Does California's usury limitations constitute a "strong public policy"? Seemingly, that question was decided over a half-century ago by the First District Court of Appeal in Ury v. Jewelers Acceptance Corp., 227 Cal. App. 2d 11, 20, 38 Cal. Rptr. 376, 382 (Ct. App. 1964):
That California does not have such a strong public policy against any and all contracts which would be usurious if they were made and to be performed here, appears from the fact that the constitutional prohibition of usury, section 22, article XX of the California Constitution, enacted by initiative, exempts from its provisions banks, building and loan associations, industrial loan companies, credit unions, licensed pawnbrokers and personal property brokers, and several other kinds of lenders, and gives the Legislature the right to prescribe maximum limits for the exempted lenders. A strong public policy, based on a settled concept of justice or morality would not be meshed with such alterable rates as the legislature might choose to impose. In fact, the Legislature has imposed no maximum rates for banks. The loan in this case, if it had been made by a bank in California and was payable here, could be enforced.
The Fourth District Court of Appeal, however, recently disagreed, finding that "the inclusion of the usury law in our Constitution reflects it involves an important public policy". G Companies Mgmt., LLC v. LREP Arizona LLC, No. G060992, 2023 WL 2011816, at *5 (Cal. Ct. App. Feb. 15, 2023). Accordingly the Court of Appeal declined to enforce an Arizona choice of forum clause even though the loan agreement specified the use of an escrow agent located in Arizona and stated that the loan closing would take place at the agent’s office.
While the Fourth District Court of Appeal is not bound to follow the First District Court of Appeal, it is unsettling when a seemingly well-settled precedent is not followed. G Companies Management, LLC v. LREP Arizona LLC, 2023 WL 2011816. For the last several years, usury has not been a concern for many lenders due to the low interest rate environment. Now that interest rates are climbing, usury is once again becoming a concern. Unfortunately, this latest decision will create more uncertainty.
