An interest rate is the price term for a loan, and like any other price (or other) term of a contract, a price term may be unconscionable if it is so high as to be unreasonably and unexpectedly harsh, unduly oppressive, or shock the conscience.  Nothing in the Finance Lender Law’s exemption of loans over $2,500 from that law’s otherwise tight regulation of interest rates (Fin. Code 22303) evinces any legislative intent to exempt those larger loans from the more flexible statutory and common law doctrine of unconscionability.  Indeed, Fin. Code 22302, enacted along with 22303, expressly applies unconscionability doctrine to all Finance Lender loans.  The courts should exercise unconscionability analysis in this context cautiously since unsecured loans to high-risk borrowers often justify high-interest rates—and restricting rates on such loans may have unintended consequences of driving borrowers to even shadier lenders.  Nevertheless, the courts must declare unconscionable an interest that shocks the conscience.

California Supreme Court (Cuellar, J.); August 13, 2018; 2018 Cal. LEXIS 5749