My co-author, Dee Pridgen of Wyoming, took time out from updating her treatise to report on a recent New Mexico decision, State ex rel King v. B&B Investment Group, Inc., 2014 WL 2893304 (N.M. June 26, 2014). Here's her comment:
In the case, the State AG successfully sued a “signature loan” company that was selling small unsecured loans repayable in biweekly installments over a year at out of this world interest rates ranging from 1,147 to 1500%. Customers were paying around $900 finance charges for $100 loans! Apparently the company, a former payday lender, switched to this type of loan when the New Mexico legislature placed some limits on payday loans. But the signature loans were not covered by the new legislation.
Nonetheless, the State AG (represented by Karen Meyers) was able to get a ruling that these loans were procedurally and substantively unconscionable and violated the state Unfair Practices Act which has a provision prohibiting as an unconscionable trade practice any extension of credit that “takes advantage of the lack of knowledge, ability, experience or capacity of a person to a grossly unfair degree” and is detrimental to the borrower. [Utah law professor, CFPB staffer, and another of our co-authors ]Chris Peterson’s testimony was quoted by the court regarding cognitive biases exhibited by the customer pool targeted by the defendants, namely low income consumers who were unbanked or underbanked. The court also cited [New Mexico law professor] Nathalie Martin’s study of New Mexico borrowers. Chris was also quoted as saying “Defendants’ signature loan product is among the most expensive loan products offered in the recorded history of human civilization.” The high court ended up ordering restitution to consumers of the difference between what they paid to the lenders and the principal plus a 15% default interest rate.