SAN FRANCISCO (AP) — In a win for consumers, the California Supreme Court ruled that interest rates on some personal loans may be so high that they are illegal under state law.
The court in its unanimous decision on Monday did not define exactly what interest rate would qualify as unconscionable and acknowledged that determining that figure could be daunting.
But Associate Justice Mariano-Florentino Cuellar said “courts have a responsibility to guard against consumer loan provisions with unduly oppressive terms.”
At issue in the case before the state Supreme Court were consumer loans of $2,500 and higher. California does not cap interest rates that lenders can charge on those loans.
Cuellar said the lack of a cap did not mean that courts must allow any interest rate.
The decision came in a class action lawsuit filed in U.S. court against lender CashCall on behalf of a group of borrowers who took out loans from the company of at least $2,500 at an interest rate of 90 percent or higher.
An email to an attorney for CashCall was not immediately returned. The lawsuit now returns to a U.S. appeals court for a decision.
The ruling could invite additional lawsuits by borrowers, according to the Los Angeles Times .
State-licensed lenders in California made more than 350,000 consumer loans with interest rates of 100 percent or higher last year, according to the newspaper.
Graciela Aponte-Diaz of the Center for Responsible Lending told the newspaper the court decision could also spur California lawmakers to pass some kind of rate cap.
The state limits interest on loans of up to $2,500 at 20 percent to 30 percent, but bills introduced over the last couple of years to cap higher-value loans have failed, the Times said.