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The interest rate on consumer loans of $2,500 or more may render the loans unconscionable under Fin. Code, § 22302.
Plaintiffs brought a class action lawsuit in federal district court against defendant, a lender of consumer loans to high-risk borrowers. Plaintiffs alleged defendant's lending practice violated the unfair competition law because it violated Fin. Code, § 22302, which applied the unconscionability doctrine to consumer loans. The federal district court granted defendant's motion for summary judgment, concluding that the UCL could not be used as a basis for plaintiffs' unconscionability claim because ruling on that claim would impermissibly require it to regulate economic policy. Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit, which certified a question to the Supreme Court.
Can the interest rate on consumer loans of $2,500 or more governed by Fin. Code, § 22303, render the loans unconscionable under § 22302?
The Supreme Court answered the certified question in the affirmative. The court concluded that an interest rate on consumer loans of $2,500 or more may be deemed unconscionable under Fin. Code, § 22302. An interest rate on a loan was the price of that loan, and it was clear that the price term, like any other term in a contract, may be unconscionable. The Legislature was entitled to subject loan transactions, like other contracts, to the unconscionability doctrine's nuanced blend of tractability and protection of human dignity, and did so here. Plaintiffs stated a cause of action in this litigation by bringing an unfair competition claim that alleged a violation of § 22302 due to an unconscionably high interest rate.