Consumer Law

Delaware Chancery Court voids 'unconscionable' payday loan, awards borrower damages

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Calling the terms of a $200 payday loan “unconscionable,” Delaware’s influential Court of Chancery voided it Monday and awarded the borrower $3,240 in damages, plus attorney fees.

Since plaintiff Gloria James still owes $3 of the original $200 to National Financial LLC, that amount was offset against the damages she is owed for a total award of $3,237, the court notes in its written opinion (PDF).

The damages represent double the $1,620 interest on the $200 loan, a statutory remedy provided by the federal Truth in Lending Act.

Attorney Rick Cross, who represented James, anticipated that the ruling could lead to additional lawsuits and encourage lawmakers to restrict the activities of payday lenders, the Associated Press reports. The lenders typically target “folks that are financially unsophisticated and usually in a financial hardship,” he said.

However, the court declined in the opinion to issue a blanket injunction sought by James that would have barred National Financial from collecting on similar loans made to other customers. The court’s 73-page opinion focuses on the facts and circumstances of James’ case.

In addition to finding that the company’s loan document was confusing and a contract of adhesion, Vice Chancellor J. Travis Laster emphasized that James, who worked as a hotel housekeeper before a hand injury made it impossible for her to repay the loan, was unsophisticated and did not understand its terms.

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