De La Torre v. CashCall, Inc., 236 Cal. Rptr. 3d 353, 422 P.3d 1004 (Cal. 2018)

De La Torre v. CashCall, Inc., 236 Cal. Rptr. 3d 353, 422 P.3d 1004 (Cal. 2018)

Defendant CashCall, Inc. (“CashCall”) makes consumer loans to borrowers with a poor credit history.  Its signature product was an unsecured $2,600 loan payable over a 42-month period with a percentage rate of either 96 percent per annum or 136 percent per annum.  Plaintiff Eduardo De La Torre (“De La Torre”) filed a lawsuit in the federal district court for the Northern District of California (the “District Court”), alleging that CashCall violated California’s unfair competition law, Business and Professions Code section 17200 (the “UCL”).  The District Court granted class certification to borrowers that had taken out CashCall loans of at least $2,500 at an interest rate of 90 percent or higher for personal family or household use.

The UCL defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice.”  De La Torre alleged that CashCall violated the “unlawful” prong of the UCL because it violated section 22302 of the California Financial Code (the “Financial Code”), the section that applies the unconscionability doctrine to consumer loans. 

The District Court granted summary judgment in favor of CashCall on the UCL issue, holding that “the UCL cannot be used as a basis for Plaintiffs’ Unconscionability Claim because ruling on that claim would impermissibly require the Court to regulate economic policy.”  De La Torre v. CashCall, Inc., 56 F. Supp. 3d. 1105, 1107 (N.D. Cal. 2014).  In particular, in light of Financial Code section 22303, which capped interest rates only for loans under $2,500, the District Court held that ruling on whether CashCall’s interest rates were unconscionable would impermissibly intrude into the legislative domain. 

De La Torre appealed to the Ninth Circuit, which certified the following question to the California Supreme Court:  “Can the interest rate on consumer loans of $2,500 or more governed by California Finance Code § 22303 render the loan unconscionable under California Finance Code § 22302?”  De La Torre v. CashCall, Inc., 854 F.3d 1082, 1085 (9th Cir. 2017).  The California Supreme Court’s answer was “yes.”

The California Supreme Court rejected CashCall’s argument that section 22303, by applying the usury cap only to loans under $2,500, foreclosed arguments that interest rates on loans of $2,500 or more could ever be unconscionable under section 22302.  To the contrary, section 22302 expressly applied the doctrine of unconscionability to consumer loans and a violation of section 22302 might also be an “unfair business practice” actionable under the UCL.

The California Supreme Court recognized that “unsecured loans made to high-risk borrowers often justify high rates” and noted that both consumers’ acceptance of such rates, as well as restrictions on them, may trigger unintended consequences (such as turning to unregulated lenders).  The California Supreme Court cautioned that, wary of such consequences and cognizant of the limits of its power, a court should declare 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 case will now return to the Ninth Circuit, which will likely remand the case to the District Court to determine whether the interest rates on the class members’ CashCall loans were, in fact, unconscionable.