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Supreme Court Shows No Deference To The DBO

For U.S. Supreme Court followers, a hot topic is whether the Court will continue to apply "Chevron deference".  Under Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), a court will uphold an agency's interpretation of an ambiguous statute if that interpretation is reasonable or permissible even though the court does not believe the agency's interpretation is the best interpretation.  In this post from two years ago, I noted  California courts do not apply such a high degree of deference.  

This limited degree of deference was apparent in the case discussed in yesterday's postDe La Torre v. Cashcall Inc., 2018 Cal. LEXIS 5749.  The issue in that case was whether consumer loans of $2,500 could be found to be unconscionable.  The defendant lender argued that the Department of Business Oversight, which administers and enforces the California Financing Law, had itself taken the position that there was no limit.  In support, the defendant cited the DBO's accusation against it that "a CFLL licensed lender can charge whatever interest rates it choose[s] on loans of bona fide principal amounts of $2,500 or more.” (In re Commissioner of the Business Oversight v. CashCall, Inc. (Cal. Dept. of Bus. Oversight June 4, 2014) No. 603-8780, Accusation ¶ 3(b) [incorrectly cited in the opinion as ¶ 2].  

The Supreme Court, allowed that "we sometimes afford careful consideration and even a measure of deference to positions that are not taken through more formal policymaking mechanisms".  However, the Supreme Court declined to acquiesce to the DBO's interpretation, finding that this single sentence from an accusation was far from an authoritative interpretation.

The lender must now be feeling a certain kinship with Josef K.  The lender's regulator, the DBO, had accused it of making false, misleading, or deceptive statements in violation of Financial Code Section 22161 because it had failed to tell prospective borrowers that it could charge whatever it chooses on loans of $2,500 or more.  As a result of this accusation, the lender entered into a settlement with the DBO agreeing to pay restitution plus $1 million in penalties and costs.  In announcing the settlement, the DBO emphasized that California law places no limits on larger consumer loans (emphasis added):

"State law caps interest rates on consumer and commercial loans made by non-bank lenders. But the limits only apply to loans smaller than $2,500. The law imposes no interest rate restrictions on loans of $2,500 or more."

Now, the Supreme Court has held that the lender could be liable for charging whatever it chooses on loans of $2,500 or more.  

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Finance Lenders Law, Administrative Procedure

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