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California court rules interest rates can be 'unconscionable' under state law

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California court rules interest rates can be 'unconscionable' under state law

The Supreme Court of California, in a ruling, said that interest rates on consumer loans can still be considered illegally high even if they are not not subject to usury laws.

The decision came in a case against CashCall Inc., regarding a product that charges 96% and later 135% interest on an unsecured $2,600 loan. Under California law, interest rate caps are only placed on consumer loans of less than $2,500.

The case was brought by a customer who claimed that the interest rate was unlawful under the state's doctrine of unconscionability, which deals with unexpectedly harsh terms or prices on goods.

"We recognize how daunting it can be to pinpoint the precise threshold separating a merely burdensome interest rate from an unconscionable one," the court said in its ruling. However, "courts have a responsibility to guard against consumer loan provisions with unduly oppressive terms," the court added.