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Date: 08-17-2018

Case Style: Eduardo De La Torre v. Cashcall, Inc.

Case Number: S241434

Judge: Cuellar

Court: Supreme Court of California

Plaintiff's Attorney: Arthur D. Levy, James C. Sturdevant, Jessica Lee Riggin, Steven Marcus Tindall, Beth Ellen Terrell, Andre Michel Mura and Damon M. Connolly

Defendant's Attorney: Damon M. Connolly, Lydia Michelle Mendoza, Brad William Seiling and Donald R. Brown

Under California law, can a loan contract include an interest rate term so
high that it is “unreasonably and unexpectedly harsh,” “unduly oppressive,” or “so
one-sided as to shock the conscience”? (Sanchez v. Valencia Holding Co.,
LLC (2015) 61 Cal.4th 899, 910–911 (Sanchez).) What the Ninth Circuit asks us
to resolve in this case is a more specific version of that question: Can the interest
rate on consumer loans of $2,500 or more render the loans unconscionable under
section 22302 of the Financial Code? The answer is yes. An interest rate on a
loan is the price of that loan, and “it is clear that the price term, like any other term
in a contract, may be unconscionable.” (Perdue v. Crocker National Bank (1985)
38 Cal.3d 913, 926 (Perdue).)
Although California sets interest rate caps only on consumer loans less than
$2,500, we do not glean from the statute setting those rates — section 22303 of the
Financial Code — the implication that a court may never declare unconscionable
an interest rate on a loan of $2,500 or more.
1 Nothing in our unconscionability
doctrine, in section 22303, its neighboring section 22302, or anything else
shedding light on the purpose of the relevant statutes supports such a reading.
Indeed, when read together, sections 22302 and 22303 tend to show how the
Legislature’s purpose in enacting these provisions was to free larger-denominated
debts from the rigid regulation of usury rates, without rendering irrelevant to those
transactions the flexible standard of unconscionability long rooted in both statutes
and California common law. We recognize how daunting it can be to pinpoint the
precise threshold separating a merely burdensome interest rate from an
unconscionable one. But that is no reason to ignore the clear statutory embrace
here of a familiar principle –– that courts have a responsibility to guard against
consumer loan provisions with unduly oppressive terms. (Perdue, supra, 38
Cal.3d at p. 925.)
That responsibility is one courts must pursue with caution. Unsecured
loans made to high-risk borrowers often justify high rates. Both consumers’
acceptance of such rates, as well as restrictions on them, may trigger unintended
consequences. (See, e.g., Bhutta et al., Consumer Borrowing after Payday Loan
Bans (2016) 59 J. Law & Econ. 225, 247 [finding that “although payday loan
regulations reduce the usage of payday loans, many consumers turn to other forms
of high-interest credit”].) Wary of such consequences and cognizant of the limits
of its power, a court declares unconscionable only those interest rates that — in
light of the totality of a transaction’s bargaining context — are so “unreasonably
and unexpectedly harsh” as to be “unduly oppressive” or “shock the conscience.”
(E.g., Sanchez, supra, 61 Cal.4th at pp. 910–911.) But nothing in California law

1 All further references to sections 22302 and 22303 are to the Financial
prohibits a court from making an inquiry into the nature of a consumer loan
agreement of at least $2,500 and the interest rate provided therein.
Defendant CashCall, Inc. (CashCall) is a lender of consumer loans to highrisk
borrowers. One of CashCall’s signature products was an unsecured $2,600
loan, payable over a 42-month period, and carrying an annual percentage rate
(APR) of either 96 percent or, later in the class period, 135 percent. People who
took out such loans from CashCall were “consumers with low credit scores,”
living “under financial stress.” (De La Torre v. CashCall, Inc. (N.D.Cal. 2014) 56
F.Supp.3d 1073, 1085 (CashCall).) CashCall attracted many such borrowers
through its television advertisements, which “capitalize[d] on the viewer’s need to
get money quickly.” (Ibid.)
In bringing this lawsuit in the federal district court for the Northern District
of California, plaintiffs Eduardo De La Torre and Lori Saysourivong do not
contend CashCall’s advertising was deceptive. Nor do they claim CashCall failed
to disclose accurately the terms of the loan as required by federal law. What
plaintiffs allege instead is that CashCall violated California’s Unfair Competition
Law (UCL). The UCL defines “unfair competition” to include “any unlawful,
unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200.)
Plaintiffs bring their claim under the “unlawful” prong of the UCL and assert that
CashCall’s lending practice was unlawful because it violated section 22302, the
section that applies the unconscionability doctrine to consumer loans.
The district court certified plaintiffs’ lawsuit as a class action. It defined
the class as those borrowers who took out loans from CashCall of at least $2,500
“at an interest rate of 90% or higher.” (CashCall, supra, 56 F.Supp.3d at p. 1082
[defining as a class “ ‘[a]ll individuals who while residing in California borrowed
from $2,500 to $2,600 at an interest rate of 90% or higher from CashCall for
personal family or household use at any time from June 30, 2004 through July 10,
2011’ ”].) Because the class was defined by the interest rate paid by its members,
the interest rate became the crucial term on which the parties and the courts trained
their attention.
After class certification, CashCall moved for summary judgment on
plaintiffs’ unfair competition claim. It argued “Plaintiffs have failed to establish
that [CashCall’s] interest rates are unconscionable as a matter of law.” (CashCall,
supra, 56 F.Supp.3d at p. 1086.) The district court initially denied the motion, as
“there [were] disputed questions of fact with regard to both the procedural and
substantive unconscionability inquiries.” (Id. at p. 1104.)
But the court changed its mind when CashCall made a motion for
reconsideration. The court now agreed with CashCall that “the UCL cannot be
used as a basis for Plaintiffs’ Unconscionability Claim because ruling on that
claim would impermissibly require the Court to regulate economic policy.” (De
La Torre v. CashCall, Inc. (N.D.Cal. 2014) 56 F. Supp. 3d 1105, 1107.) In
reaching this conclusion, the court reasoned it could not fashion a remedy under
the UCL “without deciding the point at which CashCall’s interest rates crossed the
line into unconscionability.” (Id. at pp. 1109–1110.) The court emphasized that,
in enacting section 22303, “[t]he California Legislature long ago made the policy
decision not to cap interest rates on loans exceeding $2,500.” (Id. at p. 1109.) To
decide the point at which “CashCall’s interest rates crossed the line into
unconscionability,” said the court, would be to “second-guess” the Legislature and
“impermissibly intrud[e] upon [its] province” to forge economic policy through
legislation. (Ibid.) As such, “[e]ven if Plaintiffs were able to prove that the
challenged loans were unconscionable,” their claim would “fail[] as a matter of
law.” (Ibid.) The court therefore granted CashCall’s motion for summary
Plaintiffs appealed. After reviewing the parties’ arguments, the Ninth
Circuit certified to us this question: “Can the interest rate on consumer loans of
$2500 or more governed by California Finance Code § 22303, render the loans
unconscionable under California Finance Code § 22302?” (De La Torre v.
CashCall, Inc. (9th Cir. 2017) 854 F.3d 1082, 1085.) For the reasons that follow,
we answer the Ninth Circuit’s question in the affirmative: an interest rate on
consumer loans of $2,500 or more may be deemed unconscionable under Financial
Code section 22302.
As long established under California law, the doctrine of unconscionability
reaches contract terms relating to the price of goods or services exchanged.
(Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145 (Sonic II) [“the
unconscionability doctrine is concerned . . . with [among other things]
‘unreasonably and unexpectedly harsh terms having to do with price or other
central aspects of the transaction’ ”]; Perdue, supra, 38 Cal.3d at p. 926 [“the price
term, like any other term in a contract, may be unconscionable”]; Carboni v.
Arrospide (1991) 2 Cal.App.4th 76, 82 (Carboni) [“at some point the price
becomes so extreme that it is unconscionable”]; see also Jones v. Star Credit
Corp. (Sup.Ct. 1969) 298 N.Y.S.2d 264, 266 [“no other provision of an agreement
more intimately touches upon the question of unconscionability than does the term
regarding price”].) Whether the price of a bargain is “unreasonably and
unexpectedly harsh” depends on more than just a single printed number, so we
examine not only the price term itself but other provisions and circumstances
affecting a transaction’s benefits and burdens. (See Perdue, supra, 38 Cal.3d at
pp. 926–927 [“Allegations that the price exceeds cost or fair value, standing alone,
do not state a cause of action. [Citations.] Instead, plaintiff's case will turn upon
further allegations and proof setting forth the circumstances of the transaction,”
including “the basis and justification for the price.”].)
An interest rate is the price charged for lending a particular amount of
money to a given individual or entity. (Carboni, supra, 2 Cal.App.4th at p. 82, fn.
7 [quoting Corbin, Contracts (1963) § 129, p. 556].) As with any other price term
in an agreement governed by California law, an interest rate may be deemed
unconscionable. (Boyce v. Fisk (1895) 110 Cal. 107, 112 (Boyce) [“No doubt the
excess of interest is a circumstance which, coupled with others tending to show
actual fraud, or such circumstances of oppression and overreaching as warrant the
inference of undue advantage, is sufficient cause for setting aside a contract.”];
Bridge v. Kedon (1912) 163 Cal. 493, 498 (Bridge) [“where it is a loan and the
interest is exorbitant, or the terms unconscionable, the courts will compel each
party to do equity”]; Carboni, supra, 2 Cal.App.4th at pp. 81–82, fn. 5 [“We can
see no reason why interest rate provisions should be exempt from the general rules
of unconscionability . . . .”].)
CashCall’s arguments to the contrary fail to persuade us. Although section
22303 sets maximum interest rates only on loans less than $2,500, whether an
interest rate is unconscionable is fundamentally a different inquiry than whether
the rate exceeds a numerical cap. Unconscionability is a flexible standard in
which the court looks not only at the complained-of term but also at the process by
which the contractual parties arrived at the agreement and the larger context
surrounding the contract, including its “commercial setting, purpose, and effect.”
(Civ. Code § 1670.5, subd. (b); Sanchez, supra, 61 Cal.4th at pp. 911–912 [“An
evaluation of unconscionability is highly dependent on context. . . . The ultimate
issue in every case is whether the terms of the contract are sufficiently unfair, in
view of all relevant circumstances, that a court should withhold enforcement.”
(italics added)]; Perdue, supra, 38 Cal.3d at p. 926 [“a claim of unconscionability
often cannot be determined merely by examining the face of the contract, but will
require inquiry into its setting, purpose, and effect”]; see also Drogorub v. Payday
Loan Store of WI, Inc. (Wis.Ct.App. 2012) 826 N.W.2d 123 [2012 Wisc. App.
LEXIS 1002*, *11] [agreeing with the lower court that “while a 294% interest rate
is not per se unconscionable, it is unconscionable under the facts of this case”];
James v. Nat’l Fin., LLC (Del.Ch. 2016) 132 A.3d 799, 816–817, 826–837
[similar].) In contrast, an interest rate cap is a bright-line rule policing a single
facet of loan agreement. As such, just because loans of at least $2,500 are not
subject to a numerical ceiling on the interest rate does not mean that they cannot
be found unconscionable. The Legislature made this clear when it enacted section
22302 — which applies the unconscionability doctrine to all consumer loans — at
the same time that it lifted interest caps on loans exceeding $2,500.
So we conclude plaintiffs have indeed stated a cause of action in this
litigation by bringing an unfair competition claim that alleges a violation of
section 22302 due to an unconscionably high interest rate. To arrive at this
conclusion, we consider the Financial Code, the UCL, and the unconscionability
doctrine itself.
The Financial Code governs the consumer loans at issue here. But the roots
of the unconscionability doctrine long predate existing statutory provisions. The
doctrine can be traced back to Roman law and, more recently, English common
law. (Atty. Gen. Amicus Brief, at p. 9, fn. 3; Orozco, Note, The Judicial
Expansion of an Old Tool to Combat Predatory Lending in New Mexico (2016) 46
N.M. L.Rev. 191, 196.) During the 19th century, both our court and the United
States Supreme Court recognized that a price agreed upon in a contract may be
unconscionable. (See Hume v. United States (1889) 132 U.S. 406, 414–415
[affirming a trial court’s decision to allow the plaintiff to recover only the market
value of the goods and not the agreed-upon contract price, which at “thirty-five
times their highest market value,” was “extortionate and unconscionable on their
face”]; Boyce, supra, 110 Cal. at p. 112; see also Scott v. United States (1871) 79
U.S. 443, 445 [“If a contract be unreasonable and unconscionable, but not void for
fraud, a court of law will give to the party who sues for its breach damages, not
according to its letter, but only such as he is equitably entitled to.”]; Baxter v.
Wales (1815) 12 Mass. 365, 367 [“The agreement to pay at the rate of six dollars
per annum for the use of the cattle, as stipulated in each note, in case the defendant
should fail to perform his contract at the end of the year, was unconscionable
. . . .”].) Long before unconscionability was incorporated into the relevant
provision of the Financial Code, courts appeared to have recognized that the
justification for unconscionability was to protect social welfare. (See, e.g.,
Schmitz, Embracing Unconscionability’s Safety Net Function (2006) 58 Ala.
L.Rev. 73, 105, 80 [arguing that “excessively high prices relative to goods or
services purchased often indicate market failures” and documenting that early
courts developed an “ ‘equitable conception of contract,’ which deemed ‘unjust’
the payment of prices outside the relevant customary range”].)
In 1985, the Legislature approved Senate Bill 447, enacting into law the
current versions of sections 22302 and 22303. Before the bill’s passage, the
Legislature had set maximum interest rates for consumer loans up to $5,000. The
bill, as codified at section 22303, lowered this threshold to $2,500. In fact, section
22303 accomplished two things. First, it set various numerical maximums on
interest rates for loans ranging from less than $250 to more than $1,650; second, it
specified that the section “does not apply to any loan of a bona fide principal
amount of two thousand five hundred dollars ($2,500) or more.”
2 So, while a
lender such as CashCall may charge, at most, “[o]ne percent per month” (§ 22303,
subd. (d)) on the last dollar lent on a loan just shy of $2,500, it escapes the rigid
restriction of the usury law by lending just a little more and pushing the loan
amount to at least $2,500.
Just as the Legislature was enacting section 22303, it also approved an
amendment with precisely the same language found in section 22302 today. The
amendment (now section 22302) consists of two subdivisions. The first
subdivision applies the unconscionability doctrine to consumer loans. (Fin. Code,
§ 22302, subd. (a) [“Section 1670.5 of the Civil Code applies to the provisions of a
loan contract that is subject to this division.”].) The second provides that an
unconscionable loan violates the consumer lending law and subjects the lender “to
the remedies specified in this division.” (Fin. Code, § 22302, subd. (b) [“A loan

2 In its entirety, section 22303 reads: “Every licensee who lends any sum of
money may contract for and receive charges at a rate not exceeding the sum of the
“(a) Two and one–half percent per month on that part of the unpaid
principal balance of any loan up to, including, but not in excess of two
hundred twenty–five dollars ($225).
“(b) Two percent per month on that portion of the unpaid principal balance
in excess of two hundred twenty–five dollars ($225) up to, including, but
not in excess of nine hundred dollars ($900).
“(c) One and one–half percent per month on that part of the unpaid
principal balance in excess of nine hundred dollars ($900) up to, including,
but not in excess of one thousand six hundred fifty dollars ($1,650).
“(d) One percent per month on any remainder of such unpaid balance in
excess of one thousand six hundred fifty dollars ($1,650).
“This section does not apply to any loan of a bona fide principal amount of two
thousand five hundred dollars ($2,500) or more as determined in accordance with
Section 22251.”
found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be
deemed to be in violation of this division and subject to the remedies specified in
this division.”].)
Both subdivisions of section 22302 refer to Civil Code section 1670.5, the
statutory codification of the unconscionability doctrine.3 While Civil Code
section 1670.5 is a verbatim enactment of Section 2-302 of the Uniform
Commercial Code (UCC), its adoption in California in 1979 as part of the Civil
Code made unconscionability a doctrine applicable to all contracts. (See Prince,
Unconscionability in California: A Need for Restraint and Consistency (1995) 46
Hastings L.J. 459, 490–493 [reviewing the legislative history of Civil Code section
1670.5]; IMO Development Corp. v. Dow Corning Corp. (1982) 135 Cal.App.3d
451, 459–460 [same].) What section 1670.5 makes clear is that a court may find
unconscionable “the contract” or “any clause of the contract” and so refuse
enforcement. (Civ. Code, § 1670.5, subd. (a); see also Assem. Leg. Com., com.
on Assem. Bill 510 (1979-1980 Reg. Sess.) reprinted in Deering’s Ann. Civ. Code
(2005 ed.) foll. § 1670.5, p. 383 [“Section 1670.5 is intended to make it possible

3 Civil Code section 1670.5 states:
“(a) If the court as a matter of law finds the contract or any clause of the
contract to have been unconscionable at the time it was made the court
may refuse to enforce the contract, or it may enforce the remainder of
the contract without the unconscionable clause, or it may so limit the
application of any unconscionable clause as to avoid any
unconscionable result.
“(b) When it is claimed or appears to the court that the contract or any
clause thereof may be unconscionable the parties shall be afforded a
reasonable opportunity to present evidence as to its commercial setting,
purpose, and effect to aid the court in making the determination.”
for the courts to police explicitly against the contracts or clauses which they find
to be unconscionable.”].)
By incorporating Civil Code section 1670.5, section 22302 applies the
unconscionability doctrine to contract terms in a consumer loan agreement. To
wit: unconscionability “applies to the provisions of a loan contract that is subject
to this division.” (Fin. Code, § 22302, subd. (a).) The “division” at issue is
Division 9 of the Financial Code, the part of the Code that regulates loans made to
4 (See Fin. Code, § 22200 et seq.) Not only does section 22302 apply
the unconscionability doctrine to consumer loans, it applies the doctrine to “the
provisions of a loan contract,” one of which is undeniably the interest rate on the
loan. (See Fin. Code, § 22200 [defining the “charges” on a loan to include the
interest received in making the loan].) So under its ordinary terms, section 22302
applies the unconscionability doctrine to the interest rate on a consumer loan. At
least here, there is no question regarding to what exactly the term “applies” applies
–– both that term and its context support the conclusion that it was the
Legislature’s purpose to leave unconscionability as a relevant consideration in
cases involving interest rates in consumer loans. In addition, because section
22302 imposes no restriction on the amount of money lent under the contract, the
interest rate on a consumer loan — even one of at least $2,500 — may render the
loan unconscionable.
CashCall resists this conclusion, contending that section 22302 “has
nothing to do with interest rates.” To support its position, CashCall mounts a
blunderbuss attack on whether “the Legislature intended for courts to make
determinations of unconscionability” under section 22302 at all. CashCall begins

4 Division 9 of the Financial Code was previously known as the California
Finance Lenders Law. The Legislature renamed it the California Financing Law
in 2017. (Stats. 2017, ch. 475, § 4, p. 3575.)
with a kernel of truth, pointing out that under section 22302 unconscionable loans
are “subject to the remedies of this division.” Since “[t]here is no private right of
action to enforce ‘the remedies of this division,’ ” CashCall contends that
plaintiffs cannot litigate their unconscionability claims in court.
But plaintiffs are neither bringing a cause of action under the Financing
Law nor seeking remedies under that division. Instead, plaintiffs advance an
unfair competition claim under the UCL. The claim is premised on unlawful
business conduct, which section 17200 of the UCL proscribes. (Bus. & Prof.
Code, § 17200; Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377,
383.) By prohibiting unlawful business practices, “ ‘section 17200 “borrows”
violations of other laws and treats them as unlawful practices’ that the unfair
competition law makes independently actionable.” (Cel-Tech Communications,
Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (CelTech).)
In this case, section 22302 supplies the requisite “violations of other laws”
by making “[a] loan found to be unconscionable” a violation of the Financing
Law. (Fin. Code, § 22302, subd. (b).) The UCL, in turn, makes that violation
“independently actionable.” (Cel-Tech, supra, 20 Cal.4th at p. 180.) So the fact
that section 22302 does not provide for a private cause of action is immaterial
since “it is in enacting the UCL itself, and not by virtue of particular predicate
statutes, that the Legislature has conferred upon private plaintiffs ‘specific power’
[citation] to prosecute unfair competition claims.” (Stop Youth Addiction, Inc. v.
Lucky Stores, Inc. (1998) 17 Cal.4th 553, 562.) Similarly, it does not matter that
plaintiffs cannot recover the remedies made available under section 22302.
Plaintiffs are not praying for remedies under section 22302. They are seeking
UCL remedies — restitution and injunctive relief — which are recoverable
“cumulative” of any other remedies. (Bus. & Prof. Code, §§ 17203, 17205.)
Nor does it help CashCall to argue that Civil Code section 1670.5 merely
codifies the defense of unconscionability without providing for an affirmative
cause of action. Whatever merit underlies the claim, it proves irrelevant where a
different statute — here, section 22302 — expressly provides that an
unconscionable loan breaks the law and the UCL supplies a cause of action to
police such unlawful conduct. (Fin. Code, § 22302, subd. (b); Cel-Tech, supra, 20
Cal.4th at p. 180; see also California Grocers Assn. v. Bank of America (1994) 22
Cal.App.4th 205, 217–218 (California Grocers) [assuming without deciding that
the UCL encompasses an affirmative cause of action for unconscionability]; Jones
v. Wells Fargo Bank (2003) 112 Cal.App.4th 1527, 1540 [same]; Freeman v.
Ow (N.D.Cal. Nov. 16, 2016, No. 16-cv-04817-JST) 2016 U.S.Dist.LEXIS
159572, at *21-22, fn. 3 [“ ‘[w]hile unconscionability cannot stand alone, it can be
the basis for another claim’ ”].)
So Plaintiffs have stated a cause of action by basing their UCL claim on the
allegation that the interest rate on CashCall’s consumer loans of at least $2,500
rendered the loans unconscionable under section 22302.
Our conclusion holds even when we consider section 22302 in light of the
interest rate caps imposed in section 22303. Section 22303 imposes strict limits
on the interest rates charged on loans less than $2,500. The section, however,
expressly states that it does not apply to any loan of $2,500 or more. By providing
that it “does not apply to any loan of a bona fide principal amount of two thousand
five hundred dollars ($2,500) or more,” section 22303 seems to mean what it says:
the section does not apply to loans of $2,500 or more. (See Larkin v. Workers’
Comp. Appeals Bd. (2015) 62 Cal.4th 152, 157 (Larkin) [“In interpreting a statute,
we begin with its text, as statutory language typically is the best and most reliable
indicator of the Legislature’s intended purpose.”]; State Dept. of Public Health v.
Superior Court (2015) 60 Cal.4th 940, 956 [same]; Klein v. Chevron U.S.A., Inc.
(2012) 202 Cal.App.4th 1342, 1379 (Klein) [stating in the context of another
statute that “[b]y its terms, the statute only applies to transactions involving 5,000
or more gallons of motor fuel and therefore has no application to transactions
involving lesser quantities of motor fuel”].) As such, whether the interest rate on a
loan of $2,500 or more may render the loan unconscionable is a question that
section 22303 expressly avoids answering.
CashCall’s interpretation would stand section 22303 on its head.
According to CashCall, because section 22303 “expressly considers loans of
$2,500 or more and declares that they are not subject to any rate cap,” such loans
cannot be unconscionable due to their rate. In essence, CashCall argues that by
stating that section 22303 does not apply to loans of $2,500 or more, the
Legislature actually meant to say that section 22302 does not apply to interest
rates. More still, CashCall’s argument rests on an assumed — but false —
equivalence between interest rate caps and unconscionability: if an interest rate is
not capped, it cannot be unconscionable. CashCall cites no apposite authority to
support its position. (Contra West Pico Furniture Co. v. Pacific Finance Loans
(1970) 2 Cal.3d 594 [deciding only that a statute making interest rate caps
inapplicable to loans over $5,000 means that plaintiff’s usury claim must fail];
Carter v. Seaboard Finance Co. (1949) 33 Cal.2d 564 [similar]; Raysinger v.
People Inv. & Loan Assn. (1973) 36 Cal.App.3d 248 [similar].) And for good
reason, as the argument belies a misunderstanding as to what unconscionability
Unconscionability is a flexible doctrine. It is meant to ensure that in
circumstances indicating an absence of meaningful choice, contracts do not
specify terms that are “overly harsh,” “unduly oppressive,” or “so one-sided as to
shock the conscience.” (Sanchez, supra, 61 Cal.4th at p. 910; A & M Produce Co.
v. FMC Corp. (1982) 135 Cal.App.3d 473, 484 (A & M Produce)
[“Unconscionability is a flexible doctrine designed to allow courts to directly
consider numerous factors which may adulterate the contractual process.”].) It is
true that unconscionability has been subject to “various nonexclusive
formulations” (Sonic II, supra, 57 Cal.4th at p. 1060; Sanchez, supra, 61 Cal.4th at
p. 911) and differing analytical approaches. (See Morris v. Redwood Empire
Bancorp (2005) 128 Cal.App.4th 1305, 1317–1319 (Morris) [documenting the use
of the two approaches in California]; Graham v. Scissor-Tail, Inc. (1981) 28
Cal.3d 807, 817–820 [explaining the older approach to finding unconscionability];
A & M Produce, supra, 135 Cal.App.3d at pp. 486–487 [explaining the alternative
framework that has been described as conforming more closely to the UCC];
Perdue, supra, 38 Cal.3d at p. 925, fn. 9 [stating that both approaches “should lead
to the same result”].) Nonetheless, at least one thing about the doctrine is clear: it
requires more than just looking at one particular term in a contract, comparing it to
a fixed benchmark, and declaring the term unconscionable.
Instead, unconscionability requires oppression or surprise — that is,
procedural unconscionability — along with the overly harsh or one-sided results
that epitomize substantive unconscionability. (E.g., Armendariz v. Foundation
Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz)
[explaining that “ ‘unconscionability has both a “procedural” and a “substantive”
element,’ the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal
bargaining power, the latter on ‘ “overly harsh” ’ or ‘ “one-sided” ’ results” and
the two elements “ ‘must both be present in order for a court to exercise its
discretion to refuse to enforce a contract or clause under the doctrine’ ”]; Sonic II,
supra, 57 Cal.4th at p. 1133; Sanchez, supra, 61 Cal.4th at p. 910.) Some measure
of both procedural and substantive unconscionability must be present –– although
given the sliding-scale nature of the doctrine, more of one kind mitigates how
much of the other kind is needed. (Armendariz, supra, 24 Cal.4th at p. 114;
Sanchez, supra, 61 Cal.4th at p. 910.) Even where a party complains of a single
contract clause, the court usually must still examine the bargaining process for any
procedural unfairness. (See Sanchez, supra, 61 Cal.4th at p. 912 [“the substantive
unfairness of the terms must be considered in light of any procedural
unconscionability”]; Morris, supra, 128 Cal.App.4th at p. 1319 [“Because
procedural unconscionability must be measured in a sliding scale with substantive
unconscionability, our task is not only to determine whether procedural
unconscionability exists, but more importantly, to what degree it may exist.”].)
The court must consider whether there was (1) undue oppression arising from “an
inequality of bargaining power,” including the various factors tending to show
relative bargaining power such as the parties’ sophistication, their cognitive
limitations, and the availability of alternatives; and (2) surprise owing to, for
example, the “terms of the bargain [being] hidden in a prolix printed form” or
pressure to hurry and sign. (A & M, supra, 135 Cal.App.3d at p. 486; see also,
e.g., Lona v. Citibank, N.A. (2011) 202 Cal.App.4th 89, 97, 111 [holding that the
plaintiff has shown a triable issue of procedural conscionability when he
introduced evidence that he “had an eighth grade education in Mexico,” limited
English, did not understand what he was signing, and the loan process “ ‘went
very fast,’ ” with the mortgage brokers not giving “ ‘too good of an
explanation’ ”].) In short, a determination of procedural unconscionability may
well be “highly dependent on context,” very much different than deciding whether
a certain rate cap applies.5 (Sanchez, supra, at pp. 911–912; Perdue, supra, 38

5 To the extent that CashCall argues individual borrowers’ circumstances
relevant to a procedural unconscionability determination would create
Cal.3d at p. 926; A & M, supra, 135 Cal.App.3d at p. 489 [“while
unconscionability is ultimately a question of law, numerous factual inquiries bear
upon that question”].)
In assessing the presence of substantive unconscionability, a court may also
need to consider context. (See Sanchez, supra, at pp. 911–912.) When a price
term is alleged to be substantively unconscionable, we have explained that it is not
sufficient for a court to consider only whether “the price exceeds cost or fair
value.” (Perdue, supra, 38 Cal.3d at p. 926; see also Bender, Rate Regulation at
the Crossroads of Usury and Unconscionability: The Case for Regulating Abusive
Commercial and Consumer Interest Rates Under the Unconscionability Standard
(1994) 31 Hous. L.Rev. 721, 774–775 [urging the courts to examine components
of a lender’s costs including its “cost of obtaining the money lent” and expenses
incurred “in making and administering the loan”].) The court must also “look to
the basis and justification for the price.” (Perdue, supra, 38 Cal.3d at p. 926.)
(But see Korobkin, Bounded Rationality, Standard Form Contracts, and
Unconscionability (2003) 70 U.Chi. L.Rev. 1203, 1206–1207, 1236 [arguing that
“[w]hen a contract term is salient to purchasers, the market can be trusted to
provide an efficient version of the term” and “price is probably salient to nearly all
buyers”].) If, for example, the interest rate is high because the borrowers of the
loan are credit-impaired or default-prone, then this is a justification that tends to
push away from a finding of substantive unconscionability. (See Harris v. Capital
Growth Investors XIV (1991) 52 Cal.3d 1142, 1164, 1162 (Harris) [discussing
“the charging of higher rents as a means of subsidizing defaults” and stating that
“[b]usiness establishments have an obvious and important interest in obtaining full

individualized issues unsuited for class adjudication, we express no view on the
merits of its argument as we were not called upon to review the district court’s
class certification order.
and timely payment for the goods and services they provide”].) Finally, a court
may consider whether there are market imperfections that make it less likely that
the price was set by a “freely competitive market” and therefore more susceptible
to unconscionability. (Perdue, supra, 38 Cal.3d at p. 927.)
These factors underscore why finding unconscionable a contract setting an
interest rate is categorically different from imposing an unvarying cap on the
interest rate. To declare an interest rate unconscionable means only that — under
the circumstances of the case, taking into account the bargaining process and
prevailing market conditions — a particular rate was “overly harsh,” “unduly
oppressive,” or “so one-sided as to shock the conscience.” (E.g., Sonic II, supra,
57 Cal.4th at p. 1145; Sanchez, supra, at pp. 910–911.) An unconscionability
determination does not generally depend on a single factor, and tends to be “highly
dependent on context.” (See Sanchez, supra, at pp. 911–912.) This is a far cry
from how a rate cap operates. If an interest rate exceeds a cap, then it will always
exceed the cap, as will all rates above it, regardless of the circumstances under
which those rates came about. A rate cap is uniform and rigid; unconscionability,
on the other hand, is context-specific and malleable. A reasonable Legislature can
lift an interest rate cap without also intending that unconscionability will never
apply to an uncapped rate. Indeed, a reasonable Legislature can lift an interest rate
cap, but — intending to protect consumers — specify that terms of consumer loans
are still policed by the flexible standard of unconscionability.
CashCall concedes that consumer protection was a clear purpose of the
legislation that enacted sections 22302 and 22303. The company argues, however,
that section 22302 shows only “the Legislature wanted to ensure that strong
consumer protections remained in place as to aspects of loans other than interest
rates.” To make this argument, CashCall relies on the legislative history of
sections 22302 and 22303. Such reliance is misplaced: to the extent the
legislative history is relevant here, it cuts against CashCall’s position.
As introduced by Senator Rose Ann Vuich on May 1, 1985, Senate Bill 447
did not contain the protection now codified at section 22302. (Sen. Bill No. 447
(1985-1986 Reg. Sess.) May 1, 1985.) The Attorney General opposed the bill. In
a letter addressed to Senator Vuich, the Attorney General expressed concern that
the bill will leave “[c]onsumers who borrow amounts of less than $5,000” without
adequate protection. (Atty. Gen. John K. Van De Kamp, letter to Sen. Vuich, June
28, 1985.) As the Attorney General explained, “these borrowers are least able to
negotiate favorable finance charges” and “are precisely the persons who need
protection against the exorbitant rates that could be charged if SB 447 is enacted.”
(Ibid.) Less than two weeks after receiving the letter, Senator Vuich introduced an
amended version of Senate Bill 447, adding a statutory provision now codified in
section 22302. (Sen. Amend. to Sen. Bill No. 447 (1985-1986 Reg. Sess.) July 10,
This sequence of events fairly gives rise to the inference the legislation that
became section 22302 was enacted to assuage the concern that the removal of
interest rate caps would leave consumers without protection against exorbitant
interest rates. By passing this legislation, the Legislature ensured that
unconscionability would protect against such overreaching by lenders. (See Legis.
Counsel’s Dig., Sen. Bill. No. 447 (1985-1986 Reg. Sess.) as amended Apr. 23,
1985 [stating that the amendment “would make unconscionable loan contracts of
personal property brokers and consumer finance lenders a violation of their
respective licensure laws”].) It is true that the Department of Corporations (which
was then engaged in “a friendly debate” with one of the industry supporters of
Senate Bill 447) had expressed that it “will be neutral [to the proposed legislation]
if the noninterest rate provisions . . . continue to apply to loans up to $5,000.”
(Sen. Com. on Banking and Commerce, Analysis of Sen. Bill No. 447 (1985-1986
Reg. Sess.) as amended Apr. 23, 1985, p. 2.) That statement, however, was made
months before Senator Vuich amended the bill to add the protection now found in
section 22302. As such, the statement sheds little light on the significance of
section 22302 or its scope.
To be sure, the statutory changes wrought by Senate Bill 447 had important
consequences for the loan market –– consequences described in subsequent
analyses of the bill. By removing interest rate caps on loans of at least $2,500, the
Legislature allowed the market to set the rates on those loans. (See Dept. of
Corporations, Enrolled Bill Rep. on Sen. Bill No. 447 (1985-1986 Reg. Sess.)
prepared for Governor Deukmejian (Aug. 29, 1985) p. 1 [“The effect of this bill is
that interest rates for consumer finance loans above $2,500 will be set by the
market place.”]; 6 Assem. J. (1993-1994 Session) p. 9016 [“It is the intent of the
Legislature to let the rates charged generally be set by free market competition
. . . .”].
6) But the Legislature did not preclude the possibility that courts would
step in to protect consumers if interest rates –– within the particular context of a

6 As noted, the Assembly Journal cited relates to the 1993-1994 legislative
session, the session held about a decade after the passage of Senate Bill 447.
Normally, we do not think a statement of a later-sitting legislator sheds much light
on “the intent of an earlier Legislature’s enactment.” (Western Security Bank v.
Superior Court (1997) 15 Cal.4th 232, 244 [“there is little logic and some
incongruity in the notion that one Legislature may speak authoritatively on the
intent of an earlier Legislature’s enactment when a gulf of decades separates the
two bodies”]; see also, Jones, supra, 42 Cal.4th at p. 1171 [“The declaration of a
later Legislature is of little weight in determining the relevant intent of the
Legislature that enacted the law.” (internal quotation marks omitted)]; Bruesewitz
v. Wyeth LLC (2011) 562 U.S. 223, 242 [“Post-enactment legislative history (a
contradiction in terms) is not a legitimate tool of statutory interpretation.”].) Here,
however, the 1994 Legislature repealed the original 1985 statutes and reenacted
them (verbatim) as sections 22002 and 22003. As such, the statement may be
given transaction –– are shown to be unconscionable. (See Dept. of Corporations,
Enrolled Bill Rep. on Sen. Bill 447 (1985-1986 Reg. Sess.) p. 1 [“Senate Bill 447
removes only the rate regulation provision of the laws regulating lenders while
preserving the consumer protection provisions of all laws.”]; 6 Assem. J. (1993-
1994 Session) p. 9016 [“The Legislature believes that the Law creates a
reasonable balance between regulation and free-market activity, and provides
necessary consumer protections.”]; Perdue, supra, 38 Cal.3d at p. 943 [“The duty
of good faith and fair dealing, and protection against unconscionable contracts, has
never been thought incompatible with a free and competitive market. Defendant is
really asking for a market free of those restraints against oppression and
overreaching applicable to all other commercial operations.”].)
At core, CashCall fails to persuade that removing an interest rate cap is the
equivalent of making the interest rate immune from a finding of unconscionability.
This is despite the company’s attempt to spin this argument in different ways. For
instance, CashCall casts the discussion as one in which sections 22302 and 22303
are irreconcilably inconsistent and section 22303 must prevail because it is the
more specific provision. We do not agree. For a loan of at least $2,500, there is
no overlap — and hence no inconsistency — between sections 22302 and 22303.
As discussed above, section 22303 simply does not apply to such loans.7
In the alternative, CashCall seeks to characterize section 22303 as a “safe
harbor” that protects lenders of larger-denominated loans from the reach of section
22302. In the context of a UCL claim alleging an unfair business practice, we
have explained, “[i]f the Legislature has permitted certain conduct or considered a

7 While it is possible that such an overlap may arise for loans less than
$2,500, we have here no occasion to consider those loans. We thus express no
view on whether an interest rate on such a loan may be unconscionable under
section 22302 even if it complies with the interest rate cap of section 22303.
situation and concluded no action should lie,” the “specific legislation” permitting
that conduct provides a safe harbor that “plaintiffs may not use the general unfair
competition law to assault.” (Cel-Tech, supra, 20 Cal.4th at p. 182.) Yet, even
assuming that the concept applies to a UCL action premised on an unlawful, rather
than unfair, business practice, the safe harbor rule does not “prohibit an
action under the unfair competition law merely because some other statute on the
subject does not, itself, provide for the action or prohibit the challenged conduct.”
(Id. at pp. 182–183.) And not prohibiting the challenged conduct is all that section
22303 does.
That lack of proscription is not enough. (See Cel-Tech, supra, 20 Cal.4th at
p. 183; see also, e.g., Klein, supra, 202 Cal.App.4th at p. 1379 [finding no safe
harbor in an analogous situation].) “There is a difference between (1) not making
an activity unlawful, and (2) making that activity lawful.” (Cel-Tech, supra, 20
Cal.4th at p. 183.) The absence of a rate cap on loans of at least $2,500 does not
make all rates lawful, for all purposes, under all regulations. In particular, section
22303 does not insulate interest rates from the scrutiny authorized by section
22302. If section 22302 is a storm at sea, then section 22303 offers no safe harbor
from it.
CashCall seeks to buttress its position by relying on the authority of the
Department of Business Oversight (DBO), the administrative agency that oversees
the enforcement of the Financing Law.
8 An agency interpretation of a statute’s
meaning and legal effect is entitled to the courts’ consideration and respect
(Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7

8 The DBO is the successor to the Department of Corporations. (DBO,
History available at [as
of Aug. 9, 2018].) All Internet citations in this opinion are archived by year,
docket number, and case name at .
(Yamaha); Larkin, supra, 62 Cal.4th at p. 158.) Yet CashCall relies on the most
tenuous evidence to bolster its argument about the DBO’s purported interpretation
of section 22302 or 22303. CashCall lifts an isolated sentence from a complaint
the agency brought against it, which states that “a CFLL licensed lender can
charge whatever interest rates it chooses on loans of bona fide principal amounts
of $2,500 or more.” (In re Commissioner of the Business Oversight v. CashCall,
Inc. (Cal. Dept. of Bus. Oversight June 4, 2014) No. 603-8780, Accusation ¶ 2
(Accusation), available at
[as of August 9, 2018].) The complaint
from which the sentence is taken did not concern either section 22302 or 22303
and, as one might expect of an accusation, contained no analysis of the cited
We can hardly credit the preceding statement as the DBO’s interpretation of
the provisions at issue here. While we sometimes afford careful consideration and
even a measure of deference to positions that are not taken through more formal
policymaking mechanisms (see Yamaha, supra, 19 Cal.4th at pp. 10–11), the
sentence CashCall pulls out of the agency’s complaint is far from anything even
resembling authoritative interpretation of the statutes. Not only does the
complaint omit any analysis of either section 22302 or 22303, it does not even
once cite those sections. Seldom if ever does an agency do anything that warrants
the term “interpretation” when what it purportedly interprets does not even merit a
passing reference. Nor did the agency quote the relevant statutory text, or explain
how it understood the text to convey that CashCall can “charge any interest it
choose[s].” (Accusation, ¶ 2.)
Even if we assume the statement reflects the DBO’s interpretation of the
statutes, we would not acquiesce to it. (Bonnell v. Medical Board (2003) 31
Cal.4th 1255, 1265; Larkin, supra, 62 Cal.4th at p. 158.) There is no indication
that this statement — contained in a single complaint filed decades after the
relevant provisions were enacted — received “careful consideration by senior
agency officials,” was “ ‘consistently maintained’ ” as an interpretation of the
relevant statutes by the agency, or “was contemporaneous with legislative
enactment of the statute being interpreted.” (Yamaha, supra, 19 Cal.4th at p. 13.)
The statement simply does not persuade.
Despite having urged an interpretation of sections 22302 and 22303 that
ultimately fails, CashCall advances a beguiling argument for judicial abstention in
the area of interest rate regulation. The district court adopted the argument, and ––
at least in certain circumstances different than those presented here — so have we.
One such case that came from our court is Harris, supra, 52 Cal.3d 1142.
There, the plaintiffs brought a representative action, alleging that under the
antidiscrimination rules of the Uhruh Act, their landlords could not require
prospective tenants to have gross monthly incomes of at least three times the rent.
(Id. at pp. 1149–1150.) The plaintiffs acknowledged that the landlords “have a
legitimate interest in screening out tenants who are unable to pay rent regularly
and on time throughout the tenancy.” (Id. at p. 1166.) They maintained, however,
that the minimum income policy constituted economic discrimination as
proscribed by the Unruh Act. According to the plaintiffs, the Act “requires
defendants to evaluate each prospective tenant’s ability to pay rent utilizing
relevant facts such as prior rental history,” instead of relying on the
“unsubstantiated assumptions that persons who meet the specified income
standard will more likely pay rent than those who do not.” (Id. at pp. 1166, 1150.)
We rejected the claim. After a careful examination of the language of the
statute, our prior decisions, and the Legislature’s reaction following some of those
decisions (Harris, supra, 52 Cal.3d at pp. 1154–1165), we concluded that the
Uhruh Act, in “conspicuously omitting financial or economic” characteristics from
its language, likely does not authorize an action for economic discrimination. (Id.
at p. 1161.) Only after reaching this conclusion did we discuss — from a
consequentialist point of view — why assessment of a person’s creditworthiness
should be “left to the guidance of market forces or to specific legislative and
administrative action designed to address particular grievances.” (Id. at p. 1167.)
The courts, we said, “ ‘bring no special expertise’ ” to the task of “ ‘[e]valuating
landlord investment decisions made in a complex metropolitan housing market.’ ”
(Id. at p. 1166.) Were they to adjudicate the plaintiffs’ claim, judges would
become involved “in a multitude of microeconomic decisions,” with the battles
waged over “economic studies and experts,” and “the outcome [] of little value to
the parties (because the various economic factors involved are subject to constant
change) or to anyone else (because the fact-specific decision would not allow
other landlords or tenants to predict what minimum income policy, if any, would
pass muster).” (Ibid.) For these reasons, we held that “[i]n the absence of clear
legislative direction, which the general antidiscrimination provisions of the Unruh
Act do not provide, we are unwilling to engage in complex economic regulation
under the guise of judicial decisionmaking.” (Id. at p. 1168.)
Harris is distinguishable. In Harris, we were “unwilling to engage in
complex economic regulation” absent “clear legislative direction.” (Harris, supra,
52 Cal.3d at p. 1168.) Here, however, such “clear legislative direction” exists. By
making an unconscionable loan a violation of the Financing Law and therefore
actionable under UCL, the Legislature made clear that courts must grapple with
such actions. (Contra Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46
Cal.App.4th 554, 567 [finding judicial restraint proper because “no specific
statutory provision prohibits respondents from stopping or curtailing sales of
homeowners insurance policies”]; Korens v. R. W. Zukin Corp. (1989) 212
Cal.App.3d 1054, 1063 [similar]; Lazzareschi Inv. Co. v. San Francisco Fed. Sav.
& Loan Ass’n (1971) 22 Cal.App.3d 303, 311 [“the control of charges, if it be
desirable, is better accomplished by statute,” which was lacking in the case].)
9 To
“abstain” in situations where the Legislature said we should act would be
impermissible shirking. (See Blue Cross of California, Inc. v. Superior Court
(2009) 180 Cal.App.4th 1237, 1259 [affirming the lower court’s decision to
overrule a demurrer because “the city attorney’s suit does not call upon the court
to determine complex economic policy. The Legislature has already made the
relevant policy determinations by defining and outlawing postclaims
underwriting”]; Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181
Cal.App.4th 471, 499–500 [similar].) We will not do so.
Nor would our involvement supersede or interfere with the functions of the
DBO. (Cf. Alvarado v. Selma Convalescent Hospital (2007) 153 Cal.App.4th
1292, 1298 [“Judicial abstention is appropriate when granting the requested relief
would require a trial court to assume the functions of an administrative agency, or
to interfere with the functions of an administrative agency.”].) As we have

9 In Peoples Finance & Thrift Co. of Beverly Hills v. Mike-Ron Corp. (1965)
236 Cal.App.2d 897, 903, the court decided that it was without power to refuse
enforcement of a contract even though it “believe[d] the total interest charged
[was] unconscionable.” The case was decided before the passage of Civil Code
section 1670.5, and the court may have thought that it lacked the necessary power
absent explicit statutory authorization. (But see Perdue, supra, 38 Cal.3d at p. 925
[noting that in enacting Civil Code section 1670.5, the Legislature “codified the
established doctrine that a court can refuse to enforce an unconscionable provision
in a contract”].) In any event, we believe Peoples Finance was “wrongly decided”
(Carboni, supra, 2 Cal.App.4th at p. 81, fn. 5), not only for the reasons discussed
in Carboni but also because the court conflated usury law and the
unconscionability doctrine. (See Peoples Finance, supra, 236 Cal.App.2d at 900–
903.) We therefore disapprove of the case to the extent that it is inconsistent with
this opinion.
explained, the finding that a particular interest rate is unconscionable does not
mean that the rate is capped at that level for all purposes. Similarly, a finding that
a rate is not unconscionable does not bar another party — or the DBO — from
challenging that same rate, arrived at in a different bargaining process or amidst
different market conditions.
Nothing we say today limits the agency’s operation. In fact, if CashCall
were correct, then the DBO has been operating under the erroneous impression
that a lender like CashCall “can charge whatever interest rates it chooses on loans
of bona fide principal amounts of $2,500 or more.” (Accusation, supra, ¶ 2.) By
holding to the contrary, we empower the agency — and the courts — to take
action when the interest rates charged prove unreasonably and unexpectedly harsh.
In so doing, we recognize the expertise of the DBO, but also that of the courts.
(Cf. Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 63 [“It is
not simply that a single superior court judge hearing a single UCL case is a poor
choice to resolve a myriad of complicated fact and policy issues tied to the
economics, risks, cost and availability of title insurance. It is that given the scope
of its administrative authority and depth of regulatory experience, the Department
of Insurance is likely to prove better at the job.”].) Since guarding against
unconscionable contracts has long been within the province of the courts (see Civ.
Code § 1670.5; Bridge, supra, 163 Cal. at p. 498 [“where it is a loan and the
interest is exorbitant, or the terms unconscionable, the courts will compel each
party to do equity” (italics added)]), judges, no less than commissioners, speak
with “authority and depth of [] experience” when considering an unconscionability
claim. (Quelimane, supra, 19 Cal.4th at p. 63.)
Despite the courts’ breadth and depth of experience, the trial judge here
thought it impossible to fashion a remedy under the UCL “without deciding the
point at which CashCall’s interest rates crossed the line into unconscionability.”
(CashCall, supra, 56 F.Supp.3d at p. 1109.) We offer only brief thoughts on this
matter, as the question of class-wide relief under the UCL is beyond the issue we
are asked to consider by the Ninth Circuit. We acknowledge that some remedies
may conceivably operate in a manner that approximates an across-the-board
imposition of a cap on interest rates. (See, e.g., California Grocers, supra, 22
Cal.App.4th at p. 217 [holding that an injunction requiring defendant bank to
charge all customers no more than a specified dollar amount for its service for 10
years was “an inappropriate exercise of judicial authority”].) We express no view
on the suitability of such remedies. We simply note that remedies routinely have
economic consequences, and we do not think courts are devoid of power to issue
properly-fashioned remedies to mitigate unconscionability — which trial courts
possess wide equitable powers to craft. Certain relief — for example, ordering
CashCall to change its advertising practices; imposing a “cool down” period
before CashCall may dispense the loans; or refusing to enforce the contract’s
terms so that CashCall is limited to the amount of interest it has recouped from the
borrowers and no more — should raise no issue of rate-cap setting. Along the
same line, a court may also order restitution, so long as it tailors and justifies its
ruling based on the specific context of the case, taking into account such
considerations as the borrowers’ circumstances, the lenders’ specific risks, and
other terms in the contract (e.g., prepayment penalties, origination fees, or loan
rollovers) that, in conjunction with the interest rate, may render the contract
unduly oppressive. (See, e.g., Sanchez, supra, 61 Cal.4th at p. 912 [noting that a
court deciding an unconscionability case must view “all relevant circumstances”].)
In short, California courts have the authority to decide whether contract
provisions, including interest rates, are unconscionable. Our respect for the
Legislature’s prerogative to shape economic policy through legislation is why we
have kept the doctrine relatively narrow, and are careful to observe its nuances.
But this is no reason for courts to absent themselves from the picture entirely.
Even were we to adopt a policy-oriented, consequentialist perspective, we
are not convinced that a parade of horribles is likely to result from the courts’
inquiry into whether a consumer loan is unconscionable owing to the interest rate
charged. CashCall argues to the contrary, contending that such scrutiny would
undermine the purposes of the Financing Law. This is because “[t]he uncertainty
and unpredictability imposed by ad hoc decisions of ‘unconscionability’ . . . would
drive lenders out of the market,” and so both deprive “consumers of credit
options” and hamper competition among lenders.
CashCall is correct that the Financing Law is intended to foster competition
and ensure an adequate supply of credit. But the law is also meant to protect
consumers. (See Fin. Code, § 22001, subd. (a).) What’s more, whatever are the
relative advantages or disadvantages of relying on unconscionability to afford such
protection, that is the choice the Legislature has made. Ultimately, CashCall has
not said anything that is not true of “ad hoc decisions of ‘unconscionability’ ”
generally. Unconscionability, as an ex post, case-specific mechanism by which a
court “may refuse to enforce the contract . . . [or] limit the application of any
unconscionable clause as to avoid any unconscionable result” (Civ. Code,
§ 1670.5) by necessity introduces uncertainty into commercial transactions. But
neither that uncertainty nor the fact that “[c]ommerce depends on the
enforceability, in most instances, of a duly executed written contract” has
persuaded the Legislature to decree that all duly executed written contracts shall
be enforced at all times. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237,
1245.) To the contrary, the Legislature has enacted into statute the
unconscionability doctrine, making it a limitation to the enforcement of contracts
in California. (Civ. Code, § 1670.5.) CashCall cannot seriously suggest that we
have the authority to question the Legislature’s policy choices or contravene its
directive. (Max Factor & Co. v. Kunsman (1936) 5 Cal.2d 446, 455–456 [“it is no
part of the duty of this court to determine whether the policy embodied in the
statute is wise or unwise”].)
What concerns about freedom of contract, the importance of commerce,
and continued access to credit have done is produce an understanding of
unconscionability that is inherently nuanced, such that few courts have ever
declared contracts unconscionable. This is all the more true in the context where
the unconscionable term alleged is the interest rate on a loan. In 1991, the First
District Court of Appeal was surprised to learn there has been no case “which
applies the doctrine of unconscionability to specifically annul or reform a loan
which bears a shockingly high rate of interest.” (Carboni, supra, 2 Cal.App.4th at
p. 81.) That court then became the first since the passage of Civil Code section
1670.5 to find that the interest rate was unconscionable. (Id. at p. 83.) To the best
of our knowledge, it remains the only California court to have done so. (De La
Torre v. CashCall, Inc., supra, 56 F. Supp.3d at p. 1108 [“Only one California
court has ever found a challenged interest rate unconscionable,” Carboni]; see also
Martin, Public Opinion and the Limits of State Law: The Case for a Federal Usury
Cap (2014) 34 N.Ill.U. L.Rev. 259, 288 [“cases in which unconscionability has
been applied to consumer loans are few and far between”]; Task Force of the
A.B.A. Subcommittee on General Provisions, Sales, Bulk Transfers, and
Documents of Title, Committee on the Uniform Commercial Code, An Appraisal
of the March 1, 1990, Preliminary Report of the Uniform Commercial Code
Article 2 Study Group (1991) 16 Del. J. Corp. L. 981, 993 [“Despite early
criticism of § 2-302, the courts have exercised restraint in identifying what has
been called ‘procedural’ unconscionability in both consumer and commercial
transactions.”].) In light of such a cautious tread by the courts, the idea that
“[j]udicial regulation would supplant market conditions in setting rates” and
thereby drive out lenders appears lacking in empirical support.
What’s more, to the extent CashCall means to raise concerns about
a possible flood of unmeritorious lawsuits, certain features of the UCL are likely
to mitigate any such flood. The unfair competition law, while broad in scope, is
limited in remedies. (E.g., Cel-Tech, supra, 20 Cal.4th at p. 179; Bank of the West
v. Superior Court (1992) 2 Cal.4th 1254, 1266; Korea Supply Co. v. Lockheed
Martin Corp. (2003) 29 Cal.4th 1134, 1152; Madrid v. Perot Systems Corp.
(2005) 130 Cal.App.4th 440, 452.) Private individuals like plaintiffs may win
restitution or injunctive relief, but they cannot obtain damages or attorney fees.
(Cel-Tech, supra, 20 Cal.4th at p. 179.) The relative paucity of remedies under the
UCL should serve to limit pure attorney-driven lawsuits (since no attorney fees
may be recovered) as well as blackmail settlements (since no money recovery
beyond restitution is possible).
Finally, CashCall focuses much of its briefing on defending its business
methods and practices. The Ninth Circuit did not ask us to decide whether
CashCall’s loans were unconscionable, and we do not resolve that question. We
hold only that California law permits such a finding, as long as the requirements of
unconscionability are satisfied.

Outcome: With roots predating the Anglo-American legal tradition, the doctrine of
unconscionability has been used to temper the consequences of certain bargains
arising in the course of economic life. The California Legislature is entitled to
subject loan transactions, like other contracts, to the unconscionability doctrine’s
nuanced blend of tractability and protection of human dignity. It did so here.
In doing so, the Legislature chose to retain the flexible standard of
unconscionability even as it did away with interest caps on consumer loans of
$2,500 or more. By its action, the Legislature recognized to some degree how
commerce depends on fairness, and functioning markets on meaningful choices.
Although courts must proceed with caution in this area, the possibility that an
interest rate is unconscionable in a particular context is not so different relative to any other kind of potential contractual defect that it justifies concluding that courts lack power or responsibility to address unconscionable interest rates. In light of the Legislature’s choice, as reflected in the text, context, and history of the relevant statutory provisions and the unconscionability doctrine, we conclude the interest rate on consumer loans of $2,500 or more may render the loans unconscionable under section 22302 of the Financial Code.

Plaintiff's Experts:

Defendant's Experts:


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