De La TORRE v. CASHCALL

Appellants’ Response to Amicus Curiae Brief

Cal.March 16, 2018

SUPREME COURT FILED Case No. $241434 MAR 1 6 2018 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA Jorge Navarrete Clerk Deputy EDUARDO DE LA TORRE and LORI SAYSOURIVONG, individually and on behalf ofall others similarly situated, Plaintiffs/Petitioners, Vv. CASHCALL,INC., Defendant/Respondent, On Certified Questions from The United States Court of Appeals for the Ninth Circuit Pursuant to California Rule of Court 8.548 Ninth Circuit Case Nos. 14-17571, 15-15042 PETITIONERS’ CONSOLIDATED ANSWER TO AMICUS CURIAEBRIEFSIN SUPPORT OF RESPONDENT JAMES C. STURDEVANT (SBN 94551) STEVEN M. TINDALL(SBN 187862) jsturdevant@sturdevantlaw.com smt@classlawgroup.com THE STURDEVANT LAW FIRM ANDRE M. MURA (SBN 298541) A Professional Corporation amm(@classlawgroup.com 4040 Civic Center Drive, Suite 200 GIBBS LAW GROUP LLP San Rafael, CA 94903 505 14th Street, Suite 1110 Telephone: (415) 477-2410 Oakland, CA 94612 Facsimile: (415) 492-2810 Telephone: (510)350-9700 Facsimile: (510) 350-9701 Attorneysfor Plaintiffs/ Petitioners (Additional Counselfor Plaintiffs/Petitioners listed on thefollowingpage) Case No. $241434 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA EDUARDODE LA TORRE and LORI SAYSOURIVONG, individually and on behalf of all others similarly situated, Plaintiffs/Petitioners, Vv. CASHCALL,INC., Defendant/Respondent, On Certified Questions from The United States Court ofAppeals for the Ninth Circuit Pursuant to California Rule of Court 8.548 Ninth Circuit Case Nos. 14-17571, 15-15042 PETITIONERS’ CONSOLIDATED ANSWER TO AMICUS CURIAE BRIEFS IN SUPPORT OF RESPONDENT JAMESC. STURDEVANT(SBN STEVEN M. TINDALL (SBN 94551) 187862) jsturdevant@sturdevantlaw.com smt@classlawgroup.com THE STURDEVANT LAW FIRM ANDRE M. MURA (SBN 298541) A Professional Corporation amm(@classlawgroup.com 4040 Civic Center Drive, Suite 200 GIBBS LAW GROUP LLP San Rafael, CA 94903 505 14th Street, Suite 1110 Telephone:(415) 477-2410 Oakland, CA 94612 Facsimile: (415) 492-2810 Telephone: (510)350-9700 Facsimile: (510) 350-9701 Attorneysfor Plaintiffs/ Petitioners (Additional Counselfor Plaintiffs/Petitioners listed on thefollowingpage) JESSICA RIGGIN (SBN 281712) jriggin@rukinhyland.com RUKIN HYLAND LLP 1939 Harrison St., Ste. 290 Oakland, CA 94612 Telephone: (415) 421-1800 Facsimile: (415) 421-1700 DAMONM. CONNOLLY (SBN 139779) damon@damonconnollylaw.com LAW OFFICES OF DAMONM. CONNOLLY 1000 47 Street, #600 San Rafael, CA 94901 Telephone: (415) 256-1200 ARTHUR D. LEVY (SBN 95659) arthur@yesquire.com LAW OFFICE OF ARTHUR D. LEVY 1814 Franklin Street, Suite 1040 Oakland, CA 94612 Telephone: (415) 702-4551 Facsimile: (415) 814-4080 TABLE OF CONTENTS INTRODUCTION....0.....:.cccccccessssessesecsscensesseeessecasenessnsesenesseeaeersnesssacaseesenes l ARGUMENT0..u..ccccccecccsscscceeceeececesessenseevssenessenessesessesseeussesecesseserasesssaeesienens 2 I. CRITICISMS OF THE UNCONSCIONABILITY DOCTRINE ARE IRRELEVANT BECAUSE THE LEGISLATURE HAS ALREADY DETERMINED THAT THE DOCTRINE APPLIES TO EXCESSIVE INTEREST RATES......ccccccccccccssscesssscseeeeseseseecaescssceseeeesesecenesesesaeseensseneeessenaees 2 Il. THE CLAIMS OF UNCONSCIONABILITY IN THIS CASE ARE NOT VAGUE OR AMBIGUOUSAND DO NOT REQUIRE THE COURTS TO ENGAGEIN “RCONOMIC POLICYMAKING.”.....cceccccceeteeessessteeseeees 11 Il. APPLYING THE UNCONSCIONABILITY DOCTRINE TO CASHCALL’S LOANS WOULD NOT IMPAIR ACCESS TO NEEDED CREDIT.............:c:ccscccsstsseeeeeseees 15 IV. CALIFORNIA’S UCL AUTHORIZES AFFIRMATIVE RELIEF FOR VIOLATIONS OF PREDICATE STATUTES.0.0.0... ccccccccccesecsecesneesseensnecenesneseesseesenesssneessseeeesneees 21 CONCLUSION..........ccceeeeeeccceeeececeeeeeeeeeeseeeeseeneesnenseeeeseseeseerrresenenteesel 23 TABLE OF AUTHORITES Cases Baltazar v. Forever 21, Inc., (2016) 62 Cal.4th 1237 0...ccseessssssssssssessesseseetensesessesesessesseseeeseseeeeees 13 Bank ofthe West v. Superior Court, (1992) 2 Cal.4th 1254 oocccecssssssceseesessenseeeeseeesesssesessseasessseneeeeens 22 Cel-Tech Communications v. Los Angeles Cellular Telephone Co., (1999) 20 Cal. 4th 163 oo. eeecccesssscsscesseesenseressesseneesenesessesseseetsrees 12, 22 Kwikset Corp. v. Superior Court, (2011) 51 Cal. 4th 310.ceecesssessesessereseseesessesssesseesseestesseneseeees 22 Mcgheev. Arkansas State Board ofCollection, (Ark. 2008) 289 S.W.3d 18oecccccesesseserenesseneesesssenenesesserserseneenenees 17 Perdue v. Crocker Nat'l Bank, (1985) 38 Cal.3d 913 oescsecssecsseesseceeseeseenessseeseseseseseseeeseeeaeeers 5, 7, 14 Rose v. Bank ofAmerica, N.A., (2013) 57 Cal.4th 390 oo.ecccesssssenssesecseseseeseeessesesesessnesseesnessseseeees 21 Solus Industrial Innovations, LLC v. Superior Court, (2018) 4 Cal.Sth 316...eescesssescsscssssssseceessnessessenesesesesseessesesseseeeeeees 22 Sonic-Calabasas A, Inc. v. Moreno, (2013) 57 Cal. 4th 1109 .o..cscccccssssssssssssssssssssssssssossssssssssseeseseceessannaneeeseses 13 ii State ex rel. King v. B&B Inv. Grp., Inc., (N.M. 2014) 329 P.3d 658 ......essssesssssssssssesetesecsesesseseeesenesseseeeeseeesseneneees 16 Stop Youth Addiction v. Lucky Stores, (1998) 17 Cal.4th 553 oeeecsseeeeessesesseessseeseseneeseeenessseeesensssenesesessenens 22 Tennessee Valley Auth. v. Hill, (1978) 437 U.S. 153 wee eesssessesssesessessenseseseseessensesseeeeeseneessesenseseessesseees 4 Statutes 10 U.S.C. § 987 ...cccccscccscsctecscceseressesesssssssscsesanseeeneasesaesneasensnseseessesenseaeesentes 18 Civil Code section 1670.5 .....:.ccsccscsesssesssseessseeceeeeseecssesecsesseseeeseeneees passim Fin. Code, § 23035 ....ccccsccscccscsssceseceesssssssscssessessancsesseesesaeseeseesseesasseeeseeeenees 16 Fin. Code, §§ 22000 .........:ccccesesscssssesecssesescseesesssesseseeesessseesnsneessessesesense 1, 16 Financial Code section 22302..........:cesc8ceseneaeseaseeeseseneseenseesseseseeeas passim Financial Code section 22303 ..0.......ssessssscesseseseneceseeseensenenseseneesecneeneseneeees 3 Financial Code §§ 23000 .........c:cscseesssssssesssssseesseseesecsscseesseeesessaseessneenseeees 16 Health & Safety Code, §§ 127400-127462.........cceccsssssseseesserssseseeesceneees 10 Rules California Rule of Court 8.548 .......cecccssssssssseesecsseessessessesessecssensenseeneeesees I Court Rule 33.1) .......cccccscceceeseessessescsssssesesceecnseesneeessessesnssessecssesseneonseeees 25 Regulations 32 CER, Part 232........cccccscccsseseeseeeceeeseesseencececsesseseseeesaeersersseeesasenseesaneneseees 18 iti Other Authorities Cost-Benefit Analysis ofFinancial Regulations: A Responseto Criticisms, (2015) 124 Yale L. J. Forum 246. (CJAC Brief p. 24.) .....sseeseeeee 18 Interest Rate Caps, State Legislation and Public Opinion: Does the Law Reflect the Public’s Desires?, (Jan. 2014) 89 Chicago-KentL. Rev. DUS cece eecccesessscssssssscsscsesscssescssecsseecescesesscsseseecessessssnesesecsneeseseeenseneeseesneaes 25 Rate Regulation at the Crossroads ofUsury and Unconscionability, (1994) 31 Hous. L. Rev. 721 ....eeseecessseesesessseeseeceseeeneteseeeneseeaesesenesens8 Semate Bill 447 .......cccccccccsccsssssscsssssscsescscessssesssseeceseceseeessceesaeeacsaeseesestsnseeaasens 8 Uniform Consumer Credit Code § 5.108 oo... ceesssescesesseseseceneeenseestesteesenes 5 iv INTRODUCTION The two amicuscuriaebriefs! in support of Respondent CashCalil, Inc., seek to convince this Court that it would be wise policy to permit lenders to charge excessiveinterest rates on loans of $2500 or more that are governed by the California Finance Lenders Law.(Fin. Code, §§ 22000 ef seq.; all undesignated statutory references are to this Code.) These amici argue that lenders are already highly regulated; that authorizing courts to declare interest rates unconscionable would subject lenders to vague standards; andthat judicial application of California’s settled law of unconscionability will leave both lenders and consumers worseoff. These arguments are not only wrong, they are misdirected. The California Legislature has already expressly granted courts the authority to determine whethera loan contract specifying an excessive interest rate on a loan of $2500 or more can render the loan unconscionable. The plain language of Sections 22302 and 22303 demonstrates this legislative intent, and the legislative history confirms it. The policy arguments of CashCall’s amici cannoteradicate the statutory text. 1 Plaintiffs refer to the brief in support of CashCall submitted by the Civil Justice Association of California and the California Chamber of Commerceas the “CJAC Brief,”andthe brief in support of CashCall submitted by the California Financial Service Providers Association, Financial Service Centers of America, Community Financial Services Association of America and Online Lenders Alliance as the “CFSP Brief.” ARGUMENT CRITICISMS OF THE UNCONSCIONABILITY DOCTRINE ARE IRRELEVANT BECAUSE THE LEGISLATURE HAS ALREADY DETERMINED THAT THE DOCTRINE APPLIES TO EXCESSIVE INTEREST RATES. CashCall’s amici devote considerable attention to criticizing the unconscionability doctrine as unsuitable to govern interest rates, and they suggest that access to credit will be diminished if lenders cannot charge excessive interest rates on loans of $2500 or more.First, these criticisms are directly refuted by Plaintiffs’ amici, who include the Center for Responsible Lending. (See Ctr. for Responsible Lending et al. Br. p. 37.) Even morecritically, however, the California Legislature rejected these criticisms of the unconscionability doctrine whenit “expressly directed courts to engage in unconscionability analysis three times: (a) in enacting Civil Code section 1670.5; (b) in amending the [Consumers Legal Remedies Act] to prohibit unconscionable consumercontracts; and (c) in enacting Financial Code section 22302.” (Cal. Attorney General Br. 25-26 (emphasis in original); see id. at p. 15 (noting the Legislature “rejected the contention that unconscionability is too vague”).) Asfor the narrow issue of statutory interpretation before this Court, neither of CashCall’s amici says much. Thebrief of the California Financial Service Providers Association, Financial Service Centers ofAmerica, Community Financial Services Association of America, and Online Lenders Alliance (together, “CFSP”) simply assumesthat Section 22302 does not apply to the loans at issue here. Hence,its discussion of “extensive regulation”ofthe loans in question under federal andstate law fails even to mention Section 23302 as a form of regulation. (CFSP Br. pp. 14-17.) Forits part, the Civil Justice Association of California and the California Chamber of Commerce(together, “CJAC”) suggest it would be absurd to read Section 22302 to authorize courts to determinethat interest rates are unconscionable. (See CJAC Br. p. 12.) To the contrary, applying the plain meaning of Section 22302 yields no absurdresult. It would simply recognize that the unconscionability doctrine applies to consumerfinance lenders—justas it does all other lenders. (Cal. Attorney GeneralBr.p. 18.) CJACalso reads Section 22302 to apply to all loan terms except interest rates. (CJAC Br. p. 12.) But the language of Section 22302 does not support that reading (Petitioners’ Reply Br. p. 10)—-a conclusionalso reached by the California Attorney General.’ 2 The Attorney General agrees with Petitioners that Section 22302 applies to interest rates. In a footnote, however, the Attorney General misunderstands Petitioners to say “that a hypothetical loan for less than $2,500 with an interest rate underthe limits in the Financial Code section 22303 could never be unconscionable.” (Cal. Attorney General Br. p. 16 n.4). In this hypothetical, Plaintiffs had in mind the approach stated in the Uniform Commercial Credit Code. Cf. Uniform Consumer Credit Code § 5.108, comment6 (“Subsection (8) prohibits a finding that a charge or practice expressly permitted by this Actis in itself unconscionable. However, even though a practice or charge is authorized by this Act, the totality of a particular creditor’s conduct or loan terms may show that the practice or chargeis part of an unconscionable determination. Therefore, in determining unconscionability, the creditor's total conduct, including that part of 3 Contrary to the approach of CashCall’s amici, an “appraisal ofthe wisdom or unwisdom ofa particular course consciously selected by the [Legislature] is to be putaside in the processof interpreting a statute. Once the meaning of an enactmentis discerned . . . the judicial process comesto an end.” (Tennessee Valley Auth. v. Hill (1978) 437 U.S. 153, 194.). That meaningis discerned by the statutory text, and it is confirmed bylegislative history. In section 22302, the Legislature declared that section 1670.5 “applies to the provisions of a loan contract that is subject to this division,” and nowhere did it exempt “interest rates” from such “provisions.” In doing so, the Legislature reaffirmed that the unconscionability doctrine applies to excessive interest rates, andit “strengthen[ed]”penalties for lenders that charge unconscionableinterest. (Cal. Attorney GeneralBr. p. 15.) This is consistent with the Legislature’s longstanding view that the unconscionability doctrine may be applied to govern consumer contracts and financial products, and that courts are well-equipped to determine unconscionability. CashCall’s amici nevertheless claim that ‘applying the unconscionability statute to CashCall’s loans would authorize judicial rate caps. (CFSP Br. p. 28.) To the contrary, unconscionability is a far broader and more searching consumer protection doctrine. Unlike simple rate caps, the unconscionability doctrine applies to all loan terms, including, but not limited to interest rates, and requires his conduct whichis in accordance with the provisions of this Act, may be considered.”) (emphasis added). courts to examine loan termsfactually, in their commercial setting and according to their practical effect, under the well-recognized standards the courts have long established. (Ctr. for Responsible Lendinget al. Br. pp. 4-7, 9-22.) Asthis Court has recognized in discussing the “price unconscionability doctrine,”? unconscionability “regulate[s] not only the sale of bank servicesbut the sale of groceries, automobiles, furniture or medical services.” (Perdue v. Crocker Nat'l Bank (1985) 38 Cal.3d 913, 943.) Petitioners are unaware of any industry or transaction the Legislature or thecourts have exempted from section 1670.5 since its enactment nearly 40 years ago. Neither CashCall nor its amici cite any such exemptions. By enacting Section 23302, the Legislature eliminated any doubtthat by loweringthe rate caps, it was not granting an unconscionability exemptionto the subprimeinstallment lending industry. This Court shouldreject the industry’s attempt to obtain from this Court what the Legislature has denied. CJACasks “Why, one should reasonably ask of such an interpretation, would the Legislature set detailed rates for loans under $2500 while setting no maximum interest rate charges for loans above that amount, but delegate to the judiciary unbridled authority to set whateverrates it feels under the circumstances is ‘conscionable’ or ‘unconscionable’?” (CJAC Br.p. 13.) The Department of Corporations answered this question in its Enrolled Bill Report in 1985, confirming that although it was lowering the interest-rate ceiling it was also 3 Cal. Attorney General Br. pp. 8-13; Consumer AmiciBriefpp. 7-12. 5 “preserving the consumerprotection provisions ofall laws.” (CashCall RJN Ex. 4 (p. 76 of 90.) (emphasis added).) These “consumer protection provisions” included the unconscionability doctrine expressly invoked in Section 22302. This statutory construction ofthe relationship between Sections 22302 and 22303 is reasonable, consistent, and readily reconciles the two provisions. It is controlling. (Petitioner’s Opening Br. p. 7; Cal. Attorney General Br. pp. 15-19.)4 CJACalso asks “And why would the financial lending community support a bill — SB 447 (1985), which it indisputably did — that delegated such immense, uncabined authority to courts to enjoin and order restitution or disgorgementto all borrowers who entered into loan contracts above $2500?” (CJAC Br. pp. 13-14.) Thelegislative history, however, showsthat the original bill was amended on July 15, 1985 to add new section 23302 in response to the Attorney General’s objection that the industry’s version ofthe bill failed to protect borrowers against “exorbitant rates.” (Petitioners’ RJN Ex. “D”.) Theintent ofthe Legislature is revealed by the statute the Legislature actually passed, not by whatthe “lending community” might be supposed to have supported. CashCall’s amici echo CashCall’s central theme that by imposing rate caps on loans below $2500, the Legislature intended to leave interest on other consumer loans under the CFLto the free market. (Respondent’s AnswerBr. pp. 4 Contrary to CJAC, this approach also makes good sense. Whereas lenders can structure loans so as to “skirt” specific regulations, “unconscionability is more resistant to evasion.” (Bender, Rate Regulation at the Crossroads of Usury and Unconscionability (1994) 31 Hous. L. Rev. 721, 739.) 6 28-29.) These amiciclaim there is a “highly competitive” market for subprime installment loans in California. (CFSP Br. pp. 11-13; CJAC Br. pp. 17-19.) Even if there were a competitive market for these loans, however, that does not exemptthe loans from the unconscionability statute. This Court has provided perhaps the best rebuttal to amici’s claim that “free market” transactions are exempt from the unconscionability law: Defendantalso argues that underlying both the 1980 and 1982 Acts is the philosophy that service charges as well as interest rates should be set by market forces, not government regulation. Defendant’s argument mistakes the purposeofthe provisionsofstate law at issue here [including § 1670.5]. Those provisions are part of the common law governing ai/ commercial transactions; they regulate not only sale of bank services but the sale of groceries, automobiles, furniture or medical services. The duty of good faith and fair dealing, and protection against unconscionable contracts, has never been thought incompatible with a free and competitive market. Defendantis really askingfor a marketfree ofthose restraints against oppression and overreaching applicable to all other commercial operations. (Perdue, 38 Cal. 3d at 943 (emphasis added).) Amici’s assertions of a competitive market are nevertheless unsubstantiated by the record. The DBOreport CFSPcites in support ofthis claim, in fact, does not evidence competition in this particular market. (CFSP Br. pp. 11-12; see also CJACBr. pp. 18-19.) The 2016 DBO Report showsthat state-licensed lenders made 400,000 unsecured loansin the $2,500-5,000 range in 2016, and that 60% of those had APRs of 100% or higher. But the CBO reports do not report the number of different lenders that made these loans, what relative market shares were, or otherwise indicate whether the market was competitive, monopolistic, or oligopolistic. Loan volume, standing alone, does not establish whether a marketis concentrated or competitive because there could be many lenders or few; the DBO reports simply do notsay. In any event, the evidentiary recordin the District Court demonstrated that CashCall was the only significant source of such loans during the class period in this case, 2004-2011. (See Suppl. Excerpts ofRecord (“SER”), 1-SER-pp. 16-17, 181-184; 10-SER-pp. 2505-2506; 2508-2509; 11-SER-2719.) Indeed, CashCall’s CFOtestified that during the class period that CashCall had a “unique” product and faced “no competitors:” 2. You state that, “It’s a unique product offering [CashCall’s $2,500 installment loan] with high customer demands.” Why didyou feel it’s a uniqueproduct offering? A. There’s still no other product out there that is an installment loan that's based on a simple interest calculation, no prepayment penalty. It distinguishes itselfamongst — it's not a payday loan,it's not a normalbank loan, it’s the niche in between. Q. What other companies have occupied that niche with CashCall? A, I believe the lastpoint ofthe page says, ‘No competitors.” Q. Oh, okay.Is thatstill the case? There -- MR. COHEN:Objection; calls for a legal conclusion and speculation. You can answer. THE WITNESS:There are some minor players in the space that are offering installment-basedloans. Q. BY MR. LEVY:Whendid they comeinto the space? A. I don't recall. It would have been after this point. After the market cameback[thatis, after the close of the class periodin July 2011). (10-SER-pp. 2508-2509 (emphasis added).) CFSPasserts thatthe triple-digit interest rates “are tempered by consumers’ ability to go elsewhere.” (CFSP Br. p. 13.) Yet CFSP asserts, without support, that “[s]ubprime borrowersrely on the challenged loans because they lack alternatives.” (Jd. at p. 18.) In opposing CashCall’s summary judgment motion, Petitioners showed that payday loans, tax refundanticipation loans, auto title loans, pawnshop loans,etc., are not comparable to CashCall’s $2,500 installment loans because they are not unsecured loans with loan amounts and maturities comparable to CashCall’s loans. (Petitioners’ Ninth Circuit Reply Br. pp. 35-36.) This lack ofalternatives, coupled with CashCall’s market dominance during the class period from June 2004 through mid-July 2011, establishes an oligopolistic market in which CashCall wasable to dictate loan terms andinterest rates. (/d. at pp. 35-36, 45-46.) CFSParguesthat “the risk ofjudicially imposed caps would force borrowers into worse options” (CFSP Br. p. 21), such as payingbills late, bouncing checks with accompanying NSF fees, bank account closures, utility service interruption, and foregoing needed medicaltreatment? (Jd. at pp. 21-24). CFSP, however, ignores that by lending to subprime borrowers at 96% and 135% interest rates payable over 42 and 36 months, CashCall converted low- or non- interest-bearing debt into unaffordable debt, costing 3-4 times the amount borrowed. (Excerpts of Record (“ER”) 111; SER 23, 280-281, 352, 1482, 1493- 1494.) CashCall applied a 35-40% “acceptable default rate” in underwriting its $2,500 loans, and the actual default rate during the class period was nearly half, 45%. (SER 21, 290-291, 492-493, 2425-2427, 2435-2437, 2443-2445, 2450- 2451.) CashCall loans subjected defaulting borrowers to the same economic hardships CFSP claims to bemoan—payingotherbills late to appease CashCall, incurring NSF fees to CashCall and bank accounts due to CashCall’s squeeze on their bank accounts (exacerbated by CashCall’s requirement that borrowers authorize CashCall to take payments electronically directly from the borrower’s bank accounts), bank account closures due to drainage by CashCall, and potentially unpaidutility bills. (See generally Petitioners’ Opening Br.p. 4,) > California requires hospitals and other health careproviders to provide discounted “charity care” low-income consumers and a payment plan. (Health & Safety Code, §§ 127400-127462.) 10 Amici’s arguments boil down to the assertion thatit is better policy for consumers to be burdened with unconscionable loans—loading unaffordable debt on already financially distressed individuals and families, and subjecting them to aggressivecollection activity from CashCall, bank account sweeps, and CashCall’s negative credit reporting that makesit even moredifficult to qualify for new credit—than to have no loansatall (which is by no means a necessary, nor even likely, result of Petitioners’ position). By enacting section 22302, the Legislature rejected Amici’s suggested abdication ofthe courts’ traditionalrole in determining unconscionable practices. CashCall’s amici are the ones urging “economic policy” on the courts. Il. THE CLAIMS OF UNCONSCIONABILITYIN THIS CASE ARE \ NOT VAGUE OR AMBIGUOUS AND DO NOT REQUIRE THE COURTSTO ENGAGEIN “ECONOMIC POLICYMAKING.” Both CJAC and CFSPassert that the class claims of unconscionability in this case are vague, ambiguous, or both. For example, CJACasserts that the “standard of unconscionability”itself is “vague and amorphous.” (CJAC Br. p. 22; see generally pp. 22-26.) CFSP characterizes the Court’s role in assessing unconscionable contracts as “ad hoc judicial second-guessing of interest rates,” to create the ruse of uncertainty for lenders. (CFSP Br. pp. 17-18.) Amici makenoprincipled attemptto ascertain the intent of the Legislature in enacting sections 22302 and 22303. Instead, they invite this Court to disregard that intent entirely by suggesting that the Legislature acted unwisely in subjecting il interest rates to judicial scrutiny under section 1670.5. (CFSP Br. pp. 17-18; CJAC Br.pp. 22-26.) Amici’s “economic policymaking” argumentsare thinly- veiled requests for this Court to simply ignore section 22302 on policy grounds. Nevertheless, amici’s arguments are unsupported and without merit. CFSP relies on a quote from Cel-Tech Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th 163, 185. (CFSP Br. p. 17.) But Cel-Tech was not an unconscionability case, and the mandates ofFinancial Code section 22302 and Civil Code section 1670.5 were not before the Cel-Tech Court. Cel-Tech was addressing the “unfairness”prong ofthe UCL, but no such claim is being madein this case. The claim in this case is instead brought under the “unlawful” prong of the UCL, which this Court has consistently construed as authorizing “borrowing” a violation of any law as a predicate for an “unlawful” business practice. (See pp. 21-22, infra.) The amicusbrieffrom the California Attorney Generaldirectly refutes amici’s assertion that the unconscionability claim under California law is vague or rudderless: Asthe legislative history for Civil Code section 1670.5 shows,the Legislature considered unconscionability to have a “well-understood meaning” based on ‘[a] multitude of cases.” (See ante p. 15.) Respondent’s view of unconscionability as “a vague and malleable” concept (see Def.’s AnswerBr. at 10) is not shared by the Legislature, 12 which rejected the same arguments when enacting Civil Code section 1670.5. (Cal. Attorney General Br. p. 25; see also pp. 8-12 (“price unconscionability” doctrine); 13-15 (legislative history of §1670.5).) This Court has consistently and faithfully applied that “well-understood meaning”to section 1670.5 in its jurisprudence since 1979, whenthe statute was enacted and codified the commonlaw doctrine. (See, e.g., Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243-1245 (reviewing generalprinciples of unconscionability); Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109, 1153 (Sonic ID.) The Consumer Amici Brief demonstrates exhaustively that over the course of centuries, the unconscionability rules have been applied to pricing cases and have developed the same “well-understood” meaning as section 1670.5 has in California. (Ctr. For Responsible Lending atal. Br. pp. 24-29; see also pp. 13-18, 31-41.) The cited sources, individually and in combination, squarely refute the bald suggestion by CashCall’s amici that section 1670.5 is untethered and incapable of understanding by businessentities and courts alike. CJACclaimsthat interest rate unconscionability requires a “cost benefit analysis” because that is “the favored meansofevaluating financial regulations governinginterest rates ....” (CJAC Brief p. 24.) CJAC cites no case law to support this claim. Noneofthis Court’s cases cites “cost benefit analysis” as a factor to be considered in adjudicating whether one or more price termsis 13 substantively unconscionable. (E.g., Perdue, supra, 38 Cal.3d at 926-927; see also Ctr. For Responsible Lendingatal. Br. pp. 21-24 (identifying and discussing the factors identified in Perdue).) CJACgoes onto state that cost-benefit analysis “[w]ould logically apply whencourts try to regulate interest rates based on unconscionability,” citing and quoting from Posner and Weyl, Cost-Benefit Analysis ofFinancial Regulations: A Response to Criticisms (2015) 124 Yale L. J. Forum 246. (CJAC Brief p. 24.) Butthere is nary a word about unconscionability in that article. And there is no mention there of courts or anything having to do with unconscionability adjudication. The article is exclusively about the cost-benefit analysis of financial regulation using bank capital requirements as its prime example. (Cost-Benefit Analysis ofFinancial Regulations, supra, 124 Yale L.J. at p. 248.) It was written to refute the criticisms of the leading critic of the authors’ theory that financial regulators should use cost benefit analysis to evaluate financial regulations. (Jd.at p. 246.) In sum, the doctrine of unconscionability, which section 1670.5 codified and delegated exclusively to “the courts” for application, is a long-established and well-developedjudicial doctrine, and does notreflect “economic policymaking,” as both CashCall and its amici contend. The amici supporting Petitioners persuasively refute the suggestion that courts should abstain from adjudicating legitimate claimsofprice unconscionability. (Cal. Attorney General Br. pp. 25- 26; Ctr. For Responsible Lending at al. Br. pp. 31-41.) 14 Ill. APPLYING THE UNCONSCIONABILITY DOCTRINE TO CASHCALL’S LOANS WOULD NOT IMPAIR ACCESS TO NEEDED CREDIT. CashCall asserts that borrowers will be deprived ofneeded credit if these loans could be held unconscionable. CFSP makesthe sameassertion but offers neither data nor argumentto support its theory. (CFSP Brief pp. 17-25.) Rather, CFSP’s argumentis based entirely onpayday lending data, and it echoes the claims ofpayday lenders, who make high-cost, very short-term loans without regard to borrowers’ ability to repay them. Not only doesthis case not involve payday loans—whichconsist ofvery small dollar amounts and very short term loans unlike CashCall’s at issue here with loan terms of 42 and 36 months —but there has also been no data showing impaired access to neededcredit in states that have affirmed the remedy that Petitioners seek here. First, CFSP doesnot cite any study concluding that applying unconscionability law would impairaccessto the installment loansat issue here— $2,500 or more loans payable not in 31 days, but overthree to four years at sustained interest rates ofwell over 100%. Conspicuously, CFSP provides the Court no evidence of any impact oninstallment lending in other states where the unconscionability laws have been applied to loans like CashCall’s. (See Ctr. For Responsible Lending ef al. Br. p. 28, n. 29 (reporting that the unconscionability doctrine has been applied to consumerlending in at least 14 states, including 15 Alabama, Colorado, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, New Mexico, Oklahoma, South Carolina, West Virginia, Wisconsin, and Wyoming).) “Despite the application of the unconscionability doctrine to interest rates in these states, the consumer lending industry apparently remainssufficiently profitable to continue operating in each ofthem.” (Jd.) Nor does CFSP cite any evidence ofcredit foreclosure in New Mexico, where the Supreme Court in State ex rel. King v. B&B Inv. Grp., Inc. (N.M. 2014) 329 P.3d 658, 672, held that the elimination of interest rate caps did not displace the application of state unconscionability law to high-cost signature loans. Nevertheless, even as to payday loans, CFSP’s arguments are unavailing.In California, payday loans are regulated by the Deferred Deposit Transaction Law (Financial Code §§ 23000 et seq.), not by the CFL (Financial Code §§ 22000 et seq.). In California, a payday loan (a “deferred deposit transaction”) is the deferral ofthe deposit of a customer’s personal check, not to exceed $300, for up to 31 days. (Fin. Code, § 23035.) The fee for a payday loan cannot exceed 15% ofthe face amount ofthe check. (/d., § 23036, subd. (a).) CFSP’s assertions with respect to payday loansare negated by the fact that fifteen states and the District of Columbia haveeffectively prohibited high-cost paydaylending by instituting interest rate caps of36% orless, and studies show 16 that borrowers have not been deprived of needed credit or suffered other adverse consequences that CFSP claims would result.® Similarly, in 2008, the Arkansas Supreme Court shut down payday lending in the state, holding that a state law authorizing payday lending violated the state constitution’s usury cap of 17%. (Mcghee v. Arkansas State BoardofCollection (Ark. 2008) 289 S.W.3d 18.) Tenders argued to the Supreme Court that banning the loans would diminish access to needed credit. (Jd. at p. 28.) In a survey seven years later, former payday borrowersreported results similar to those in North Carolina: that in the years following the Supreme Court’s decision they employed other strategies to meet cash shortfalls, and that they werebetter off withoutthe high-cost loans. (Meredith Covington & Jennifer Johnson,Into the Light: A Survey ofArkansas Borrowers Seven Years after State Supreme Court Bans Usury Payday Lending Rates, Southern Bancorp Community Partners (April 2016) pp. 5-6).”) 6 For example, a study commissioned by the North Carolina Commissioner of Banksafter that state eliminated payday lending concludedthatthe absence of paydayloanshad nosignificant impact on the availability of credit in North Carolina and identified an array of financial options that low- and moderate- incomeindividuals used during a financial shortfall. (Ctr. for Community Capital, University ofNorth Carolina at Chapel Hill, North Carolina Consumers After Payday Lending: Attitudes and Experiences with Credit Options (Nov. 2007) p. 1.) These options included formalalternatives, such as the use of a credit card or cash advance, and informalassistance such as help from friends and family. The study foundthat nearly nine out of ten households surveyed thoughtthat payday lending was a bad thing, and this overwhelmingly negative view ofthe product did not vary significantly for households that had experienced a financial shortfall. 7 Available at http://southernpartners.org/pp/PP_V43_2016.pdf 17 The Department of Defense (“DoD”) similarly rejected the claim by high- cost lenders thatlimiting interest rates on loans to service members to 36% would deny access to neededcredit. The regulations implementing the 36% rate cap in the Military Lending Act (10 U.S.C. § 987) initially covered short-term payday loans exclusively, but subsequent studies of the harmsassociated with other credit products persuaded NoN,in 2015, to extend the cap to includelarger, longer-term high-cost loans like thoseat issue here. (Department of Defense, Limitations on Terms ofConsumer Credit Extended to Service Members and Dependents: Final Rule (July 22, 2015) 32 CFR, Part 232.%) In making this determination, the DoD relied on substantial evidence showing that the harms associated with loans above the 36% interest rate threshold caused more harm than benefit. For example, financial counselors and legal assistance attorneys surveyed by DoD “said high cost of credit was often a major factor contributing to problems experienced by their clients.” Whenasked about applying a 36% APR cap beyond payday loans to cover consumer loans more generally, “the overwhelming majority said that the loss of access to credit above that threshold would not be detrimental.” (Department of - Defense, Report: Enhancement ofProtections on Consumer Creditfor Members 8 Available at https://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015- 17480.pdf. 18 ofthe Armed Forces and Their Dependents (April 2014) p. 2.°) Likewise, the vast majority (88%) of military service members surveyed said they would not be inconvenienced by the loss of access to high-interest loans. (/d. at p. 11.) Public polling consistently demonstrates a strong bipartisan consensus against excessively high interest-rate loans.'? Every time voters have been given the opportunity, they have voted to cap interest rates at 36% per year orless. 9 Available at https://consumerfed.org/pdfs/140429_DoD_report.pdf. 10 For example, a 2016 poll found nearly nine out of ten (89%) Coloradans opposed a proposalto raise the maximum rate allowed on a $3,000 loan from 28% to 36%. The poll revealedlittle partisan difference on this issue. See http://www.responsiblelending.org/sites/default/files/nodes/files/research- publication/crl_colorado_inst_polling_memo_may2016_0.pdf Similarly, a 2015 poll of likely North Carolina voters found “nearly monolithic” opposition to a proposal to allow consumer finance lenders to charge over 60% interest. Fully 93% opposed, including 88% of Republicans, 89% of Independents and 98% of Democrats. See http://responsiblelending.org/media-center/press- releases/pdf/nc_lendingmemo_07april2015.pdf. Likewise, a 2015 poll of lowa Republicans found that roughly three-quarters (74%) supported limiting interest rates on payday loans to 36%. By an even higher margin (78%), respondents supported requiring payday loan lendersto first determine the borrower’s ability to pay back the loan without defaulting on or delaying other expenses. See http://pos.org/about-us/leadership/glen-bolger-va/. A poll of voters in Rhode Island, the only New Englandstate to permit payday lending, found that 76% supported capping interest rates at 36%. See Press Release: R.I. Office of the Gen. Treasurer, Coalition, Raimondo, Taveras Raise Awareness on Payday Lending Pitfalls (Apr. 17, 2012) (reporting poll results), http://www.ri.gov/press/view/ 16334. A poll of residents of San Jose, California found that 63% would favor a - moratorium on issuing new licenses to payday lenders in San Jose, http://www.responsiblelending.org/research-publication/san-jose-payday-lending- poll. See also Timothy E. Goldsmith & Natalie Martin, /nterest Rate Caps, State Legislation and Public Opinion: Does the Law Reflect the Public’s Desires? (Jan. 2014) 89 Chicago-Kent L. Rev. 115, 129(“Even in New Mexico, where there generally are nointerest rate caps, the general public overwhelmingly favors caps.”). 19 (NCLC, Why 36%, supra, at p. 4.) This strong public sentiment cuts across party lines. Mostrecently, in 2016 in South Dakota, voters overwhelmingly elected to impose a 36% interest rate cap. The measure won with three-quarters of voters’ approval as voters rejected high-cost lenders’ claimsto be providing neededcredit, as CashCall claims here. (Dana Ferguson, Payday Lenders Flee South Dakota After Rate Cap, Courier Journal (Jan. 6, 2017).'') Similar measures have also succeeded in Arizona and Montana(see Center for Responsible Lending, Shark Free Waters: States are Better off Without Payday Lending (Aug. 2016, updated Sept. 2017)p. 2),!? and in Ohio voters implemented an annual rate cap of 28%. (Id..; see also NCLC, Why 36%,supra,at p. 4.) It is clear that subprime installment lending at triple-digit interest continues to trouble the conscience of the nation. Amici present the Court with no study supporting the claim that applying unconscionability law to CashCall’s installment loans would have any adverse impact on consumer credit. Even viewing the cited literature in the light most favorable to the industry’s position, the study results are '! Available at https://www.courierjournal.com/story/news/politics/2017/01/06/payday-lenders- flee-sd-after-rate-cap/96103624/. 12 Available at http://www.responsiblelending.org/sites/default/files/nodes/files/research- publication/crl-shark-free-waters-aug2016.pdf. 20 at best mixed with respect to payday loans—an entirely different loan product than those at issue here. And,evenifthe result of adopting Petitioners’ position was fewer unconscionable loans—which no evidence suggests would be the case—thisis a policy argument, not a statutory construction argument. The Legislature resolved California public policy in favor of applying section 1670.5 to CFL loans by enacting section 22302. (See pp. 2-11, supra.) This Court cannot change that legislative determination. This Court should reject amici’s invitation to arrive at a “right policy” for CFL loans of $2,500 or more. The Legislature already declared that policy by enacting section 22302, and changingthat policy is beyond the purview ofthe courts. IV. CALIFORNIA’S UCL AUTHORIZES AFFIRMATIVE RELIEF FOR VIOLATIONS OF PREDICATE STATUTES. CJACargues that consumers maynotassert a claim for affirmative injunctive and restitutionary relief under the UCL predicated on section 1670.5 becausethat statute only applies defensively. (CJAC Br. pp. 15-17.) CJACis mistaken. “By proscribing ‘any unlawful’ businesspractice, ‘[the UCL] ‘borrows’ violations of other lawsandtreats them as unlawful practices’ that the [UCL] makes independently actionable.” (Rose v. Bank ofAmerica, N.A. (2013) 57 Cal.4th 390, 396 (internal quotation marks omitted).) 21 This Court has repeatedly—and very recently—reaffirmed the holding that the remedies authorized by the UCL are cumulative to any and all others provided by law. (Solus Industrial Innovations, LLC v. Superior Court (2018) 4 Cal.5th 316, 341; see also Stop Youth Addiction v. Lucky Stores (1998) 17 Cal.4th 553, 566.) “[B]y borrowing requirements from other statutes, the UCL doesnot serve ‘as a mere enforcement mechanism.It provides its own distinct and limited equitable remedies for unlawful business practices, using other lawsonly to define whatis ‘unlawful.’” (Solus, 4 Cal.5th at 341) This Court has also repeatedly reaffirmed the breadth ofthe UCL: [T]he Legislature framed the UCL’s substantive provisions in “‘broad, sweeping language’” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 181 [83 Cal. Rptr. 2d 548, 973 P.2d 527]; see also Bank ofthe West v. Superior Court (1992) 2 Cal.4th 1254, 1266 [10 Cal. Rptr. 2d 538, 833 P.2d 545] [“The Legislature intended this ‘sweeping language’ to include ‘“anything that can properly be called a business practice andthatat the same time is forbidden by law.” ’”]) and provided “courts with broad equitable powers to remedy violations .” (citation omitted). (Kwikset Corp. v. Superior Court (2011) 51 Cal. 4th 310, 320.) In summary,then, a party can seek any remedy authorized by the UCL for violations of any predicate law. That is precisely whatthe Petitioners have done in this case. They seek injunctive and restitutionary relief under the UCL for CashCall’s installment loans, the terms ofwhich they claim violate section 22302 and Civil Code section 1670.5. Contrary to CJAC’s argument, the claims of unconscionability in this case are solidly groundedin this Court’s jurisprudence interpreting the UCL. 22 CONCLUSION CashCall’s two amici do not present any principled argument addressed to the statutory construction issue this Court certified for decision. Instead,they make a policy argument that subprimeinstallmentlending should be exempt from judicial scrutiny under the unconscionability statute because the marketis self- regulating. The Legislature, however, determined otherwise when it enacted section 23302. Nor dothese amici cite to any evidence demonstrating that if the unconscionability of CashCall’s loans is judicially determinedin this case, low- income borrowers will be worseoff. Finally, they make no persuasive argument against the fundamental and longstanding viewthat the unconscionability doctrine, which the Legislature codified in Section 1670.5, cannot be used as a predicate for relief under the UCL. Forall these reasons, Petitioners urge the Court to answer the Ninth Circuit’s question in the affirmative and remandthis case backto that Court. Dated: November30, 2017 Respectfully submitted, By: ames C. Sturdevint JAMES C. STURDEVANT (SBN 94551) sturdevant(@sturdevantlaw.com 23 THE STURDEVANT LAW FIRM A Professional Corporation 4040 Civic Center Drive, Suite 200 San Rafael, CA 94903 Telephone: (415) 477-2410 Facsimile: (415) 492-2810 STEVENM. TINDALL (SBN 187862) smt@classlawgroup.com ANDRE M. MURA (SBN 298541) amm@classlawgroup.com GIBBS LAW GROUP LLP 505 14th Street, Suite 1110 Oakland, CA 94612 Telephone: (510)350-9700 Facsimile: (510) 350-9701 JESSICA RIGGIN (SBN 281712) jriggin@rukinhyland.com RUKIN HYLAND LLP 1939 Harrison St., Ste. 290 Oakland, CA 94612 Telephone: (415) 421-1800 Facsimile: (415) 421-1700 ARTHUR D. LEVY (SBN 95659) arthur@yesquire.com LAW OFFICE OF ARTHUR D. LEVY 1814 Franklin Street, Suite 1040 Oakland, CA 94612 Telephone: (415) 702-4551 Facsimile: (415) 814-4080 DAMONM. CONNOLLY(SBN 139779) damon@damonconnollylaw.com LAW OFFICES OF DAMONM. CONNOLLY 1000 47Street, #600 San Ratael, CA 94901 Telephone: (415) 256-1200 24 CERTIFICATE OF WORD COUNT I certify that the document contains 6,255 words, excluding the parts of the documentthat are exempted by Supreme Court Rule 33.1(d). I declare under penalty ofperjury that the foregoing is true andcorrect. 6 Executed on March 16, 2018. . Tindall 25 PROOFOF SERVICE I am employedin the county of Alameda, State of California. I am overthe age of 18 and not a party to the within action. My business addressis: 505 14th Street, Suite 1110, Oakland, California 94612. On March 16, 2018, I served a copy ofthe foregoing documents described as follows: PETITIONERS’ CONSOLIDATED ANSWER TO AMICUS CURIAE BRIEFS IN SUPPORT OF RESPONDENT on the following interested party(ies) in this action: Jessica Riggin RUKIN HYLAND LLP 1939 Harrison St., Ste. 290 Oakland, CA 94612 Damon M.Connolly Law Offices ofDamon M. Connolly 1000 4" Street, #600 San Rafael, CA 94901 Arthur D. Levy Law Office of Arthur D. Levy 1814 Franklin Street, Ste. 1040 Oakland, CA 94612 Beth E.Terrell Terrell Marshall Law Group LLC 936 North 34th Street, Ste. 300 Seattle, WA 98103 Brad W.Seiling Donald S. Brown Manatt, Phelps & Phillips, LLP Center for Responsible Lending 1970 Broadway,Ste. 350 11355 West Olympic Blvd. Oakland, CA 94612 Los Angeles, CA 90064 . Michael J. Quirk Ted Mermin aq: 3130 Shattuck Ave. Williams Cuker Berezofsky, LLC Berkeley, CA 94705 1515 Market Street, Suite 1300 Philadelphia, PA 19102 James C. SturdevantThe Sturdevant Law Firm4040 Civic Center Dr., Ste. 200San Rafael, CA 94903 [X] BY MAIL:byplacing the document(s) listed above for collection and mailing following the firm’s ordinary business practice in a sealed envelope with postage thereon fully prepaid for deposit in the United States mailat Oakland, California addressedas set forth above. I declare under penalty of perjury under the laws ofthe State of California that the above is true and correct. Executed on March 16, 2018 in Oakland, Obs9 ies rb Ae Renée B&ndloss 7 California. 27