State of New Mexico ex rel. King v. B&B Investment Group, Inc.

B&B Investment Group, Inc. (defendant) offered loans to indigent New Mexico residents. The loans were for $50 to $300 and carried annual percentage rates (APRs) of 1,147.14 percent to 1,500 percent. Oscar Wellito (borrower) took out a $100 loan from B&B that carried a finance charge of $999.71. Henrietta Charley (borrower) took out a $200 loan from B&B that carried a finance charge of $2,160.04. B&B targeted unbanked or underbanked indigents with limited financial knowledge. For example, borrowers testified that they did not understand the concept of interest rates. Further, B&B used hurried processes to get borrowers to sign the loan agreements. B&B also used misleading generalizations about loans payments and did not disclose to borrowers their amortization schedules. The New Mexico Attorney General (plaintiff) brought suit on behalf of the borrowers under New Mexico’s Unfair Practices Act, claiming that the loan terms were unconscionable. An expert witness for the state testified that unbanked indigents generally are overly optimistic and tend to overemphasize short-term gains. The district court held that the loans were procedurally unconscionable, but that it could not find the loans to be substantively unconscionable because there was not a statute expressly capping loan interest rates. The district court granted the state a permanent injunction but denied restitution damages. Both parties appealed.