New Mexico Supreme Court Puts Brakes on Predatory Lenders

While high outstanding medical bills continue to rank as the leading cause which precipitates financially distressed people to file for bankruptcy protection, high-interest loan obligations constitutes the third, most cited reason. As individuals saw their homes threatened by potential foreclosure, their retirement savings lose their value overnight and, in some tragic instances, their jobs eliminated by layoffs, the availability of predatory loans started to appear to many as a possible means of short-term financial survival. Unfortunately, unscrupulous fly-by-night lenders have taken advantage of the pressure imposed by circumstances on such individuals and offered shady loan agreements with opaque terms which can cause exorbitant interest rates to be charged on loans with very small principal balances.

However, this summer the Supreme Court of New Mexico addressed the problem in the case of State of New Mexico v. B&B Investment Group Inc., by ruling against two predatory lenders who, in some instances, charged effective interest rates of 1400 percent on some loans. The Court refined the definition of “unconscionability” The court said the companies concealed the final interest rate from the borrowers and found that “(c)ontract provisions that unreasonably benefit one party over the other are substantively unconscionable” under common law.

In noting the unreasonableness of the interest rates charged on these payday loans, it relied upon reference to the New Mexico Money Act, which applies to unwritten contracts, with its 15 percent maximum interest deemed as a fair rate. It also noted that New Mexico’s Small Loan Act, as amended in 2007, provides that payday loans are to be restricted to 35 days, indefinite loan rollovers are banned and an interest rate cap of 400 percent is in effect.  Using these legislative enactments as parameters, it concluded that such egregious predatory loans, as the ones offered by the defendants in this case, rise to the level of unconscionable illegal transactions.    

This ruling by New Mexico’s highest court should reduce the number of borrowers who agree to such shady deals. In the meantime, it should be noted that filing for Chapter 7 protection can mitigate or eliminate the burden of such usurious loans. And by filing a Chapter 13 bankruptcy action, a debtor hobbled by such loan obligations can be relieved from the bulk of such claims particularly where the loan in question was unsecured.  New Mexico bankruptcy lawyers may seek to utilize the Supreme Court’s position that certain loans are “substantively unconscionable” as the basis for an argument that such lenders’ claims should not warrant any payout to qualify for a discharge.  

In Albuquerque, Giddens & Gatton Law, PC has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases in New Mexico. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment with one of its New Mexico bankruptcy lawyers or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.