June 28--Attorney General Gary King says "thousands" of borrowers are in line for refunds of exorbitant interest charges by two signature-loan companies on the heels of a state Supreme Court opinion this week that called their interest rates exceeding 1,000 percent "unconscionable."
The controversial signature loans were issued by high-interest lenders Cash Loans Now and American Cash Loans since 2006. The Illinois-based companies had retail storefronts in Albuquerque, Farmington and Hobbs.
The companies lent borrowers between $50 and $300 with nothing but a signature, but charged interest rates between 1,147 percent and 1,500 percent.
The loans called for 26 biweekly payments of about $40 for every $100 borrowed paid over a year. A borrower given a $100 signature loan at the lowest available interest rate was on the hook to pay an additional $999.71 in interest over the year of repayment, according to the court. That amounts to a total obligation of $1,099.71.
King on Friday said loans continued to be issued by the companies through Thursday, when the court opinion was published ordering a halt to the practice and a partial refund to customers.
"In just this case, there are probably several thousand borrowers," King said at a news conference Friday. "I'm going to say there are thousands of New Mexicans that might be impacted by this decision."
The lawsuit was initially filed by the Attorney General's Office in 2009.
The New Mexico Supreme Court on Thursday held that the company's signature loans violated the state's Unfair Practices Act and "took advantage of borrowers to a grossly unfair degree."
The attorney representing the loan companies, Alex Walker, was out of the office Friday. He did not respond to an email request for comment.
The high court opinion ordered all the company's signature loan contracts changed to replace all the "unconscionable" interest rates with a 15 percent interest rate, the rate state law sets as the "default" in lending contracts that don't specify a different rate.
The court said Cash Loans Now and American Cash Loans will be required to return any money they were paid by borrowers in excess of the loan principal plus 15 percent interest.
That means a $100 borrower could be charged no more than $115 for the loan.
If that borrower paid the full $1,099.71 to the companies charged on a $100 loan, the borrower would be entitled to receive a $984.71 refund under the Supreme Court ruling. The court also ordered any late fees charged by the companies to be returned.
The Supreme Court sent the case back to a state District Court to determine how the refunds would be issued and who would receive them.
"We can't say today exactly whose entitled to restitution, other than we know that the companies through the course of this litigation continued to offer these loan products, and so we're going to want to see information on everybody who got these loan products," King said Friday.
Cash Loans Now and American Cash Loans defended the practice, saying the New Mexico Legislature intended to have unrestricted interest rates for lenders after voting in 1981 to delete the cap on loans. The court rejected that claim, highlighting several other state laws that regulate other small installment loans with caps.
King said the court ruling puts other predatory lenders on notice that exorbitant interest rates for short-term loans will be challenged.
"There are a number of companies in New Mexico that are making similar loans, and for years those companies have claimed that those loans are legal," King said. "... This case makes it very clear that that is not true."
King said his office will "look at other cases" of predatory lenders after the ruling against Cash Loans Now and American Cash Loans.
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