In De La Torre v. CashCall, Inc., the Supreme Court today holds that a court can rule that the interest rate on a consumer loan of more than $2,500 is too high even though the Legislature has set an interest rate ceiling for only those loans less than $2,500. The court’s unanimous opinion by Justice Mariano-Florentino Cuéllar concludes that “[t]he absence of a rate cap on loans of at least $2,500 does not make all rates lawful.” But the court also expressly leaves open the question whether even a rate on a less-than-$2,500 loan that is under the applicable statutory cap might still be vulnerable to judicial nullification as unconscionable.
The opinion states that “courts have a responsibility to guard against consumer loan provisions with unduly oppressive terms.” However, the court also says that such guarding must be done “with caution” so that “a court declares unconscionable only those interest rates that — in light of the totality of a transaction’s bargaining context — are so ‘unreasonably and unexpectedly harsh’ as to be ‘unduly oppressive’ or ‘shock the conscience.'”
The court’s decision comes in answering a question posed by the Ninth Circuit. The loans at issue in the federal case were made to people with low credit scores and carried annual interest rates of 96 or 135 percent. The Supreme Court finds that those loans could be the basis for a class action under California’s Unfair Competition Law.
The court disapproves a 1965 opinion by the Fourth District Court of Appeal.
