Fourth Circuit Affirms Dismissal Of Claims That Loan In Excess Of Property Value Is Unconscionable Under The West Virginia Consumer Credit Protection Act

On January 15, 2016, the Fourth Circuit issued a published decision affirming summary judgment to the defendant national bank on plaintiff's unconscionable contract claim under WVCCPA 46A-2-121. Plaintiff relied on a retroactive appraisal in an attempt to prove the loan was "predatory" because "the loan amount was in excess of the property value."

The ruling is the first appellate decision to address the heavily litigated issue of whether the existence of a retroactive appraisal is sufficient to prove a violation of the WVCCPA on grounds the loan amount improperly exceeded the property value. Agreeing with Judge Goodwin's analysis over prior decisions to the contrary in West Virginia, the Fourth Circuit held that a loan in excess of the value of a borrower's property is not, by itself, evidence of substantive unconscionability. Specifically, the Court observed that the mere fact that a loan exceeds the value of the property does not make it substantively unconscionable because the loan does not accrue entirely to the lender's benefit and lacks the "gross imbalance" and "one-sidedness" necessary to show unconscionability.

In its decision, the Fourth Circuit distinguished Brown v. Quicken Loans, Inc., 230 W. Va. 306, 737 S.E.2d 640 (W. Va. 2012), noting that its holding turned on "much more than the principal amount of the loan." Importantly, the Fourth Circuit also affirmed the District Court's decision that it did not need to consider evidence of procedural unconscionability once it had determined that the loan was not substantively unconscionable. Accordingly, the Fourth Circuit affirmed the District Court's decision that the loan was not an unconscionable contract.

After denying plaintiff's request to certify the question to the West Virginia Supreme Court of Appeals, the Fourth Circuit became the first court to squarely address and clarify unconscionable inducement under West Virginia Code 46A-2-121(1)(a). The Court held that the statutory language plainly supported such a cause of action, but that the evidence necessary to support a claim for unconscionable inducement is "heightened" and must consist of more than unequal bargaining positions, or other factors...