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Paying 135% Interest? Judges Think You May Be Loan Shark Victim

Paying 135% Interest? Judges Think You May Be Loan Shark Victim

(Bloomberg) -- California’s top court said that consumer loans charging as much as 135 percent a year may be abusive, in a warning to lenders that target people with low credit scores who need cash quickly.

It isn’t easy “to pinpoint the precise threshold separating a merely burdensome interest rate from an unconscionable one,” the California Supreme Court said Monday in its ruling. In the absence of any interest cap in a state law regulating consumer loans of more than $2,500, transactions that are "unreasonably and unexpectedly harsh" shouldn’t be condoned, the seven-judge panel concluded.

“Courts have a responsibility to guard against consumer loan provisions with unduly oppressive terms,” the court said.

The court made the ruling at the request of the U.S. Court of Appeals in San Francisco, which is weighing whether to reinstate a class-action lawsuit against CashCall Inc. by borrowers who claim the lender violates California’s Unfair Competition Law.

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Peter Blumberg, David Glovin

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