De La Torre v. CashCall, Inc.
5 Cal. 5th 966, 422 P.3d 1004, 236 Cal. Rptr. 3d 353 (2018)
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Rule of Law:
Under California law, an interest rate on a consumer loan of $2,500 or more may be found unconscionable under Financial Code section 22302, even though such loans are exempt from the specific statutory interest rate caps set forth in Financial Code section 22303.
Facts:
- CashCall, Inc. was a lending company that offered consumer loans to high-risk borrowers with low credit scores who were under financial stress.
- One of CashCall's main products was an unsecured loan for $2,600, with a repayment period of 42 months.
- The annual percentage rate (APR) for these loans was either 96 percent or, later in the class period, 135 percent.
- CashCall marketed these loans through television advertisements that emphasized the ability to get money quickly.
- Eduardo De La Torre and Lori Saysourivong were consumers who took out these high-interest loans from CashCall.
Procedural Posture:
- Eduardo De La Torre and Lori Saysourivong filed a class action lawsuit against CashCall, Inc. in the U.S. District Court for the Northern District of California, a trial court.
- Plaintiffs alleged CashCall's high interest rates constituted an 'unlawful' business practice under California's Unfair Competition Law (UCL) because they were unconscionable under Financial Code § 22302.
- The district court certified the class action.
- On CashCall's motion for reconsideration, the district court granted summary judgment for CashCall, ruling that determining unconscionability would require the court to impermissibly regulate economic policy, which is the Legislature's role.
- Plaintiffs, as appellants, appealed the summary judgment ruling to the U.S. Court of Appeals for the Ninth Circuit, an intermediate federal appellate court.
- The Ninth Circuit certified a question of state law to the Supreme Court of California regarding whether an interest rate on a loan of $2,500 or more can be unconscionable.
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Issue:
Does California law permit a court to find that the interest rate on a consumer loan of $2,500 or more is unconscionable, even though such loans are statutorily exempt from specific interest rate caps?
Opinions:
Majority - Cuéllar, J.
Yes, an interest rate on a consumer loan of $2,500 or more can render the loan unconscionable. The price term of any contract, including an interest rate, is subject to the doctrine of unconscionability. While Financial Code § 22303 exempts loans of $2,500 or more from specific interest rate caps, it does not immunize them from the separate, flexible standard of unconscionability established in Financial Code § 22302. Unconscionability is a distinct legal inquiry from a statutory rate cap; it is a context-specific doctrine requiring a court to examine both procedural unconscionability (oppression or surprise in the bargaining process) and substantive unconscionability (overly harsh or one-sided terms) on a sliding scale. The legislative history indicates that § 22302 was enacted as a consumer protection measure precisely to police exorbitant rates on loans that were being deregulated from specific caps. Therefore, courts have both the authority and the responsibility to adjudicate claims that an interest rate on a loan of $2,500 or more is unconscionable.
Analysis:
This decision clarifies that the legislative removal of specific interest rate caps for consumer loans over $2,500 in California did not create an unregulated market where any rate is permissible. The court firmly established that the doctrine of unconscionability serves as a vital, albeit flexible, judicial tool to police predatory lending practices. This ruling empowers consumers to challenge extremely high interest rates on a case-by-case basis, shifting the focus from a bright-line rule to a fact-intensive inquiry into the overall fairness of the transaction. Consequently, lenders offering high-interest loans in this market face increased litigation risk and must be prepared to justify their rates based on the entire context of the loan, not merely the absence of a statutory cap.
