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When is an interest rate for a consumer loan ‘conscionable’? State high court decision prompts question

United States Dollar notes exchange hands at a local bank in Beijing 15 May 2006.
United States Dollar notes exchange hands at a local bank in Beijing 15 May 2006.
STR/AFP/Getty Images

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California Supreme Court has ruled Monday that there should be a limit to interest rates on consumer loans.

The high court decided that interest rates on consumer loans can be so high that they become “unconscionable.” The decision changes the current policy that allows lenders to charge whatever the market will bear.

Critics say the ruling could disrupt the lending market and force lenders to scale back their credit offerings. The validity of millions of loans can be put into question. Analysts say borrowers, who have taken out high-interest loans, could sue their lender claiming an unconscionable interest rate.

The issue came to light through a class of borrowers, who sued Orange County-based CashCall in 2008 over loan rates that they argued made the loans unconscionable. The case, De La Torre vs. CashCall, is before the U.S. 9th Circuit Court of Appeals, which asked the state high court to weigh in on California lending law.

We discuss the implications for California’s lending market.


James Sturdevant, consumer rights and class action attorney for The Sturdevant Law Firm, who represents the borrowers in the De La Torre vs. CashCall case

Allen Denson, senior attorney and partner at Hudson Cook law firm, who represents consumer lenders