New Mexico Supreme Court Rules Against Credit Union’s Debt Collection Lawsuits

Credit union employees not authorized to practice law are prohibited from pursuing debt collection lawsuits – even in a small claims court – against their members, the New Mexico Supreme Court ruled unanimously on Monday.

The state’s high court ruling stemmed from a class action lawsuit filed by seven current and former members of the $285 million Guadalupe Credit Union (GCU) in Santa Fe, N.M., after it filed debt collection lawsuits against them in Santa Fe County Magistrate Court.

The Supreme Court agreed to hear this case to address two questions: First, have the current and former credit union members (the plaintiffs) sufficiently alleged that GCU engaged in the unauthorized practice of law? Second, based on these allegations, do the plaintiffs have standing to bring claims against Guadalupe under New Mexico’s Unfair Practices Act?

“We answer yes to both questions,” the Supreme Court ruled.

Throughout their debt collection actions, GCU appeared and acted through their employees who were not admitted to practice law in New Mexico and used the lawsuits in a small claims court to collect members’ debts.

The current and former members alleged that the judgments obtained by Guadalupe were enforced by garnishment or otherwise through the process of the magistrate (small claims) court. In addition, the credit union filed and pursued numerous similar collection lawsuits against other unnamed credit union members.

The plaintiffs sued GCU in a district court alleging that the credit union’s conduct violates a state rule, which addresses a closely-held corporation’s appearance through a non-attorney in magistrate’s court, and creates a private right of action for a person who suffers a loss of money or other property as a result of the unauthorized practice of law.

What’s more, the current and former members claimed that GCU’s conduct amounted to an unfair trade practice or unconscionable trade practice in violation of New Mexico Unfair Practices Act (UPA) that protects consumers from being misled by businesses.

For these violations of the state’s laws, the former and current members – Kyle Salas, Vicky Islas, Stephanie Ortiz, Alberto Roybal, Rhonda D. Sanchez, Jessica Sieters Martinez and Lori Sieters – are seeking monetary and equitable relief in its class action lawsuit.

Following a full briefing and hearing in a district court, a judge granted GCU’s motion to dismiss the lawsuit of the current and former members. Following that dismissal, the plaintiffs appealed to the Court of Appeals, which reversed that district court’s decision.

“In affirming the Court of Appeals, we clarify that corporations, such as Guadalupe, must appear before our courts through duly licensed counsel unless otherwise authorized by this Court’s rules,” the Supreme Court wrote in an opinion written by Justice Michael E. Vigil.

GCU, which maintained there was no legal basis for the lawsuit, argued state law allows a non-attorney to practice law in magistrate courts, which have the authority to hear civil lawsuits up to $10,000. The credit union also contended that its employees represented the credit union’s interests, in effect making it a self-represented litigant in the debt collection lawsuits.

The high court disagreed.

Corporations can appear in magistrate court through non-attorneys only in limited instances under court rules governing procedures in civil cases but those circumstances do not include Guadalupe’s debt collections actions, the justices explained. In addition, the Supreme Court said that Guadalupe’s non-attorney employees were not self-represented litigants because they pursued the debt collections on behalf of the credit union rather than representing their own legal interests.

“Corporations are held to different standards than individuals,” the high court reasoned.

“As a corporation, Guadalupe cannot represent itself or appear pro se. Instead, a corporation must act through an agent, such as an employee, and that agent can only represent the corporation if they are authorized to practice law.”

Based on the allegations in the lawsuit, the Supreme Court concluded that the group of credit union borrowers had the right to bring their lawsuit under New Mexico’s UPA and a state statute that permits damage claims by people who suffer a loss of money or property because of the unauthorized practice of law.

The Supreme Court regulates the practice of law in the state.

The justices explained that “only attorneys duly admitted to the state bar may practice law in New Mexico, with limited exceptions provided as expressly recognized by the rules of this Court. This rule protects the public and the administration of justice by ensuring that those who practice law are held to the high standards of competency, ethics, and professionalism demanded of members of our state bar.”

GCU President/CEO Tanya Romero-Sturgeon said the credit union respects the recent decision of the New Mexico Supreme Court and remains committed to serving its members with transparency and dedication. The credit union serves more than 29,000 members.

“Our practices have always centered around supporting our community responsibly, and we will continue to prioritize member well-being as we review this ruling in alignment with our values,” she said in a prepared statement.

But Humphreys Wallace Humphreys, a Santa Fe consumer law firm, which represented the plaintiffs, saw the credit union’s behavior differently.

“People seeking a trusted financial partner and to be a part of the community often choose credit unions over big banks,” the law firm said in a prepared statement. “It is unfortunate that Guadalupe Credit Union chose to betray that trust by engaging in behavior that clearly violates New Mexico law. We are gratified that the Court made clear that this type of behavior is not to be tolerated.”

The Supreme Court remanded the members’ lawsuit to the district court with instructions to vacate its order of dismissal and to reinstate the plaintiffs’ complaint in its entirety.

READ MORE: New Mexico Supreme Court Ruling – Salas v. Guadalupe Credit Union