The California Supreme Court ruled on Monday, August 18, that an interest rate on a consumer loan in California could be deemed illegally high even if the loan is not subject to the state’s usury law.
Consumer loans of $2,500 or more in California that are made by licensed California Finance Lenders are not subject to the state’s usury law. However, the California Finance Law includes a provision which states that a loan found to be unconscionable is deemed to be in violation of the Finance Law. Nonbank lender CashCall Inc. had a primary product which was an unsecured $2,600 loan payable over a 42-month period, and carrying an annual percentage rate of either 96% or 135%. Plaintiffs filed an action against CashCall claiming that these loans violated California’s unfair competition law because they were unconscionable. CashCall raised a number of defenses, including that a licensed California Finance Lender can charge any rate it wants on consumer loans of $2,500 or more, and that these loans cannot be unconscionable. Continue Reading