329 P.3d 658
N.M.2014Background
- Defendants (B&B Investment Group and American Cash Loans) marketed unsecured "signature loans" of $50–$300 in New Mexico with biweekly payments over one year and APRs of 1,147.14%–1,500%.
- Borrowers targeted were unbanked or underbanked, low-income, and less financially sophisticated; evidence showed widespread misunderstanding of loan costs and cognitive biases (anchoring, hyperbolic discounting, information overload).
- Company policies and employee manuals directed use of misleading pricing statements (e.g., "$1–$1.50 per day per $100"), withholding amortization schedules, encouraging principal increases, and using standardized, nonnegotiable forms and computer-set rates.
- The State sued under the New Mexico Unfair Practices Act (UPA), NMSA 1978 §§ 57-12-1 et seq., alleging procedural unconscionability (taking advantage of borrowers’ lack of knowledge) and substantive unconscionability (gross disparity between value received and price), and sought injunction, restitution, and penalties.
- The district court found procedural unconscionability and enjoined practices but declined to find substantive unconscionability; the New Mexico Supreme Court affirmed procedural unconscionability, reversed on substantive unconscionability, and ordered restitution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Defendants violated UPA §57-12-2(E)(1) (procedural unconscionability: exploiting lack of knowledge) | Defendants targeted vulnerable, underbanked borrowers, used misleading pricing and withheld amortization schedules to exploit cognitive deficits and lack of sophistication. | Practices were lawful sales tactics; borrowers voluntarily accepted loans; no individualized proof of detriment required. | Court: Substantial evidence supports violation of §57-12-2(E)(1); loans were procedurally unconscionable. |
| Whether loans were substantively unconscionable under UPA §57-12-2(E)(2) and common law (gross disparity/value) | Quadruple-digit APRs and ancillary terms make loans objectively low-value; UPA and common law empower courts to police gross disparities regardless of lack of a statutory rate cap. | Legislature removed an absolute rate cap; without an explicit statutory limit courts cannot invalidate high rates; subjective borrower value (necessity) negates gross disparity. | Court: Courts may adjudicate substantive unconscionability; these interest rates (1,147.14%–1,500%) are substantively unconscionable and violate the UPA. |
| Appropriate equitable relief (injunction) | Permanent injunction and operational restrictions necessary to stop procedurally unconscionable practices. | Injunction should be limited; remedies must respect contractual freedom and not overreach. | Court: District court’s permanent injunction against specified practices upheld as properly tailored. |
| Restitution/remedy for unconscionable terms | Full or partial restitution required; strike unconscionable term and set reasonable rate; refund excess interest and related fees. | Full avoidance is inequitable and would be a windfall to borrowers; statutory environment permits high rates; remedies should not put lender out of business. | Court: Struck unconscionable APR terms; applied statutory default simple interest rate of 15% and ordered refund of all amounts collected in excess of 15% plus associated fees/penalties. |
Key Cases Cited
- Cordova v. World Fin. Corp. of N.M., 208 P.3d 901 (N.M. 2009) (unconscionability reviewed de novo; procedural/substantive unconscionability framework)
- Fiser v. Dell Computer Corp., 188 P.3d 1215 (N.M. 2008) (unconscionability is a matter of law reviewed de novo)
- Padilla v. State Farm Mut. Auto. Ins. Co., 68 P.3d 901 (N.M. 2003) (courts may refuse to enforce or may limit/strike unconscionable contract terms)
- Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) (equity allows courts to refuse enforcement of unconscionable bargains despite absence of statutory caps)
- Portales Nat’l Bank v. Ribble, 75 P.3d 838 (N.M. Ct. App. 2003) (pattern of conduct and borrower characteristics considered in assessing grossly unfair exploitation)