Consumer Loan interest RateInterest rate for consumer credit
In this case, the respondent, CashCall, Inc. is a non-bank provider of consumer credit to high-risk borrowers. 1. CashCall's main product was an $2,600 Unsecured Loan, repayable over a 42-month term and bearing an APR of 96 per cent or later in the 135 per cent maturity year.
In this case, the claimants accepted such CashCall credits and claim that the granting of these credits is in violation of California Unfair Competition Act (UCL). Claimants also claimed that these high interest charges make such UCL credits illegal and thus unreasonable. CashCall was successful with its application for an expedited trial in the District Court for the Northern District of California.
However, the District Court declared that it would not "review" the Californian legislature's political ruling not to limit interest rate on $2,500 or more credits because it would "improperly interfere with government policies. The Ninth Circuit confirmed the appeal to the California Supreme Court. A Supreme Court ruling that an interest rate for consumer credit of USD 2,500 or more can be considered unreasonable under UCL.
As the Supreme Court explained, "just because credits of at least $2,500 are not numerically capped at the interest rate does not mean that they cannot be considered unreasonable". Then the Supreme Court decided "to consider an interest rate impertinent only means that in the circumstance of the case a certain interest rate was "excessively hard", "excessively repressive" or "so one-sided" that it shocked the conscience".
In addition, the Supreme Court found that a brightness line test is unsuitable for these kinds of unconsciousness determinations and that "unconsciousness is a variable standard" and "strongly depends on context". However, the Supreme Court did not rule on whether the interest rate on these credits was illegally high.
It is therefore for the national court not only to assess the interest rate but also'the wider connection of the agreement, its economic environment, object and effect' in order to establish whether the interest rate was illegally high in the given circumstance.