Tax loans not subject to same regulations as payday loans
Editor’s note: This is the fourth in a series on financial literacy.
Every year, the same jingles and commercials play across hundreds of car radios in the Gallup area advertising tax refund anticipation loans or, in the fall months, holiday loans.
Money is readily available. But at what cost?
Anticipated tax loans are not subject to the same standards as other storefront loans. The updated New Mexico Small Loan Act mandates that borrowers have to be given a minimum of 120 days with a four-payment schedule to pay back their loans.
“Payday loans are now illegal in the state of New Mexico,” said Christopher Sanchez, an attorney for the New Mexico Center on Law and Poverty who spoke at a recent financial literacy workshop sponsored by the Navajo Nation Human Rights Commission, “meaning that a lender can’t require you to pay off a loan in a single payment with your paycheck.”
However, this law does not apply to anticipated tax loans, where lenders loan money in anticipation of the borrower’s tax refund. Lenders can legally require that these loans be paid back in a single payment. Tax refund anticipation loans are defined as loans made during the tax preparation season.
Holiday loans are ones that use the same principle as tax loans but happen during the holiday season. These types of lenders — some of whom also act as tax preparers — have been known to illegally hold people’s personal identification documents.
“If you take out a (holiday) loan in November and they’re holding onto your birth certificate to get you to come back to file your taxes that’s something they shouldn’t be doing,” Lindsay Cutler, an attorney with the New Mexico Center on Law and Poverty, said. “A lender shouldn’t be holding onto your birth certificate, CIB, anything like that as collateral.”