31 Aug All About the Money
Margaret A.M. Heine
is the principal counsel at Heine Law Group in Fullerton, California. She is licensed in California and Washington and has authority to practice before the Supreme Court of the United States and the United States Court of International Trade.
ALL ABOUT THE MONEY
The 2018-2019 Supreme Court year is about to start on October 5, 2018. There are a wide array of cases being heard by the Court, but the majority have to deal with money and land. The California Supreme Court also just issued a decision on “What price for interest?”. Here is an examination of some of the recent decision and cases pending before the Supreme Court.
De La Torre V. CashCall 854 F3d 102 (9th Circuit 2017) is the recently decided California Supreme Court case regarding how what interest rate is just too much. De La Torre and other plaintiffs borrowed money from CashCall. CashCall is an Orange County company. CashCall charged the borrowers between 96% to 135% interest on their loans. Many times, the repayment periods were long creating a situation where the loan would literally never be paid back. CashCall defended the interest rates on two basis: 1) A significant number of borrowers default on their loans, and 2) State law permits them to charge whatever they want and the market will bear.
So, what are the regulations for interest rates for loans? California Financial Code § 22303 sets the maximum interest rate for loans under $2500 at 20-30 percent. California Constitution Article 15 describes Usury. Usury is the charging of excessive interest rates, which is prohibited by the California Constitution. The maximum interest rate which can be charged under the California Constitution is 10 percent. California Financial Code § 22302, states that for loans $2500 and over there is no set a cap interest rate for loans, but the interest rate charged for these loans cannot be unconscionable. Basically meaning, they cannot overcharge for the loans.
Various types of loans are exempt from the 10% cap including, but not limited to, credit card companies, retain installment sales contracts, licensed pawn brokers, seller carryback mortgage loans, and automobile sales contracts. Even pawn brokers have a cap, it is 2.5% per month, which is well in excess of the 10% cap applied to other lenders.
Loans made by individuals other than those specified, cannot charge more than .833 percent interest per month or 10 percent annually. This includes loans made by individuals, private companies (not lenders), unregistered or unlicensed companies, or loans made specifically for personal, family or household purposes.
The court determined that for loans, like the type that CashCall makes, if the loan if for $2500 or above, that the court needs to determine on a case by case basis as to whether or not the interest rate is burdensome and unfair, unconscionable to the borrower. The court has also indicated that legislature should provide some legal guidelines or reinstate caps on interest rates for loans over $2500. Before 1984 there was an interest rate on these larger loans, but new legislation was passed permitting the qualified lenders to set their own rates. The court implicated that at some point the interest rates take advantage of consumers who have limited options to obtain the cash loans they require.
This would be an excellent time to contact your state representative and let them know if you support legislation to set caps on loan interest rates.
The Supreme Court will be taking up some interesting consumer cases in the 2018-2019 term.
The case with potentially the largest financial impact is Apple v. Pepper docket number 17-204. The plaintiffs brought an antitrust action against Apple for apps which are sold in the Apple App Store for iphones. The plaintiffs allege that they were overcharged for apps which they purchased.
Apple provided evidence that they did not develop the apps which were sold, they simply distributed them and offered them for sale through their App Store for the benefit of their iphone users.
The courts agreed that Apple was neither a developer of the apps nor did they set the prices for the apps. Part of Apple’s agreement with the developers of the apps was that for offering the apps through their App Store, Apple would receive 30% of the revenue for sales of the app.
The Supreme Court is to decide whether or not a distributor of a product can be sued when they do not develop the product nor set the price of the product.
In another case where a manufacturer is attempted to be held liable for a product that they have not produced is Air & Liquid Systems v. Devries, docket number 17-1104.
The widows of two naval shipbuilding crewmen are suing the manufacturer of bare metal parts for contributing to the death of their husbands. The husbands died from cancer related to asbestos.
The manufacturer provided bare metal parts to the shipyards. At the shipyards, there were materials added to the bare metal parts for use in shipbuilding, and some of those materials contained asbestos.
The lower courts were divided over whether or not the manufacturer could be held liable in the deaths, not because they produced a product with asbestos, but because they produced a product knowing how it would be used and that the modifications to the parts could contain asbestos. Due to the split in the courts, the Supreme Court has agreed to hear to the case. If foreseeability is the issue, how many products are likely to be misused or changed either by builders or consumers and how does this increase exposure of manufacturing companies? A truly critical issue if we are attempting to keep manufacturing jobs in the United States. It will be interesting to see the analysis of the court.
Next month, we will explore additional cases before the Supreme Court, which involve property rights, consumer warnings on drugs, and the rights of the incarcerated among other topics before the court in the coming year.