## Facts

- CashCall, Inc. made unsecured consumer loans targeted to high-risk borrowers in California, typically in the amount of $2,600.
- The loans carried very high APRs, initially about 96% and later about 135%.
- CashCall structured the loans at or above $2,500, a threshold relevant because California’s statutory interest-rate caps apply to certain loans under $2,500 (Fin. Code § 22303).
- Plaintiffs (borrowers) filed a putative class action alleging the interest rates were unconscionable under Financial Code § 22302 and therefore “unlawful” under the Unfair Competition Law (Bus. & Prof. Code § 17200).
- The federal district court certified a class but granted summary judgment for CashCall, reasoning that loans of $2,500 or more could not, as a matter of law, be found unconscionable as to their interest rate because the Legislature did not cap rates for such loans.
- On appeal, the Ninth Circuit certified to the California Supreme Court whether the interest rate on consumer loans of $2,500 or more can render the loans unconscionable under Financial Code § 22302.

## Issues

1. Whether Financial Code § 22302 permits a court to find an interest-rate term unconscionable for consumer loans of $2,500 or more, even though § 22303’s rate caps apply only to certain loans under $2,500.
2. Whether the absence of a statutory interest-rate cap for loans ≥$2,500 creates categorical immunity from unconscionability review of the interest rate.

## Decision

- The California Supreme Court answered the certified question “yes.”
- The Court held that an interest rate is a “price term,” and price terms are not categorically exempt from unconscionability review.
- The Court rejected the argument that § 22303’s limited rate caps imply that interest rates on loans ≥$2,500 can never be unconscionable.
- The Court did not decide whether CashCall’s specific rates were unconscionable; it only clarified the governing state-law rule for the federal courts to apply on remand.

## Legal Principles

- Financial Code § 22302 incorporates general unconscionability doctrine for covered consumer loans, including review of interest-rate (price) terms.
- The fact that § 22303 caps interest only for certain loans under $2,500 does not create a safe harbor for any interest rate on loans of $2,500 or more.
- Under California unconscionability doctrine, a term may be invalid if it is unreasonably harsh, unduly oppressive, or so one-sided as to shock the conscience.
- Unconscionability generally requires both procedural and substantive components, applied on a sliding scale; for price terms, courts may consider whether market conditions and borrower vulnerability indicate the price was not set by meaningful competition.

## Conclusion

The California Supreme Court held that consumer loans of $2,500 or more are not immune from unconscionability challenges to their interest rates under Financial Code § 22302, leaving to the federal courts whether the challenged rates in this case were unconscionable.


De La Torre v. CashCall, Inc., 5 Cal. 5th 966 (Cal. 2018)