News Column

Usurious loans get high court rebuke

June 27, 2014

By Deborah Baker, Albuquerque Journal, N.M.

June 27--SANTA FE --The state Supreme Court ruled Thursday that interest rates of up to 1,500 percent on so-called signature loans violate state law and ordered reimbursement to consumers.

A unanimous court said the interest rates charged on small loans targeted to the working poor by two companies, Cash Loans Now and American Cash Loans, were "substantively unconscionable."

The court applied an interest rate of 15 percent to the loans, and ordered the companies to refund money to borrowers in excess of that.

It was not immediately clear how many consumers would be entitled to reimbursement, nor how much the companies would have to pay out.

Attorney General Gary King's office, which sued the companies under the state's Unfair Practices Act, was reviewing the decision and said it appeared to be "a huge win" for consumers.

"We are in the process of determining the impact on similar lenders who offer similar loans and interest rates," spokesman Phil Sisneros said.

The AG scheduled a news conference for today to discuss the ruling.

The lawyer who represented the companies was out of the office on Thursday and not available for comment, according to a spokesman at his office.

The high court said the companies , which made the loans at offices in Albuquerque, Farmington and Hobbs, previously made payday loans. They began offering signature loans in January 2006, before the Legislature cracked down on payday loans in 2007.

The lenders, based in Illinois, had also converted their loan products from payday to signature loans after that state enacted payday loan reform.

"The reasonable inference is that Defendants' signature loan products were specifically designed to make an end run around the consumer protections" of New Mexico's payday loan law, Justice Edward Chavez wrote in the opinion.

A major difference between the two types of loans is length: Payday loan terms are between 14 and 35 days, while signature loans are a year long, the court said.

The signature loans offered by the companies ranged from $50 to $300 and carried annual percentage rates from 1,147 to 1,500 percent, which the high court said was "grossly unreasonable and against public policy."

One borrower who testified in the case earned $9 an hour at a grocery store and obtained a $100 loan that had a total finance charge of $1,000. Another, who earned $10.71 an hour working in a hospital emergency department, got a $200 loan with a total finance charge of $2,160, according to the court decision.

The attorney general told the court the borrowers, as a group, have less income and education than the population as a whole and are more likely to be people of color.

The businesses argued in documents filed with a lower court that the lawsuit was an attempt by the attorney general "to eliminate the small loan industry in New Mexico."

They said the unsecured signature loans were risky, and that sometimes they didn't even recover the cost of making them.

The case was originally filed in state District Court in Santa Fe, where Judge Sarah Singleton in 2010 ruled the loans were "procedurally unconscionable" and ordered some of the businesses' marketing practices halted, but found they were not "substantively unconscionable" and denied restitution.

Her ruling was appealed to the state Court of Appeals, which forwarded the case to the state Supreme Court.


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Source: Albuquerque Journal (NM)

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