## Facts

- Gulfco of Louisiana, Inc., a consumer lender specializing in high-risk loans, made a series of four loans to MacArthur and Pamela Brantley, Arkansas residents, from its office in Springhill, Louisiana near the Arkansas border.
- The Brantleys had limited education and income; they built their Arkansas home over time and testified they did not fully understand loan terms but needed funds urgently.
- The first loan (May 2009) carried a 40.20% annual interest rate; after fees and insurance, the net cash to borrowers was substantially less than the principal, with total repayment exceeding the amount received.
- The second loan (Dec. 2009) was a larger refinancing and debt-payment transaction at 24.09% annual interest that paid off prior debt and other obligations and was secured by a mortgage on the Brantleys’ home in Waldo, Arkansas.
- Gulfco appraised the home at $32,000 with a “quick-sale value” of $27,000, while the second loan required repayment of nearly $40,000 including finance charges.
- Gulfco later made additional smaller loans in 2010 with high interest, continuing a pattern of repeated borrowing that increased the Brantleys’ overall indebtedness.
- After default, Gulfco sought to enforce the mortgage’s power of sale by filing a notice of default and intent to sell in Arkansas.
- The circuit court found the transactions were predatory, the contract and mortgage were unconscionable, enforcement would violate Arkansas public policy, and Gulfco was a foreign corporation not authorized to do business in Arkansas; it denied foreclosure.

## Issues

1. Whether the circuit court clearly erred in finding the loans and mortgage unconscionable and the product of predatory lending.
2. Whether Arkansas courts could refuse to enforce the mortgage on public-policy grounds even if Louisiana law otherwise governed the contract.
3. Whether Full Faith and Credit or conflict-of-laws principles required enforcement of the Louisiana-based transactions in Arkansas.
4. Whether Gulfco’s status as an unregistered foreign corporation affected its ability to enforce the mortgage in Arkansas courts.

## Decision

- The Arkansas Supreme Court affirmed the denial of foreclosure.
- The court held the finding of unconscionability and predatory lending was not clearly erroneous given the loan structure, high interest and fees, repeat refinancing, and borrowers’ vulnerability.
- The court concluded Arkansas courts could refuse to enforce the mortgage because enforcement would contravene Arkansas public policy against oppressive consumer lending practices.
- The court rejected the argument that Full Faith and Credit required Arkansas to apply Louisiana law in a manner that would defeat Arkansas’s fundamental public policy.
- The court treated Gulfco’s lack of authorization to do business in Arkansas as reinforcing, though not independently controlling, the policy concerns surrounding enforcement against Arkansas property.

## Legal Principles

- Unconscionability may rest on both substantive oppression (e.g., excessive rates, fees, and repayment obligations disproportionate to value received and collateral risk) and procedural unfairness (e.g., unequal bargaining power and limited borrower sophistication).
- A forum state may decline to enforce a contract or security interest, even one connected to another state’s law, when enforcement would violate the forum’s strong public policy.
- Full Faith and Credit does not compel a state to apply another state’s law when doing so would require enforcement contrary to the forum state’s fundamental policy interests.
- Predatory lending findings supported by evidence of repeated high-cost refinancing, borrower vulnerability, and disproportionate risk of losing a primary residence can justify denial of foreclosure as an equitable and public-policy matter.

## Conclusion

The Arkansas Supreme Court upheld the refusal to foreclose on the Brantleys’ Arkansas home because the lending transactions and mortgage were unconscionable and constituted predatory lending, and enforcing the mortgage would violate Arkansas’s strong public policy protections for consumers and homeowners.


Gulfco of La., Inc. v. Brantley, 2013 Ark. 367, 430 S.W.3d 7 (Ark. 2013)