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contractinjunctionappealtrialcommon lawrestitution
contractdefendantinjunctiontrialcommon lawrestitution

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State ex rel. King v. B & B Investment Group, Inc., 329 P.3d 658, 2014-NMSC-024

Facts

In January 2006, B & B Investment Group, Inc., and American Cash Loans, LLC began marketing high-cost signature loans primarily to less-educated and financially unsophisticated individuals. These loans, ranging from $50 to $300, had annual percentage rates (APRs) between 1,147.14% and 1,500%. The State sued the lenders, alleging that their practices violated the UPA and were unconscionable under common law. The district court found the loans procedurally unconscionable but initially declined to find them substantively unconscionable, leading to appeals from both parties.

In January 2006, two former payday lenders, B & B Investment Group, Inc., and American Cash Loans, LLC (Defendants), began to market and originate high-cost signature loans of $50 to $300, primarily to less-educated and financially unsophisticated individuals, obscuring from them the details of the cost of such loans.

Issue

Whether the signature loans were substantively and procedurally unconscionable under common law and the Unfair Practices Act, and whether the State was entitled to restitution and injunctive relief.

Whether the signature loans were substantively and procedurally unconscionable under common law and the Unfair Practices Act, and whether the State was entitled to restitution and injunctive relief.

Rule

A contract may be deemed unconscionable if it takes advantage of a person's lack of knowledge, ability, experience, or capacity to a grossly unfair degree, resulting in a gross disparity between the value received and the price paid.

A contract may be deemed unconscionable if it takes advantage of a person's lack of knowledge, ability, experience, or capacity to a grossly unfair degree, resulting in a gross disparity between the value received and the price paid.

Analysis

The court found substantial evidence supporting the trial court's judgment that the lenders' signature loans were procedurally unconscionable, as the borrowers were financially unsophisticated and the lenders engaged in deceptive practices. The court also determined that the exorbitant interest rates constituted substantive unconscionability under both common law and the UPA, as they resulted in a gross disparity between the value of the loans and the costs incurred by the borrowers.

The court found substantial evidence supporting the trial court's judgment that the lenders' signature loans were procedurally unconscionable, as the borrowers were financially unsophisticated and the lenders engaged in deceptive practices.

Conclusion

The Supreme Court affirmed in part and reversed in part the district court's decision, holding that the loans were both procedurally and substantively unconscionable, and that restitution was an appropriate remedy.

The Supreme Court affirmed in part and reversed in part the district court's decision, holding that the loans were both procedurally and substantively unconscionable, and that restitution was an appropriate remedy.

Who won?

The State prevailed in the case, as the court found that the lenders' practices were unconscionable and issued a permanent injunction against their marketing and origination practices.

The State prevailed in the case, as the court found that the lenders' practices were unconscionable and issued a permanent injunction against their marketing and origination practices.

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