OAKLAND, CALIF. – Today, the California Supreme Court ruled in favor of the plaintiffs in De La Torre v. CashCall, that high-interest rates on loans above $2,500 may be deemed unconscionable, and therefore illegal—even if those loans aren’t subject to statutory rate limits. The case involved plaintiff Eduardo De La Torre, a former student at the University of California Davis, who borrowed $2,600 from CashCall at an interest rate of 98% Annual Percentage Rate (APR). The Center for Responsible Lending (CRL) co-authored an amicus brief urging the Court to rule that the high-rate of a loan combined with no underwriting and expectation of high default is sufficient to consider these type of interest rates as unconscionable.
The court’s decision highlights the urgency for the California State Legislature to pass meaningful interest rate caps for loans more than $2,500. High-cost predatory loans have put thousands of Californians in debt traps that often lead to bank penalty fees, damaged credit scores, delinquencies, garnished wages, and even bankruptcy. According to the California Department of Business Oversight, nearly 60% loans of $2,500 to $5,000 made in 2017 carried APRs of more than 100%.
“We often hear from Californians victimized by long-term high-interest loans,” said CRL California Policy Director Graciela Aponte-Diaz. “This debt trap typically leaves customers in worse financial position, and it is widely condemned by community and civil rights organizations, faith and military leaders, and many state and federal lawmakers. Even the California Supreme Court now agrees that charging high-interest on these loans can be illegal. Providing responsible credit access while maintaining financial protections is good business, good for consumers and good for the state’s economic well-being. It’s time for the State Legislature to act and pass a law that puts a stop to these abusive predatory loans once and for all.”
Earlier this year, CRL, faith leaders, consumer advocates, veterans, local officials, and more than 100 community organizations joined together in pushing forward AB 2500, the Safe Consumer Lending Act. The bill, introduced by Assemblymember Ash Kalra’s (D-San Jose), would have protected California families from abusive high-cost installment loans, including those made by car title lenders. The legislation was set to cap loans of $2,500 to $5,000 at 36% APR. In June, the Assembly took a historic step to vote on this legislation but unfortunately it failed to garner the necessary 41 votes to pass the floor. The payday lending industry lobbied members from the Latino and Black legislative caucus as well as Assemblymembers who are former servicemembers to not support this bill.
This was the second attempt in two years to pass commonsense loan reform. Last year, Assemblymember Kalra introduced legislation a bill that would have set cap of 24% for loans of $2,500 to $10,000. The Chairman of the Assembly Banking Committee at that time, Matt Dababneh, stopped the legislation from moving forward.
More than $1.5 million dollars was spent by payday and car title lenders to top lobby firms to defeat these two bills in the 2017 and 2018 legislative session.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.