PAWNED GOODS FOR A SPECIFIED PERIOD OF TIME: This

requirement delays the recovery of the business investment. Any such forced delay
In seiling an unredeemed pawn exposes the pawn shop to a falling market price from
reoesslon or obsolescence of the Item pawned.
• RETURN OF ANV "PROFIT" ON SALE OF UNREDEEMED PAWN: Means that the

..pawnshop loses the profit and incurs more cost In notification, advertising. The
provision benefits only Ihoseoustomers who are slow payor no pay at the expense
ot those who receive a lower loan-ta-value ratio or are turned down for smaller loans.
• LIMITS TOTHE NUMBER OF PAWNSHOPS IN A GEOGRAPHICAL AREA: To
assure consumer proteotlon and the efficIency of the credit markets. competition Is
critical.
Pawnshops fit a niche market and satisfy a need In our economy. Further regUlation that restricts Interest
rates, time of contract, rebate on sale and geographical limitations will only harm the consumer who has
Iio other legal resource for their financial shortfalls. It Is extremely Important that legislation be created
which encourages, ralher than suppresses the continued operation and growth of pawnshops In a market
that will b~ competitive and keep providing a much needed resource to many who do not know or do not
want to use any other way to borrow money.
National Pawnbrokers Association

EXHIBIT #1
The Role of Pawnshops in the Credit Community
And the Effects of Regulations on the Pawnshop Customer3tl
A SYNOPSIS
For cen1uries, pawnshops have served the,credlt needs of a segment of consumers who have no
legitimate alternatlv.e sources for small, shorHerm loans. Today, pawnbroking continues to be a vital
economIc force In communitIes throughout the nation. Tens of thousands of working class Amerioans .
depend on loans 'from theIr neighborhood pawn shop when utility bills and olher household demands are
greater than the family Income. Many have baen pawnshop customers for years, borrOWing an average of
1~ This document Is a synopsis of a 1998 siudy. Pawnbrokiog in the U. S.: AProfile Or Cusl\)mecs, completed by the Credit Research Cenler,
School of BlISiness, Georgetown umvolllity, Washington, D. C.
The Credit Research Center I a pUbllely supported, nonpanlsan and non profit research and educational crganlr.ation. whose mission is to
motivate, conduct and support research on economic Issues relating to consuJm:r credit needs, Regulatory agencies,legilllstures. the credit
industry, consumer groul's and lhejudicial system use Ihe Center's research.
Exhibit 2 - p. 78
60
(.
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$70 to use for a few weeks or a month or so, redeeming the pawned possessions, then later, borrowing
agaln·-a cyole of repeat business that lends a measure of stability to the local economy.
Pawnbroking Is a small, but rapidly growing sector of the consumer credit Industry, and legIslation
continues to be Introduced that affects pawnshops and their customers. Understanding this segment of
consumers..-the pawnshop customer--is critical·to understanding the increasing demand for pawnshop
services and to predicting the impact of changes In laws and regulations on the pawnshop customer.
The Pawnshop Customer

The pawnshop customer Is likely to be a young male, 59.5% men versus 40.5% women, who rna)
.have graduated from high school, but did not graduate from college, 16.8% va. 28% in the US population.
He may b9 married, 40.7% vs. 60.3% !n the US population, but more likely is divorced, separated or
widowed. If he is not living. alone, he likely comes from 1he family-raising stage of life, ages 25 to 44
years, and bears the responsibility for a large household. 38. 1% reside in households of 4 or mor9.
Eighty-four percent arc either employed or self-employed, and may be in the 68 percent of pawnshop
customers who are covered by health Insurance V9rsus a rate of 85 perc~nt fot the U.S. populatIon.
Th' Pawn T!Basactlgn

Pawn loans are cash loans secured by collateral in the form of various possessIons of the borrower.
Pawn contracts are typically In monthly Incremenls and ownership remains with the borrower during the
life of the loan. The pawnbroker must determine the authenticity, quality, Joan value and market value of
the'ltem. Pawnbrokers must rely on knowledge and experience to determine the quality and value of
items ranging from gUitars to air compressors to skis.
If the customer agrees with th910an amount offered for the Item, the pawnbroker gives the
customer the cash and a pawn 11oket, which is a receipt describing 1he Item, loan amount, annual rate of
the finance charge and the term of the loan. Pawn service charges are disclosed as required under the
Federal Truth In Lending Act. The enllre transaotion takes 10 to 15minutes.
Pawned Items are placed In a secure stqrage area. Jewelry. guns and other valuables are stored in
vaUlts or other secure facilities. The pawnshop Is liable for the replacement value, not the loan value, of
My pawned Item that is lost, stolen or damaged. Since loans are made and repaid only ,In cash, the shop
must have an extensive security system to protect both the employees and the Items pawned.
Most pawnshops have a retail section to sell pawned /lems thal have not been redeemed. Thus,
pawnbrokers are unlike other lenders in that they have two businesses to manage. In addition,
pawnbrokers and their assIstants must be able to relate to the pawnshop customer and his credit needs,
as well as Identify, operate, authenticate and correctly value an eX1enslva variety of pawned Items.
Acquiring such fairly unusual skills requires Intensive and ongoing training, experience and great caution.
Loaning on a Rolex watch later determined to be an Imitation or misjUdging the value of a two-carat
diamond are costly mistakes.
Pawnshop costs for security, regUlatory storage, liability, training and a range of retail·related costs,
and providing Information to law enforcement agencies dally, are unlike and In addition to the operating
costs related to other financial establishments•.
Th' Increasing Demand for PswnShop ServIces

Iti the past ten years, the number of pawnshops In the United States has grown rapidly, almost
doubled, from an estimated 6,900 In 1988 to a recently estimated 13,000. This dramatIc Increase In the
demand for pawnshop services may be attributed to several Factors: bank deregulation: consumer
inability to obtain small, short·term loans from financial Institutions; and liberalization of state laws
regulating pawnshops.
The 1980 statute eliminating the ceiling on rates that banks could pay on saVings accounts allowed
banks to oompete more effectively with money market funds. However, to offset the higher cost of savings
accounts, some banks Imposed service oharges and fees 10 dIscourage small checking and savings
Exhibit 2 - p. 79
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accounts. Consumers who closed their bank accounts likely switched to using cash to pay bills and stored
their savings in cookie Jars, or used the savings to buy jewelry, VCRs and other household items that
could be pawned.
Probably a more important factor that leads some consumers to Favor pawnshops Is fear of banks.
Even consumers who do have savings accounts are very unlikely to be able to obtain small; short-term·
loans from these Inst1tutions. Well before deregulation, banks, major finance companIes and credit unions .
dId not commonly provide small, short-term loans to consumers. These financial institutions generally use
home ownership as one factor In determining creditworthiness.
The rate of home ownership for pawnshop customers is 35 percent, versus the national rate of 65 .
percent. Pawnshop borrowers also have above-average records of bankruptcy and say they prefer to
avoid the credit checks that many lenders require. A high percentage of' pawnshop customers who have
applied for credit have been rejected.
Additionally, for the Interest rates that they charge, financial instItutions cannot draft the loan
documents, check credit reports, appraIse the collateral, If any, and lend a depositor $70 for one month
within 15 minutes. Some other Institution was needed to supply that type of service, and that institution
was the pawnshop.
Pawnshop customers In the Credit Research Center study said they do not barrow from banks and
small loan companies because they have a much better chance of getting the loan they need at a
pawnshop. Many pawnshop borrowers have little choice. Borrowers said if not the pawnshop. they would
.turn to friends and relatives, do Without, or sell assets outright.
Possibly the most important factor contributing to the increase In the number of pawnshops in the
u.s. during the late 19808 and 19908 was liberalization of state laws regulating pawnshops.
In 1984, Indiana had 28 pawnshops. 37Subsequently. rate oeillngs were Increased and other
regulations modified. In 1998, there were 148 licensed pawnshops In the state. While a growing eoonomy
undoubtedly played a. rola, other states also had strong economies, but with restrictions on pawnshops'
rate ceilings, did not greatly Increase the number of pawnshops.
When restrictions are lessened, the number of pawnshops Increases. Relaxation of these laws
allows new firms to enter the business and existIng firms 10 open new branches. Additionally, increasing
the supply of pawnshops improves competitIon that benefits all consumers.
There Is a wide difference In the distribution of pawnshops among states. States that restrict the
interest rates pawnshops may charge or increase the costs of providing servIces have fewer pawnshops
per capita.
0'
Number Pawnshops for Every One Million State Residents
New Jersey 2. I Texas 75.7
Pennsylvania 3.1 Oklahoma 113.1
.Indiana 5.0
An Important growth factor is the change In the "Image" of pawnshops. The Industry has been
elevated toone of professionalism In the past decade, largely by pawnshop chains. One corporatIon of
more than 400 pawnshops has been listed on the NYSE since 1990. ChaIns have made pawn services
more attractive and more efficient. Their clean, Inviting and brightly lit pawnshops are conveniently
looated. many in strIp malls with ample parking. The shops offer customers convenient hours, no credit
checks, little paper work and the needed cash loan withIn minutes. The chains· ltmodernlzatlon" of
pawnshops brought new borrowers Into pawnshops and became the model of professionalism for all
pawobrokers.
37 Jolin P. Caskey, "Pawllbroklng in America: The EconomiCs ofa Porgollen Credit Markel," Joumal of Money. Credic. and Banking, 23
(February 1991). p. 97.
Exhibit 2- p, 80
62
The increase in the membership of the National Pawnbrokers Association (NPA) further confirms
the industry's transformalion. Founded in 1988 with 50 members, the professional organization now has
more than 3.000 members. The NPA provIdes members with a variety of eduoational programs and
opportunities for exchanging Information.
The (mello' of RgtrlqUve Rat. C,lIIngs on Consumer,

Economists generally criticize all usury cellings as detrimental to low-income consumers because
lenders allocate credit only to the most credit-worthy borrowers, who generally are middle or high-income
consumers.38 Pawn loans, however, are secured by collateral In the form of various possessions of the
borrower. Instead of a credit risk, the pawnbroker'S risk is that his estimate of the future market value of
the collateral will be insuffiolent to cover the loan, plus the unpaid interest, If the borrower defaults. A
pawnshop borrower who defaults loses his collateral. HeMe. pawnshop oustomers who do redeem their
. oollateral do oot subsidize defaulting consumers, as in 1he case of financial

. firms.
Without an adequate return. pawnshops cannot survive. To make up fo': an Inadequate return,
pawnbrokers have two alternatives: deny very small loans or reduce the loan-to-value ratio,
Some pawnshops may survive, but even survivors will gravitate to locations where a sufficient
number of customers have hIgher-value items to pawn. Former customers who depended on their
neighborhood pawnshop are left without "banking" services.
The pawnshop may also have to reduce the loan-ta-value ratio by making smaller loans-oland less
In relation to the market value of the pawned Items. The lower the Interest rates. the lower the amount
loaned. The pawnbroker oannot Increase his proflt margin by arbitrarily raising the selling price Of<the
Items that are forfelted39, thus he must lower his loan to value ratio. Lowering the amount loaned to
.sustain the required return may enable the pawnshop to stay jn business sInce competitors are faced with
the same restriction on their revenues. Evan so, pawnshop customers will receive smaller loans than they
need.
. The Impact of Other Regulations on Cpnsumers

Some state laws require pawnbrokers to keep pawned items for a specified perIod of time before
seiling them. These laws I) delay the shop's recovery of its Investment; 2) increase the costs for storage
and Insurance; and 3) expose the pawnshop to a deollning market price from recession or obsolescence
of the Item.
Other statutes require pawnbrokers to return any profit from the sale of an unredeemed item to the
borrower. This restriction 1) eliminates the shop's profit, and 2} increases the shop's expenses by
reqUiring that notification of the pending sale be sent to the defaulting borrowers.
In some states and cities, licensing statutes limit lhe nymber of pawnshOps In a geographical area.
Framers of the Uniform Consumer Credit Code specifically rejected "convenience and advantage"
Iicensing.40 The National Commission on Consumer FInance Ilfinds no value In 'Convenience and
Advantage' limitatIons on entry. There is ample eVidence Indicating that these and other similar
restrictions are disadvantageous to the public and should be abollahed.
LessenlnqlEl/m/natlnq Restrlptlve Regulation, to Benefit Consumers

Ever since loans of money or "anything' lent upon usury" have been made, there have been efforts
to resirJ9t the charges for the loans. Yet history has shown ,that efforts to reduce the Interest rates
charged by pawnshops have Inevitably harmed the consumers they were intended to benefit.
38Cilskey, op.cll.,(1991). p.9S ciling Harold. Nathan, Bc:onomlc Analysis of Usury Llws." loul'llal of Bank Reseatch 10 (Winter 1980). pp.
200\1 I
39 Pawnbrokers cstlmalo the future market \lalul! of collateral by considering the expected demand for the hem and the likelIhood Ihat It will sell
qulck'y-a skillleamlld tJlIough years of training lind lI11periencc.
40 Comment I, Scetlgn 2.302,
Exhibit 2 - jj 81
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To foresee the Impact of future leglslaUon on the consumer who borrows from pawnshops, It is
Important to know that the pawnshop customer is not representative of the U.S. population. Pawnshop
borrowers g9nerally have lower Incomes or irregular, uncertain Incomes. Most do not have saVings to
meet what they regard as pressing, short·term liquidity needs. They are less eqUipped to deal with
unexpected declines In their Incomes or increases in their expenses. Their "cash reserves" are household
possessions used In lieu of savIngs accounts. .
Approximatelyone·fourth of pawnshop customers "do not like dEJallng with banks." Even those who
are credKworthy are unlikely to obtain needed cash from fInancial firms. "rhe cost of gathering consumer
data, checking credit records and preparing an agreement for a $70 loan would far exceed the rates
fln.s.nelat firms traditionally charge.
The demand for pawnshop servIces In the United States has grown rapidly over 1he past decade;
and the modernization of pawnshops, has set a new standard of protesslonalism for the pawnbroking
industry. Yet, low rate ceilings and other restrictive regulations In many states continue to
··force financial firms to deny credIt to high-credit-risk customers and
those who need very small loans.
··drlve small lending fIrms out of the market, reducing competition.
··drive some pawnshops out of business, reducIng competitIon.
·-force surviving pawnbrokers to reduce the loan·to-value ratio of loans,
or, move to more affluent markets to raise the average loan amount.
--force pawnshop customers to pledge more possessions to obtain loans.
--forCe pawnshop customers to accept smaller loans than needed.
··force some pawnshop oustomers out of the market because convenient
pawnshops are no longer available.
It Is not easy for legislators to persuade policy-makers, consumer advocates and the news media
that a rate ceiling of, say, 20 percent per month or 240 percent annually is required if consumers are to
receive small, short-term loans. Even a few pawnbrokers in states with restrictIve regulations who have
survived when others were driven out of busIness may not be enthusiastic about elimInating or reducing
restrictions. These survivors may have been able to increase the average size of loans and decrease the
loan·to-value ratio for increased profIts. In rational economic self-Interest, these pawnbrokers who once
fought against restrioliv9 legislation, may be reluctant to return to more competitive markets.
Cpnclu"qir
While It may be popular to reduce rate ceilings and Impose other restrictions on pawnshops, once
laws are enacted and prove to harm the very consumers they were meant 'to protect, it Is dlfflcult to return
to beneficial competitive markets. Consumers who have been disadvantaged by restrictive legislation are
unlikely to have advocacy groups who will argue for a return to higher rate ceilings (or no rate ceilings at
am. .
If pawnbroking, a business that has served consumers for thousands of years, Is to continue to be a
vital and stabilizing economic foroe In communities throughout the nation.... ..
If tens of thousands of working class Americans are to continue to depend on neighborhood
pawnshops when utility bills and other household demands are greater than the family income ....
It becomes critically Important for public policy-makers to create a legislative framework that
encourages competition, that encourages new firms to enter the business and existing firms to open new
branohes; that Inoreases the number of pawnshops, especIally In small towns, rural areas and other
locations where they are currently under-represented.
OtherwIse, this segment of consumers, many of whom have no legal alternative source for needed
cash loans, must turn to friends and rela1lves. do without, or sell their household possessions outright,
leaving fewer or no assets to pawn the next time.
Exhibit 2 - p. 82
64
The Credit Researth Center
. This document Is a synopsis of the study, Pawnbroking in the U.S.: A Profile of Customers,
completed In 1998 by the Credit Research Center (CRC), School of Business, Georgetown University,
Washington, D.C~ Robert Johnson, who holds a Ph.D. In management from Northwestern University,
rounded the CRC in 1.974 at Purdue University. Mr. Johnson was one of three presidential appointees to
the National Commission on Consumer Finance and also was the reporter-economist for the Uniform
Consumer Credit Code. Mr. Johnson has researched and testified about the effects of various regulations
ancl judIcial decision on credit consumers.
Michael E. Staten, who holds a Ph.D. In economics from Purdue UniversIty, is director of fhe center.
Mr. Staten reports to a nine member governing board comprised of five academiCians with backgrounds
in c<msumer and mortgage credit, and four representatives from the consumer credit industry.
The CRC's objective is to improve understanding of the financial markets that serve consumers'
credit needs, with emphasis on the costs and benefits to consumers of public policies and business
practices. LegIslation continues to be Introduoed that affects pawnbroking, yet few significant stud!es and
no large data bases exist for evaluating the effects of regUlations on the pawnshop consumer. The stUdy,
Pawnbroking in the U.S.: A Profile of Customers, addresses the need to understand this segment of the
consumer credit Industry.
EXHIBIT N2
Pawnbroking Facts
The Numbers:
• Membership in the National Pawnbrokers Association has in risen from 50 in 1968 to

more than 3000 today.
• In 1911, there were 1,976 licensed pawnbrokers In the country, or about, one for
every 45,700 citizens.
• In 1988 there were approximately 6.900 pawnshops In the United States, one for
every two commercial banks.
• There are between 12,000 and 14,000 pawnshops In operatIon throughout the UnIted
States today.
• Pawnshops made about 35 million loans in 1988.
• Between 70 and 80% of all items pawned are redeemed.
• As many as 10 percent of the adUlt population.are served by pawnshops each year.
• According to an article entitled "Cash Customers" in Forbes Magazine (May 1993),
25 million households representing more than 75 million people do not have a bank
account. People without banking ties need an alternative.
The Record:
• Formerly a male domo/nated Industry. today women are also making Ihelr mark as
pawnbrokers.
• Pawnshop clientele are represented In a range of ages (must be 18 or older). races
and genders With male and female customers being about equal. As the public
becomes more educated about the types of services pawnbrokers provIde,
pawnshops are serving a wider and more diverse clientele.
• All Items reoeived by a pawnbroker must to be listed with the city andlor state's police
department, therefore reducing the chance of aconsumer receiving stolen property.
• The pawn industry Is one of the most regulated In the country. Most regUlation has
been InitIated, sponsored and supported by pawnbrokers. RegUlatory agenoles
Include the Office of Consumer Credit and Law Enforcement on a locat and national
level.
Exhibit 2 - p. 83
65
• Pawnbrokers have state, regional and national industry associations which work at
·self-policing the Industry. In the case of public companies, the Federal Securities and
Exchange CommissIon oversees their operations.
I Pawnshops serve 8S a source of credit to millions of Americans. providing average
small-secured loans ($50 to $100) for a brief time period (two to four mOnlhs).
Around the World:
• Free enterprise In the form of pawnbroking has reappeared In Russia and communist
states such as China to fill the g~ps of their national bankIng system.
Historical Facta
• The Nursery Rhyme ·Pop Goes The Weasel" refers to pawning. A weasel Is a
shoemaker's tool and 10 "pop',' is to pawn. "That's the way the money goes... Pop
goes the weasel."
• Quean Isabella of Spain pawned the crown jewels to finance Columbus' voyage to
AmerIca. .
• The word pawn originates from the latin word "patlnure- which means cloth or
clothing. The French word "pan refers to a skirt or blouse. In the earlv centuries, the
principle assets people has were their clothes and borrowed money by pawning their
clothing.
• The Universal symbol of pawnbroking is three gold bans and )s one of the most easily
recognized In the world. The Medici family In Italy along with the Lombards in
. England were moneylenders In Europe. Legend has It that one of Ihe Medlcls In Ihe
employ of Emperor Charles the Great fought a giant and slew him with three sacks of
rocks. The three balls or globes later became part of their family crest. and
Ultimately, the sign ot pawnbroking.
Miscellaneous Facts
• Many pawnshops around the coun1ry cater to the likes of aclors, producers and
directors.
• High quality merchandise such as gold and diamond jewelry, VCRs and musloal
instruments oan be found In pawnshops for about half the price compared with retail
stores. The 1980's prOVided a boon period for pawnbrokIng, with new shops opening
In all parts of the country. ThIs upturn, In part, is due to the Increase In the number of
Americans eXCluded from mainstream credit markets and small banks closing and In
significant part to the upgrading by the IndustrY of the products and services offered
to the pUblic.
EXHIBIT #3
MOlt Commonly Asked Queetlons About Pawnbroking
QU88tlon: How does a pawn shop work?
Response: Pawnbrokers lend money on Items of value ranging from gold and dlamonQ Jewelry to
musical Instruments, televisIons, tools, household items, etc.. These items maintain their value over a
. rQasonable period of time and are easy to store, especially Jewelry. All customers provide collateral,
elimInating the need to distinguish high risk from low risk borrowers.
Exhibit 2 - p. 84
66
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Typically, loans are small avera~lng hetween $70 and $100, although they can be as small as $20 or as
high as several thousand dollars depending on the value of the collateral. Contracts vary from state to
state, but the average loan period Is 90 days. Generally, Interest rates will vary with the amount of the
loan.
The process is much the same as any other lendIng Institution, with the primary difference being
the size of the loan, the collateral and the holding of the merchandise until the interest or the loan has
been repaid.
Question: Why would someone go to a pawnshop to get a loan?
Response: Pawnshops offer the consumer a qUick, convenient and confidential way to borrow money.
A short·term cash need can be met with no credit check or legal consequences If the loan is not repaid.
. A customer received a percentage of the value the barker believes the collateral would bring In a sale.
Although the loan to collateral is typical. In other words, pawnbrokers feel their loan Is It paid In full" at the
time It is made. ;
. When a customer pawns an Item, terms of the loan are printed on a pawn ticket that is given to the
customer. The ticket states the customers' name, address, type Of Identification provided to the
pawnbroker, a description of the item, amount·tent, maturity date, Interest rate and amount that must be
paid to redeem the item. Most states regUlate pawnshop interest rates and other charges, such as
storage or insurance fees.
Question: Do mostpawing customers lose their merchandise?
Response: On average, 70 to 80 percent of all loans are repaid. Repeat customers make up most ot
our business, slmil~r to any other lending or retail establishment. Pawnbrokers know the vast majority of
their customers because they often borrow against the same Items over and over again. Pawnbrokers
offer no recourse loans, looking only to the item beIng pledged to recover theIr investment if the borrower
chooses not to repay the loan. It Is solely the choice of the customer whether he/she elects.to repay the
loan.
Question: How can I be sure the merchandise I purchase at a pawnshop isn't stolen?
Response: Less than one fifty of one percent of all collateral Is even suspect as having been
misappropriated in any manner. Thieves and robbers Is a pawnbroker's wOTst.enemy.
Pawnbrokers work closely with local law enforcement to catch and prosecute these perpetrators.
A customer must provide positive Identification to show evidence of the transaction. This
Information is then presented to the pollee department, therefore deoreaslng the likelihood that a
thIef would bring stolen merchandise to a pawnshop. Pawnbrokers are trained to look for signs
.of stolen property to avoid these costly mistakes. It Is not in the interest of the pawnbroker to
accept potentially stolen merchandise because the poHce oan seize the merchandise and the
pawn shop owner loses the collateral and the loaned money.
QuestIon: What Is the difference between buying at a pawnshop and buying at a retail store?
Response: Mainly price. Pawnshops can offer you merohandise ranging from 1/3 to Ya off
retail prices.
Question: Why is the Image of PAWNBROKING changing since the 1930's?

Response: loday's pawnbroker Is up grading everything from the Interior and exterior of his or
her shop loeatlon, employee presentation, customer service, 81gnag8, marketing and the
merchandising approach. Pawnbrokers focus on providing exceptional customer service and are
very active In the community, both politically, and in local charities. Pawnshops today range from
a single or multi-store operation to pUblicly held company chains. The atmosphere at a
pawnshop is nothing like what you saw In Rod Steiger's depiction In The Pawnbroker - just visit
one to see for yourself.
Exhibit 2 - p. 85
67
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Question: Are pawnshops a "bad times" industry?
Response: Pawnshops survive bad times if they make adjustments both In at the retail and
loan counters, but they do far better in good times. In hard times. customer's move away to find
employment, have less ability to repay their loans and the value of all merohandlse goes down.
Merchandise values go down because the major retail discounter sells for less to maintain or
broaden market share. If they sell for 1985, pawnbrokers must loan less thus creating a smaller
return. Regardless of Income lavel, most people periodically borrow money. In good times.
customers are more able to repay their loans and redeemed merchandise sells faster because
.customers have more discretionary Income. .
Question: Do pawnshops downgrade the neighborhood and hurt property value?
RespDnse: Neighborhood property values are Impacted by the appearance and oare given to
the properties. There is no factual basis to support a claim that an eye-pleasing pawnshop
negatively Impacts values. On the contrary, If they attract customers. the enhance the
opportunities for other merchants and the community.
Question: Are pawnshop rates excessive?
Response: To provide the service', all lenders must charge rates commensurate with risk, size
and durat/on of the loan, collateral offered, and recourse. Pawnshop loans are small dollar, high
risk, short duration loans. The item stands s the sole collateral offering no other recourse. And
pawnbrok~rs are liable for replacement value If something happens to the Item In their care.
There are no hIdden charges as with other lending Institutions. On the other hand, a pawnbroker
cost basis Is far greater. They incur cost for security, handling, storage, and regulations not
incurred by others. Due to the 15-20% of pawn shop customers that elect not to repay their
loans, pawnbrokers are forced to tum their "bad debts: into a retail center to recover their cost.
Other lending Institutions do not Inour retail cost inoludlng additional floor space, gondolas,
counters. personnel, advertisIng, shop litlers, retail competItive cost, and new merchandIse cost
to supplement the unredeemed goods.
Question: Should there be zonIng restrictions other than general retail?
Response: Pawnshops are neighborhood businesses providing vital services to the community.
To restrict zoning to other than general retail should requIre a very compelling reason. The
compelling reason should not be historical perception. To restrict zoning there should be
something wrong w~h the service provided, the business it's self, or the customer served. The
services prollided by pawnshops Include:
1. Discount Retail (new and pre-owned) Is an opportunity for customer to make their dollars go
further - it helps other merchants and com munity by giVing them more discretionary funds.
2. Short-term credit enables the community to pay the bills of other local mer.chants suoh as groceries.
medical expenses, utilities, auto and transportation to work. The pawn business Is a neIghborhood
business with the majority of customers residing within 1-2 miles. The same people utlllz8 pawnshops
that utilize McDonalds. If appearance or wrongful activities are a problem, It has to do With that particular
business, regardless of the kInd of business. The customer is the surrounding neighborhood - if good,
good - If bad, bad. Restrictive zoning denies access to credit to low Income consumers who cannot
travel or who are uncomfortable In restrictive areas. RestrIctive zoning Implies the neighborhood Is
dishonest and questions the Integrity 01 the residents - and h says that how much money you have
.determines the quality of your credit worthiness.
Exhibit 2 - p. 86
68
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J '. 11
Retail Credit Overview

Submitted by the New Mexico Retail Association
The New Mexico Retail AssociatIon Is pleased to furnish this overview of the retail credit market In New
Mexico.
1. The major firms that grant retail credit in New Mexico are Sears, Wards, J.e.
Penney, Mervyns. Each of these national firms have their own "national" banks thus not
relying on New Mexico State Law. For thIs reason, the information requested Is unavailable.
Retail Credit
Folks don't generally understand that retailers don't loan money, where they would either have their
money or borrow it to lend to customers.
Retailers either have their money or borrow It to BUY GOODS they will ofter for sale to customers. They
pay for the cost of warehousing that Inventory, for the shipment of the goods to their loe8tlons, build the
facility that sells the goods from their floor •• and then employs persons to sell that merchandise.
After all of the above thEm the credit granting retailer sells the goods on credit, taking months and months
to get their money back for the cost of the goods as well as for the cost of the credit extension •• and still
remain competitive to a non-credit grantIng competitor.
The Credit Granting Retailer
This retailer Is able to offer these goods, through credit, to the "most" citizens of the state when their is
"no" cap on rajes. Caps are not conduoive to credit granting to those thai pose more credit risk. Even
without caps, credit granting retailers must remain competitive to move their goods.
The state of Arkansas Is an excellent example of what happens when severe caps are placed on credit.
There Isn't any. An Arkansas citizen must drive to Texas to place their orders with non-national bank
craditgrantors ... are they go without. .
Exhibit 2 - p. 87
69
.
.
.,
House Memorial 36
Consumer Lending Study Committee
Meeting Chronology
June 211999 First meeting o/allinlere.sted parties of Consumer Lending Study Committee
July 8, 1999 First meellng 0/ Legal Working Group
July 12 1999 First meeting 0/ Consumer Working Group
July 13, 1999 First meeting of Lender Working Group
August 6, 1999 Firat meeting of Drafting CommIttee
August 20, 1999 Meeting 01 Drafting Committee
Seplember 3, 1999 Meeting of Drafting Committee
September 9, 1999 Meeting of all Working Groups
Oclober 14,1999 Meellng or Lender Working Group
Oclober t 4, 1999 Meeting of Drafting Committee
November 3, 1999 Meeting 01 Drafting Commillee
Working Qroup Chairs
Legal Working Group: Frank Welssbarth, Assistant Allomey General, Consumer Protection Division
Consumer Working Group: Skip Cowen, Executive Olreotor, FOCUS Foundation
Lender Working Group: Stella Miller, Exeoutive Director, New Mexico Financial Services Assoolatlon
Q.r!!!Ing Committee
Bill Verant, FInancial Institutions Dlreclor
Ffsnk Wsissbarth, Assistant Attorney General, Consumer Protectron Division
Skip Cowan, Executive Director, FOCUS Foundation
Stella Miller, Execullve Director. New Mexico FinancIal Services Association
James Dickens, MRP
Jerry ShipMan, Better Business Bureau 01 New Mexico
Stephen Daney, E·Z Pay Day Loans
Slephen Schaller, Check 'n Go or New Mexico
Mark Bludworth, Crazy Sam's
Robert Reich, NM Tille Loans
Andrew Morrison, Brundage Management
Administrative Committee
Sill Verant, Flnanclallns1ltutlons Director
Minda MoGonagle, Consumer Installment Loan Association
§!!!sIv Committee Partlglpants

Flnanclallnstilulions DivisIon SIIIVersnt Santa Fe, NM
MRP James Dlokens Santa FEl, NM
Better Business Bureau of NM Jerry Shipman Albq., NM
Brundage Management I (CILA) Andrew Morris San Antonio, TX
CheckMale Linda McEvoy PhoeniX, AZ
Check 'n Go of NM. Inc.. Stephen Schaller Mason,OH
CollectRlte, Inc. 9111 Dunn Albq. NM
Consumer Installment Loan Assoc. (elLA) , Minda McGonagle Albq., NM
Crazy Ssm's Mark Bludworth Albq.,NM
E·Z Payday Loans Stephan Daney Albq.NM
Focus on the Future Foundation Skip Cowan Albq. NM
Law Offices 01 Richard N. Fererman Alchard Feferman Albq., NM
NM Attorney General's plflce Frank Welssbarth Santa Fe,' NM
NM Financial ServIces Assoc. Stella A. Miller Albq.NM
NM Independent Financial Services Ken Scruggs Phoenix, AZ
NM Tille Loans Bob Relah Atlanta, GA
Royal Management Corp. A.P. Gentry Boerne, TX
Seourlty Finance Corp. Jeanne Davis Las Cruces, NM
Soulhwestern Payday Loans, Inc. Kenneth Miller Champaign, IL
USA Title Loans, Inc. Rudy Somers, Alamogordo.
Exhibit 2 - p. 88
70
Interested Parties and Contributors
AAAP Capitol Olty Task Force Sandra K. Match Santa Fe. NM
Consumer Credlt Counseling Services of the Southwest Lee Pattison AlbQ.,NM
Consumer Installment Loan Assoc. (CILA) Marla Shoals Albq., NM
Consumer Installment Loan Assoc. (OILA) . OanWeaks Albq.,NM
eNG Financial Corp. Bob Bamarou8se Sanla Fe, NM
OrazySam's Stan Chiras Aurora, CO
Fair Lending Center, Institute of Public Law-UNM Vicki Plevin Albq.,NM
First Security Bank Paul Boushelle Albq.,NM
Independent Community Bankers·NM JEilrry Walk.r Azteo, NM
L&W Inveslments Tim Emminger Ruidoso, NM
NM Automotive Dealers ASsociation Raymond Berube Albq.• NM
NM E1anken~ Assoc. John Anderson Albq.,NM
NM.CredltUnlon League Ellen Hoover Albq.• NM
NM Indepetldent Flnanc!al Servl.ces Assoc. MIckey O. Barnett Albq. NM
NM Mortgage Bankers Association David Jansen Albq.• NM
NM Pawnbrokers Indu~try, Inc. Ken Schultz ' Albq., NM
NMPIRG Jeanne Bassell Albq.,NM
NM Retailers Assoc. Bob Gold Santa Fe,. NM
NM Title Loans Nancy King Sanla Fe, NM
NM Title Loans John UndelWood RUidOSO, NM
NM Tille Loans Gary Kllpalrlc Santa Fe, NM
Stratton &Cavin. PA Hat Stralton . Albq., NM
UNM School of Law Tim Canova Albq. NM
World Acceptance Corp. Chuok Gardner San Antonio, TX
Available Resource Reprints

The following documents are available through the FlO offlce In Santa Fe. There will be a charge for
copies. . .
The Case for Deregulating Interest Rates on Consumer Credit (WhIte Paper)
Michael E. Staten, Ph,D and RobEJrt R. Johnson, Ph.D Credit Research Center, Purdue
University
The Growth of Legal Loan Sharking "A Report on lhe Pay Day Loan Industry
Jean Ann Fox, Direotor of Consumer Protection, Consumer Federation of America
. Short term lending (White Paper)

Sarah D. Vega, Director; illinois Department of Financial Institutions
Voluntary Standards (WhIte Paper)
Amerioan Financial Services Association (AFSA) and National Home equity Mortgage
Association (NHEMA)
Exhibit 2 - p. 89
71
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FIDOPERATIONAL GRAPHS & CHARTS
FlO Revenue. and Expenditures (In tJ!ou•• ndl)
FlO Total Llcen•• and Expen.. ~r License
4000
3600
3000
2500
-+-ltcensSB Held
_SWelillllsndilul'8llJDsnBSS
2000
1600
1000
500
",,--Slals I!K ndkurllilicen...
Exhibit 2 - p. 90
72
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.:/ .....
FID Examinations and ComplaInts
": . . /,
FY93 FY94 FY95 FY96 FY97 FY98
Licenses Held 2015 2130 2364 2710 3012 3376
State Expenditure/licensee $ 522.23 $ 515.87 $ 475.30 $ 421.62 $ 357.80 $ 319.25
......' I.
"
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New Charter8ILlcens.. 442 578 419 691 Sla5 1016 NJA
Renewal. 1486 1538 2239 2724 3198 3743 N/A
Exhibit 2 -1lJ 92
Page 1
LexisNexis®
1 of 100 DOCUMENTS
OFFICE OF THE ATTORNEY GENERAL OF THE STATE OF NEW MEXICO
OPlNlON No. 85-1
1985 N.M AG LEXIS 5
February 2, 1985
SYLLABUS:
[*1]
BACKGROUND
Various state financial institutions which make loans have raised questions concerning allowable fees which they
may charge for the preparation of documents, points, service charges or late charges. These questions arise because
there is confusion about the effect of the repeal of usury restrictions which had been contained in the many acts under
which financial institutions make loans. Institutions now question whether any such fees may be charged without spe
cific statutory authorization in the act under which a transaction is being conducted.
The different New Mexico fmancial institutions which seek to assess fees for the preparation of documents, points,
service charges or late charges may be making loans under one or more of at least five separate special acts, not includ
ing the new general usury act. The acts vary substantially and it is necessary to consider each separately.
REQUESTBY:
To: Mary M. McInerny, Director
Financial Institutions Division
Lew Wallace Building
Santa Fe, New Mexico 87503
QUESTION:
QUESTION
Maya fmancial institution making a loan assess fees without specific statutory authorization to charge such fees in
the act under which the loan is [*2] made?
CONCLUSION
Authorization in each individual act is not necessary; in those acts lacking specific authorization, fees may be as
sessed provided the requirements of the present usury statutes are met. In those acts which enumerate specific charges
which may be made under the Act; lenders are limited to those charges.
OPINIONBY:
OPlNlON OF PAUL BARDACKE

Attorney General
By: Barbara G. Stephenson
EXHIBIT
i ~
Page 2
1985 N.M. AG LEXIS 5, *
Assistant Attorney General
OPINION:
DISCUSSION
I. New Mexico Bank Installment Loan Act of 1959, Section 58-7-1 to 58-7-9 NMSA 1978.
The New Mexico Bank Installenmt Loan Act applies to any state or national bank, small loan licensee or sales
finance company which makes a loan that is repayable in installments or is made under a credit card plan. Prior to July
1, 1981, this Act limited the rate of interest which could be charged on installment loans. See Section 58-7-4 NMSA
1978, repealed July 1, 1981. With the repeal of this interest ceiling and the failure to enact substitute language within
the installment loan Act, there are no limits on interest rates for installment loans provided the rate charged is agreed to
in writing and that the lender fully complies with disclosure [*3] requirements. See Sections 56-8-11.1 and 56-8-11.2
NMSA 1978.
As to charges other than interest, since its inception the Installment Loan Act has provided that no additional
amounts shall be charged in connection with any installment loan unless authorized. Section 58-7-6 NMSA 1978 con
tains a list of allowable charges which includes, among other, delinquency charges, filing and recording fees, charges
related to abstract of title, and a one-time charge for preparation of truth-in-lending documents.
This section was untouched by the bill which repealed the interest rate limitations. In 1983, however, amendments
which changed the applicability of restrictions on additional charges were made elsewhere in the Act. Section 58-7-9
NMSA 1978 (l984 Supp.) of the Act now provides:
B. With the exception of precomputed loan transactions, a lender is not bound by the provisions of the New Mex
ico Bank Installment Loan Act of 1959 in making loans where the loan is made in accordance with the provisions of
Sections 56-8-9 through 56-8-14 NMSA 1978.
***
G. All loans other than precomputed loan transactions made under the New Mexico Bank Installment Loan Act of
1959 shall be clearly [*4] identified on the loan documents as being made under that Act.·
Although the term "precomputed"is not defmed in the Act, it is understood by fmanciallenders to include only transac
tions in which the fmance charge is computed in advance and added to the note. See Section 58-7-3.1.
Thus, the restrictions of the Installment Loan Act apply to precomputed loans or those loans which are identified on
the loan documents as being made under that Act
II. Credit Union Act, Section 58-11-1 to 58-11-33 NMSA 1978.
Under the Credit Union Act, credit unions are given the power to make loans to their members. See Section
58-11-5(a)(2). Prior to July 1, 1981, interest rates and service charges were limited by statute. See Section 58-11-17,
repealed July, 1981. The one-time service charge, used to defray the actual costs of documents prepartion,
truth-in-lending disclosure statements and equal credit opportunity disclosure statements could not exceed five dollars
on loans up to five hundred dollars or one percent of the actual loan amount up to twenty-five dollars on loans in excess
of $500.
With the repeal of Section 58-11-17 in 1981, and the subsequent failure to [*5] revive this provision, any refer
ence to interest rates or service charges was removed from the body of the Credit Union Act. However, coincidental
with this repeal, was the repeal of Section 56-8-11 which had set out a general interest restriction applicable to all lend
ers not otherwise governed by special acts. The replacement language is Section 56-8-11.1 which provides that the
maximum rates of interest or charges shall be those agreed to, provided that such agreement be in writing and, unless
otherwise excepted, be fully disclosed as provided by Section 56-8-11.2 NMSA 1978. It is the opinion of this ofice
that these provisions authorize the charging of interest of other fees by credit unions.
One recognized guide in statutory construction "is the consideration of the history and prior condition of a particu
lar law." Munroe v. Wall, 66 N.M. 15 (1959). It appears that the Legislature recognizes that all prior statutory provisions
relating to usury were being repealed and that the enactment of Section 56-8-11.1 was intended to fill the gap left by the
Page 3
1985 N.M. AG LEXIS 5, *
far-reaching repealing bill. The failure to insert a provision similar to Section 56-8-11.1 within the Credit Union [*6]
Act cannot be construed to mean that the Legislature intended to leave credit unions totally without statutory authority
to charge interest or service charges. Statutes must not be construed to achieve and absurd result such as this or to de
feat the intended objective of the legislature. State v. Herrera, 86 NM 224 (1974). Further, that the allowable charges
under the Credit Union Act are to be those permitted by Section 56-8-11.1 is supported by the concept that statutes re
lating to the same subject should be construed together if possible. In re Martinez' Will, 47 NM 6 (1942).
As to credit unions, it thus appears that service charges, late fees or similar charges may be assessed provided the
disclosure provisions of Section 56-8-11.2 NMSA 1978 are followed.
III. New Mexico Small Loan Act of 1955, Section 58-15-1 to 58-15-15, 58-15-17 to 58-15-31 NMSA 1978.
The Small Act regulates persons who engage in the business oflending amounts of two thousand five hundred dol
lars ($2,500.) or less. Prior to July 1, 1981, this Act set out in detail the maximum allowable interest charges on small
loans. See Section 58-15-14, repealed July 1, 1981. This section [*7] also prohibited the receipt of any charges in
advance and further provided that any charges not expressly authorized within the Small Loan Act were prohibited.
Such express authorization for other charges is found in Section 58-15-20 which authorizes the collection of filing or
recording fees, attorney fees, and court costs but prohibits the charging of notary fees. With the repeal of Section
58-15-14, the question is whether there are still limitations on the types of other allowable charges.
Although the Small Loan Act no longer states that charges not expressly authorized are prohibited, the list of al
lowable charges set out in Section 58-15-20 remains intact. Under accepted rules of statutory construction, there is a
presumption that if the Legislature enumerated a list of allowable fees or charges, they had no others in mind. See
American Auto. Ass'n., Inc. v. Bureau ofRevenue, 88 NM 148, rev. on other grounds 88 NM 462 (1975). Therefore,
apart from interest charges on loans, only those fees described in Section 58-15~20 may be charged for loans made un
der the Small Loan Act. Charges cannot be received in advance or compounded. See Section 58-15-14.1 NMSA [*8]
1978.
As to interest charges, with the repeal of Section 58-15-14, the maximum rate of interest may now be that rate
agreed to in writing by the parties as allowed in Section 56-8-11.1 NMSA 1978 and disclosed as provided in Section
56-8-11.2 NMSA 1978. The single limitation is that interest cannot be received in advance and cannot be com
pounded. See Section 58-15-14.1 NMSA 1978.
IV. Motor Vehicle Sales Finance Act, Section 58-19-1 to 58-19-14 NMSA 1978.
The Motor Vehicle Sales Finance Act regulates persons engaged in the business of motor vehicle sales fmance.
Prior to July 1, 1981, this Act contained detailed provisions on allowable fmance charges which could be assessed on
motor vehicle loans. Section 58-19-8, repealed July 1, 1981, contained a schedule of allowable finance charges based
on the age of the vehicle being purchased and also authorized a minimum finance charge of twenty-five dollars on any
transaction.
This section was repealed in its entirety at the same time Section 56-8-11.1 NMSA 1978 was enacted. No substi
tute fmance charge provisions have been adopted for the Motor Vehicle Sales Finance Act. Persons licensed as sales
finance companies are [*9] thus without any specific statutory authority, under the Motor Vehicle Sales Finance Act,
to collect any fmance charges. Because, as with credit unions, this could not have been what the legislature intended,
one must fmd in Section 56-8-11.1 NMSA 1978, the authority to collect fmance charges.
V. Residential Home Loan Act, Section 56-8-22 to 56-8-30 NMSA 1978
The Residential Home Loan Act, passed in 1980, authorized a system under which the Director of the Financial In
stitutions Division could determine the current maximum interest rate permitted for home loans. Any interest limita
tions imposed by the Act were in lieu of the general interest limitations then set forth in Section 56-8-11 NMSA 1978.
See Laws 1980, ch 64, § 7. It is important to note here that "rate of interest" upon which such limitations were imposed
is defined in the Act to include "both the interest on the principal amount of the loan and discount points, premiums,
commitment fees and other interest charges made pursuant to home loan..." Section 56-8-24(G) NMSA 1978.
In 1981 Sections 56-8-25 to 56-8-28 NMSA 1978 of the Act, which had set out the procedures to be used for deter
mining the [* 10] maximum rate of interest, were all repealed coincidental with the enactment of Section 56-8-11.1
NMSA 1978. There are no longer any interest rate limitations in the Act. For this matter, under the defmition of "rate
of interest," there are no prohibitions or limitations on any types of fees with the exception of the prohibition on pre
Page 4
1985 N.M. AG LEXIS 5, *
payment penalties. See Section 56-8-29 that persons charging an interest rate greater than that allowed in the Act are
subject to civil penalty, this section is now completely meaningless. Thus only Sections 56-8-11.1 and 56-8-11.2 go
vern limits the rate of interest, including discount points, premiums and commitment fees which may be charged.
VI. The Usury Act, Section 56-8-11.1 to 56-8-11.4 NMSA 1978
Prior to 1981, lenders whose transactions were not tailored to one of the above acts were restricted by the general
usury interest rate. See Section 56-8-11 NMSA 1978, repealed July 1, 1981. That ceiling was removed with the passage
of the new Usury Act, Section 56-8-11.1 to 56-8-11.3 NMSA 1978 which became effective July 1, 1981. (The act as
originally adopted included a reviver of all previous usury provisions and a repealer of [*11] the Usury Act, effective
July 1,1983; this section, Section 56-8-11.4, was itself repealed on July 1,1983.)
With this new Act lenders whose transactions are not being made under a separate, special act may assess whatever
interest rate is agreed to by the parties. Section 56-8-11.1 NMSA 1978. The limitations under which the lender must
act are that the interest rate agreed to be in writing, See Section 56-8-11.1, and that the rather detailed disclosure re
quirments be met. See Section 56-8-11.2 NMSA 1978. For a more detailed discussion of the writing and disclosure
requirments, See 12 NML. Rev. 173 (1982).
CONCLUSION
The attached chart sets out the statutes under which different types of loan transactions may be conducted. The
chart includes disclosure requirments although an in-depth discussion of what requirements apply to each type of trans
action is beyond the scope of this opinion.
Legal Topics:
For related research and practice materials, see the following legal topics:
Contracts LawDefensesUsuryGovemmentsLegis1ationExpirations, Repeals & SuspensionsReal Property LawFinan
cingSecondary FinancingLien Priorities
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FILED IN MY OFFICE THIS. . ~ J

STATE OF NEW MEXICO o.
:'~'
COUNTY OF I3ERNALILLO NIW n ;f /LluG, ()

SECOND JUDICIAL DisTRICT COURT'
FASTBUCKS OF ALAMOGORDO .
NEW MEXICO, LLC, ct aI.,
Plaintiffs.
vs. No. 0-0202 CV2006 06317
WILLIAM J. VERANT, DireClorOfthe
Financial Institutions Di vision of the
New Mexico Regulations and Licensing
Department, .
Defendant.
CONSOLIDATED WITH
, CHECK 'NGO OF NEW MEXICO, INC.,

a New Mexico corporation, et al.,
Plaintiffs,
vs. No. CV-2006-06370
Wll..LIAM J. VERA NT.

Director of the Financial Institutions Division
of the New Mexico Regulation and Licensing Department, .
Defendant.
E$Z PA YDA Y LOANS OF NEW MEXICO, LLC,
Plaintiff in intervention.
ORDER GRANTING PERMANENT
INJUNCTION ANDJ)ARTIAL FINAL JUDGMENT
This cause having come on for hearing upon the Plaintiffs' Applications for an injunction
. . .
restraining the Defendant from making effcctive or enforcing Regulations by the Fimlncial
Institutions Division o~ the Regulation and Licensing Department,12.18.7.1 NMAC through
EXHIBIT
I ,.,
12.18.7.15 NMAC (the "Regulations"), the Court having reviewed and fully considered the
.plc<ldings,bJicfs, affidavits, proffer of evidence, exhibits, and all other cvidcnce:ind maUers of
record or presented to the Court by the parties at or before the hearings of August 25, 2006 and
August 30, 2006, and being otherwise fully advised in the premises, FINDS THAT:
l. As a matter of law, irreparable injury can be shown if, as here, the allegation is
one of a constitutional violation and the Court determines there was a constitutional vioJution.
As a result, there was no need for Plaintiffs to present the testimony with respect to irreparable
injury they were prepared to introduce at the hearing in this matter. A separate· showing by
Plaintiffs of irreparable hann is not necessary under these circumstances because as a matter of
law, the Regulations violate the separation of powers clause of the New ~exico Constitution,
Article Ill, Section I..
2. Plaintiffs have shown that the threatened injury to them outweighs any damage an
injunction might cause the Defendant because, the Financial Institutions Division ("FID") will
not be damaged by the granting of an injunction and the Regulations are contrary to the pUblic
interest as declared by the Legislature.
3. Plaintiffs have shown that the issuance of an injunction· will not be adverse to the
public interest because, the Regulations are contrary to the public interest as declared by the
Legislature in the Small Loan Act.
4. As a matter of law, the Regulations violate the separation of powers clause of the
New Mexico Constitution, Article III, Section I, because, the Legislature did not delegate to the
FrO the authority to promulgate these Regulations and the Regulations exceed the authority
delegated to the FlO by the Legislature.
. . .
5. There is no just reason for delay in entering a pm1ial final judgment under NMRA
I-054B(l) and issuing a Permanent Injunction limited to the Plaihliffs' daimsthiu-the
Regulations violate the separation of powers clause of the New Mexico Constitution, Article Hl, .
.Section I. However, this Court expressly finds, and the parties expressly acknowledge, agree and
stipulate, that this Court has neither addressed nor decided any of the remaining claims by
Plaintiffs in Cause No. CV 2006 06370, including without limitation the claim that the limit on
administrati ve fees of $15.50 per $100 of principal is unreasonable, arbitrary, capricious and/or
in conflict with the Small Loan Act. Plaintiffs' claims other than those involving the separation
of powers clause will be addressed by this Court at a later date, if necessary. Plaintiffs in Cause
No. CV 2006 06317 have aJleged no other claims.
6. On August 30, 2006, this Court verbally entered a Preliminary Injunction
restraining the Defendant from making effective or enforcing the Regulations.
IT IS THEREFORE ORDERED that: (a) Plaintiffs'· Applications for a Preliminary
Injunction be, and the same hereby are, granted as of August 30, 2006; (b) a partial final
judgment is hereby entered under NMRA I-054B(I) in favor of Plaintiffs on their claim that the
Regulations violate the separation of powers clause of the New Mexico Constitution, Article llI,
Section J; and (c) a Permanent Injunction is hereby issued, restraining and enjoining Defendant
from making effective or enforcing, taking any action to make effective or enforce. or
threatening to enforce the Regulations.
IT IS FURTHER ORDERED that so long as the Permanent Injunclion or the Stay
referred to hereinafter remains in effect, and ex.cept as expressly provided herein, the parties shall
not pursue further District Court proceedings in this cause other than any possible motion to
amend the Amended Complaint by lhe Plaintiffs, or to seek to require the Defendant to request a
stay of Santa Fe County Cause No. D-01Ol-CV-2006-()1728 penlling its appeal from the
"issuance ofthis Permanent Injunction.
IT IS FURTHER ORDERED that the Defendant's requests that this Court issue ast:iy
of the Preliminary Injunction and require that Plaintiffs post a bond or security be, and the same·
hereby are, denied.
IT IS FURTHER ORDERED that, by stipulation of the parties, in the event that the
New Mexico Court of Appeals or the New Mexico Supreme Court issues an opinion holding that
this Court erred in granting this Permanent Injunction (the "Reversing Opinion"):
1. Within ten (IO) days after the filing of the Reversing Opinion the parties shall
respond to any written discovery served on them prior to December 31,2006.
2. Within thirty (30) days after the filing of the Mandate in accordance with the
Reversing Opinion or within such longer period as the parties may agree, this Court shall hcar
any further motion of Plaintiffs for a preliminary or a permanent injunction against the
enforcement and implementation of the Regulations on any claim asserted by Plaintiffs not
inconsistent with the Reversing Opinion and specifically including the claim by Plaintiffs in
Cause No. CV 200606370 that the $1550 per $100 of principal administrative fee limitation in
the Regulations is unreasonable, arbitrary, capricious, and/or in conflict with the Small Loan Act.
3. After the filing of the Mandate and prior to the hearing on the injunction motion,
.. the parties may take depositions upon not less than five (5) days' notice. The parties shall cause
all witnesses within their control and all witnesses they contemplate calIing at the hearing,
including all employees and expert witnesses, if any, to appear for their depositions, and the
parties shall fully cooperate in the scheduling and taking of such depositions in order to ullow for
. timely preparation for the hearing on the injunction motion.
4
4. The Regulations shall be stayed, and the FID agrees· not to make effective or
enforce,.takcany ,letion to make effective or enforce, until thil1y (30) days after the filing of the
Mandute-in accordance \vilh the Reversing Opinion or until such later date as the parties may
agree. In the event of the issuance of a Reversing Opinion, lhe hearing and decision on lhe
Plaintiffs' motion for injunction will occur before the Regulations become effective.
5. Nothing contained herein shalJpreclude any party from requesting or the Court
from granting for good cause modifications of any lime frames sel forth herein.
6. For purposes of counting days hereunder, weekends and .·holidays shall be
counted. However, if the last day of any period falls on a weekend or holiday, the period shall be
extended to end on the next business day.

f...!;"r:t-. , t./·... 1r"!·.• ,' ~s
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RICHARD J. KNOWLES
District Court Judge
APPROVED AS TO FORM: .
MODRALL, SPERLING, ROEHL, HARRIS

& SISK, P.A.
KENNETH . HARR AN
DOUGLAS A. BAKER
Attorneys fOf Plaintiffs Check •
Post Office Box 2168
Albuquerque, New Mexico 87103-2168
Telephone: (505) 848-J 800 .
and
Alan S. Kaplinsky
Jeremy T. Rosenblum
"BALLARD SPAHR ANDREWS & INGERSOLL. LLP'

1735 Market Street. 51 51 Floor
Philadelphia; PA 19103-7599
(215) 665-8500
OF COUNSEL
KELLEY-STREUBEL
By: Electronic approval 10/30/06
CODY~. KELLEY
Attorneys for FaslBucks, el a1.
315 Fifth S1. NW
Albuquerque, NM 87102-2105
(505) 848-8593
MILLER STRATVERT PA
. By: Telephonic approval 10/31106 (Aaron Garrett)

ANN M. CONWAY
Attorneys fot E$Z Payday Loans of NM
P. O. Box 25687
Albuquerque, NM 87125
(505) 243-4408
. PATR1CIAA. MADRID
New Mexico Attorney General
By: Electronic approval 10/3]/06
FRANK D. WEISSBARTH
Assistant Attorney General
Attorneys for Defendant
P. O. Box 1508
Santa Fe, NM 87504-1508
(505) 827-6036
K:\dox\dicnl\82260\! I2\\\10647400. DOC
INFORMATION IN SUPPORT OF SB 331
• SUMMARY OF PROPOSED LEGISLATION
• 35 STATES HAVE INTE.REST RATE CAPS LESS THAN 36%
• SAMPLES OF CONSUMER COMPLAINTS - 2008
• CONSUMERS SPEAK: Excerpts from complaints received from

eonsumers.
• SAMPLES OF DOCUMENTS
.Bank-Installment Loan Agreement
Voluntary Debit Authorization Form
Fee Schedules Installment Loans for Different COJppanies
Installment Loan Agreement with "voluntary" debit
authorization.
Installment Loan Agreement with examples of interest rates
Wage Assignment
• COMMON TERMS AND CONDITIONS OF SMALL LOANS
• VULNERABLE PERSONS TRAPPED IN THESE LOANS

EXHIBIT
I 5
SUMt\IARY OF PROPOSED SMALL LOAN ACT Al\IENDl\lENTS
AND RELATED A~IENDl\IENTS
PROPOSED LEGISLATION OF THE
OFFICE OF THE ATTORNEY GENERAL
AND OFFICE OF THE LIEUTENANT GOVERNOR
Sl\IALL LOAN ACT:

• Closes installment loan loophole by preventing payday lenders
from using an installment loan at high interest rute to a~·oid
payday interest rate and lending requirements
• Expands FID licensure requirements to all lenders makin~ loans
FlD reports that most lenders are already licensed, this will
result in only a limited expansion to capture other lending
currently not covered by the statute
• Loans for $10.000 or less shall be made under the Small Loan
Act
• Does not apply to lines of credit
• While not specifically exempted, retail installment sales
contracts. by definition, are not covered by the Small Loan Act
• Consumer Loans. l\-Iaximum Interest Rates and Sets the
following interest rates for small loans:
o Loan of $2.500 or less. no greater than 45 %
o Loan of $2,500 or more, no greater than 36 %
o No·other fees may be charged
• Minimum Loan Period: Loans shull be installment loans payable
in monthly payments
o Minimum 60 daJs loan term for loans of $2.500 or less
o Minimum 1.20 days.loan term for loans of $2,500 or more
• Strengthens the requirement for payday lenders to display
information about the availability of the payment plan by
requiring that a ·sign is pl"Ominently displayed in at least 60 point
hold type
BANK INSTALLl\'1ENT LOAN

• Closes the loophole that allows smnl.1 loan lenders to avoid the
provisions of the Small Loan Act by calling an installment loan a
Bank Installment Loan
• Limilc; Bank Installment Loan Ad to Joans with precomputed
interest payable in installments
• Dt'fines instaJ)ment loan and precomputed loans

Fastbucks Countersuit

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Fastbucks Countersuit

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STATE OF NEW MEXICO

FIFTH JUDICIAL DISTRICT COURT

FASTBUCKS OF ROSWELL, NEW MEXICO, LLC,

FASTBUCKS OF ALAMOGORDO, NEW MEXICO, LLC,

FASTBUCKS OF GALLUP, NEW MEXICO, LLC,

FASTBUCKS OF LAS VEGAS, NEW MEXICO, LLC,

FASTBUCKS OF RIO RANCHO, NEW MEXICO, LLC,

FASTBUCKS HOLDING CORP.,

FASTBUCKS, INC., and

FASTBUCKS WAGE AND BENEFITS, LLC,

PETITION FOR WRIT OF MANDAMUS

malicious abuse of process and damage to their property.

New Mexico Legislature.

Attorney General is liable for such damages.

THE PARTIES, JURISDICTION, AND VENUE

1. Plaintiff FastBucks of Roswell, New Mexico, LLC is a New Mexico limited

2. Plaintiff FastBucks of Alamagordo, New Mexico, LLC is a New Mexico limited

3. Plaintiff FastBucks of Gallup, New Mexico, LLC is a New Mexico limited

to herein as the "FastBucks Stores."

6. Plaintiff FastBucks Holding Corp. is is a Nevada corporation, a resident of Texas,

and a defendant in the AG Action.

7. Plaintiff FastBucks, Inc. is a New Mexico corporation, a resident of Dona Ana

County, New Mexico, and a defendant in the AG Action.

8. Plaintiff FastBucks Wage and Benefits, LLC is a Nevada limited liability

company, a resident of Texas, and a defendant in the AG Action.

LLC, resides in Chaves County, New Mexico.

The Small Loan Industry in New Mexico

and with several goals in mind. Specifically, the Legislature:

Section 58-15-1(A), (D);

b) determined that "the expense of making and collecting small loans . .. is

while stimulating reductions from maximum allowable charges." !d.

requested by House Memorial 36) at 29 (1999) (attached as Exhibit 2 hereto).

(attached as Exhibit 3 hereto).

The Executive Branch and the Small Loan Industry

including the FastBucks Stores.

17. But immediately thereafter, Attorney General Madrid sought to enact

Branch's attempt to unconstitutionally circumvent the Legislature by essentially modifying the

unconstitutional regulations. A copy of the injunction is attached hereto as Exhibit 4.

pertain to a specific type of micro loan known as a "payday loan'.'.

small/micro loan business was effectively serving New Mexicans.

creating legislation through litigation.

court make policies that the Legislature refused to enact.

along the way, damaging plaintiffs' property.

23. Plaintiffs reallege the previous paragraphs.

the three branches of government:

N.M. CONST. art. III, § 1.

Malicious Abuse of Process

28. Plaintiffs reallege the previous paragraphs.

prosecution of the claim.

accomplish an illegitimate end.

32. Plaintiffs have been damaged by Attorney General King's conduct.

relief as this Court deems just.

onald F. Koc ersberger II

320 Gold Avenue SW, Suite 610

Albuquerque, New Mexico 87102-3299

(505) 848-8581 (Voice)

FASTBUCKS HOLDING CORPORATION,

FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE NEW MEXICO

UNFAIR PRACTICES ACT. FOR RESTITUTION AND CIVIL PENALTIES,

AND FOR DECLARATORY, PRELIMINARY AND PERMANENT INJUNCTIVE

General, by Assistant Attorney General Karen J. Meyers, and alleges that:

behalf of the public in New Mexico lending practices by Defendant FASTBUCKS

HOLDING CORPORATION. Defendant FAST BUCKS, INC., Defendant