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COMMITTEE AGAINST UNFAIR INTEREST LIMITATIONS v. Household Finance Corporation of California, a corporation, Intervenor, Appellant and Respondent.

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Court of Appeal, Second District, Division 1, California.

COMMITTEE AGAINST UNFAIR INTEREST LIMITATIONS, an Unincorporated Association, et al., Plaintiffs, Appellants and Respondents, v. STATE of California and Evelle J. Younger as Attorney General, Defendants, Appellants and Respondents, California Bankers Association, a Nonprofit Corporation, et al., Intervenors, Appellants and Respondents, California Loan & Finance Association, a Nonprofit Corporation, et al., Intervenors, Appellants and Respondents, Household Finance Corporation of California, a corporation, Intervenor, Appellant and Respondent.

Civ. 54679.

Decided: August 02, 1979

Nossaman, Krueger & Marsh, Alvin S. Kaufer, Charles S. Vogel, Stephen N. Roberts, and Thomas J. Weiss, Los Angeles, for plaintiffs, appellants and respondents. Evelle J. Younger and George C. Deukmejian, Attys. Gen., Arthur C. de Goede, Asst. Atty. Gen., Sanford H. Feldman and Susan E. Henrichsen, Deputy Attys. Gen., for defendants, appellants and respondents. Sheppard, Mullin, Richter & Hampton, George R. Richter, Jr. and William A. Masterson, Los Angeles, for intervenors, appellants and respondents. Styskal, Wiese & Melchione, and Alvin O. Wiese, Jr., North Hollywood, for intervenors, appellants and respondents. Severson, Werson, Berke & Melchior, and D. Ronald Ryland, San Francisco, for intervenor, appellant and respondent. Bernard B. Nebenzahl, Beverly Hills, for intervenors, appellants and respondents. Gibson, Dunn & Crutcher, Samuel O. Pruitt, Jr., Stephen M. Blitz, Aulana L. Peters and Ira S. Levin, and Volk, Newman, Marsh, Gralla & Karp and Bruce H. Newman, Los Angeles, for amicus curiae California Independent Mortgage Brokers Association. David M. Turner, Los Angeles, for amicus curiae Pacific Lighting Corporation. Adams, Duque & Hazeltine, Alan Wayte and Thomas R. Larmore, and James H. Fleming, Los Angeles, for amici curiae The Guardian Life Insurance Company of America and The Public Employees Retirement System of the State of California. Beardsley, Hufstedler & Kemble, Seth M. Hufstedler, John Sobieski, Michael E. Friedman and Pierce O'Donnell, Los Angeles, for amicus curiae American Council of Life Insurance.

PREFACE

This case involves consolidated appeals from judgment, following a court trial, holding California's Usury Law1 unconstitutional as applied to “non-consumer loans,”2 and holding California's Usury Law constitutional in all other respects.

HOLDING

We hold that California's Usury Law is constitutional as applied to all loans. In so doing, we reverse the judgment insofar as it holds California's Usury Law unconstitutional as to “non-consumer loans” and affirm the judgment insofar as it holds California's Usury Law constitutional in all other respects.

The parties at trial fall into three groups: First, plaintiffs are non-exempt lenders subject to the 10 percent interest limitation of article XV; second, defendants are the State of California and the California Attorney General; and third, intervenors are exempt lenders not subject to the 10 percent interest limitation of article XV.

TRIAL COURT HOLDING

The trial court held: (1) That the 10 percent interest charge limitation in article XV as applied to non-consumer loans imposed an undue and discriminatory burden on interstate commerce and is unconstitutional under the Commerce Clause of the United States Constitution;3 (2) that the 10 percent interest charge limitation in article XV as applied to non-consumer loans, and the classification of lenders by article XV as exempt and non-exempt from the operation of the 10 percent interest charge limitation as applied to non-consumer loans, is arbitrary, unreasonable and unconstitutional under the Equal Protection Clause of the United States Constitution;4 and (3) that except as declared unconstitutional in this judgment, article XV is valid and constitutional.

In addition, the trial court ordered the judgment prospective only.5

The trial court further held that nothing in the judgment affected the article XV repeal of the 1918 Initiative insofar as that measure established a 12 percent interest charge limitation.

Finally, the trial court held:

“If the 10 percent interest charge limitation in Article XV is not unconstitutional as applied to non-consumer loans, the Court construes and interprets Article XV so as to make the 10 percent interest charge limitation not applicable to non-consumer loans.”

ISSUES ON APPEAL

Plaintiffs6 on appeal seek: (1) Affirmance of the trial court's judgment that the usury laws are unconstitutional as applied to non-consumer loans; (2) reversal of the trial court's judgment that the usury laws are constitutional as applied to consumer loans; and (3) reversal of the trial court's decision that the judgment should be prospective only.7

Defendants seek: (1) Affirmance of that portion of the judgment holding article XV constitutional; and (2) reversal of the judgment holding article XV unconstitutional as to non-consumer loans.8

Intervenors seek: (1) Reversal of that portion of the judgment which holds article XV unconstitutional as applied to non-consumer loans and affirmance of the judgment holding article XV constitutional in other respects.9

USURY LAW HISTORY

The first general Usury Law in California was the 1918 Initiative10 which set a flat 12 percent interest ceiling. This Initiative led to a brokerage system to avoid the 12 percent limitation. In brief, the 1918 Initiative limited only interest charges. Since brokerage charges were not interest charges, they were not limited by law.

Thereafter, and in 1931, the Legislature amended the Personal Property Brokers Act of 1911 to permit rates of three and one-half percent per month on loans to $300.00.

In 1932 the California Supreme Court struck down these rate amendments on the ground that they were in conflict with the 12 percent limit of the 1918 Initiative. (Beneficial Loan Society, Ltd. v. Haight (1932) 215 Cal. 506, 11 P.2d 857.

In 1933 the California Legislature proposed that a constitutional amendment be submitted to the people. This proposal lowered the interest ceiling on loans from 12 percent to 10 percent but provided an express exemption from the 10 percent interest ceiling for loans made by a specified list of lenders. As to the exempt lenders, the proposal authorized legislative regulation of the rates charged by these lenders.

The necessity for the constitutional amendment was well recognized. The Legislature found that the 1918 Initiative was “ridiculously inadequate” and made it impossible for legitimate businesses to operate in the consumer credit field. (See Report of the Interim Committee of the Assembly of the State of California for the Investigation of Small Loans, March 22, 1935, Assembly Daily Journal, 51st Session, at 1303.)

The Ballot Pamphlet relating to the proposed constitutional amendment used similar terms in urging the adoption of the amendment:

“This measure seeks to rectify the errors of the Usury Law and cure its deficiencies.

“Fifteen years have elapsed in which the Usury Law has been well tested. Its inadequacy is blatantly apparent. Its purpose has not been fulfilled. The loan shark still prospers and collects interest grossly in excess of the specified legal rate. Interest disguised as ‘charges' is currently exacted at rates that range as high as Eighteen hundred percent per annum. The brazenness of the rapacious money lender is astounding; his ruthlessness is boundless.

“The reason for the possibility of such evasion is the impracticability of the present law. Prohibition, as such, is impractical. An act may be forbidden and penalties imposed for violations thereof, but the only cure is the enactment of a measure sufficiently flexible to permit the law's adjustment to the needs of various classes. The named exceptions in the present amendment, to wit, building and loan corporations, industrial loan companies, credit unions, pawnbrokers, personal property brokers, banks and agricultural lending agencies, have distinctive and individual problems peculiar to their respective classes of business. The needs of one are by no means common to all; each class meets with variable conditions and circumstances unlike those met by the others. An inflexible law, designed to embrace all of them, is at once unjust and impractical. The Usury Law attempted to cover all classes, and has failed miserably.

“Relief may be had through the regulation contemplated by the present enactment. The supervisory control will not be absolute but subject to the vigilant review of the Legislature whose power will equalize the regulatory jurisdiction.

“California remains as the only State with a large population (a condition lucrative to the money lender) which has not provided for this sound principle of regulation. . . .”

After this constitutional amendment was adopted by the people, the Legislature exercised its authority to regulate the rates and practices of the exempt lenders. The Legislature enacted a series of laws which are set forth in general in the Financial Code. Some examples are: The California Personal Property Brokers Act, The California Small Loan Act, and The Pawnbrokers Act.

The People of the State of California have rejected recent attempts to amend article XV. The first attempt was in 1970 (Stats.1970, ch. 482, p. 954), and the last two attempts were in 1976 (1975-76 Reg. Session, Summary Digest, p. 443).

EQUAL PROTECTION

Plaintiffs' equal protection claim is without merit since the California Supreme Court has upheld the validity of article XV against an equal protection attack. Courts of Appeal opinions have consistently followed the California Supreme Court decisions. In addition, the United States Supreme Court has consistently and uniformly rejected equal protection attacks on similar provisions.

The California Supreme Court in Carter v. Seaboard Finance Co. (1949) 33 Cal.2d 564, 203 P.2d 758, was presented with the issue of whether article XX (now article XV) is valid under the equal protection clause of the Fourteenth Amendment and whether the interest limitation of the Personal Property Brokers Act is valid under the same constitutional provision.

The California Supreme Court in Carter held: “In adopting the 1934 amendment the voters were approving a plan by which the legislature could regulate the exempted classes in accordance with their peculiar requirements. On highest authority this plan of classification has been approved (Griffith v. Connecticut, 218 U.S. 563 (31 S.Ct. 132, 54 L.Ed. 1151); Mutual Loan Co. v. Martell, 222 U.S. 225 (32 S.Ct. 74, 56 L.Ed. 175)), and it must be held that the exemption of personal property brokers from the usury restrictions of that 1934 amendment was neither unwarranted nor arbitrary, but on the contrary, was based on sound and reasonable grounds.

“The objections to the Personal Property Brokers Act of 1939 on constitutional grounds are likewise without foundation. The federal equal protection clause does not prevent the legislature from classifying loans according to size. . . .” (33 Cal.2d at pp. 587-588, 203 P.2d at p. 773.)

The Courts of Appeal directly but more recently held that article XV is valid under the equal protection clause.

First, in Baruch Inv. Co. v. Huntoon (1967) 257 Cal.App.2d 485, 490, 65 Cal.Rptr. 131, 135 (hearing denied by the Supreme Court), the issue was stated as follows: “On appeal it is contended that California Constitution, article XX, section 22 (now article XV), violates the equal protection clause of the United States Constitution.”

The court, after quoting from the Carter case, concluded: “That holding disposes of the constitutional attack upon article XX, section 22 (now article XV).” (P. 491, 65 Cal.Rptr. p. 135.)

Second, in Mission Hills Dev. Corp. v. Western Small Business Inv. Co. (1968) 260 Cal.App.2d 923, 928, 67 Cal.Rptr. 505, 508, the court held: “Defendants also urge that the usury law as applied in this action unfairly discriminated against them. This discrimination results, they say, from the exemption of certain classes, including finance companies, banks, credit unions and small loan companies. Although no direct assertion of unconstitutionality is made we shall consider this contention. No claim of unconstitutionality as to California's Constitution can be valid, for the criticised exemptions derive directly from that document. The United States Supreme Court has held that a state may properly establish classes which are exempt from the operation of its usury laws. (See Mutual Loan Co. v. Martell, 222 U.S. 225, 32 S.Ct. 74, 56 L.Ed. 175; Griffith v. Connecticut, 218 U.S. 563, 31 S.Ct. 132, 54 L.Ed. 1151.)”

The California Supreme Court in In re Fuller (1940) 15 Cal.2d 425, 102 P.2d 321, 328, similarly answered an attack on the Small Loan Act on due process and equal protection of law provisions of the federal and state Constitutions. In Fuller, petitioner claimed that the Small Loan Act violated the equal protection provision “because it does not uniformly apply to all classes of lenders but creates an unjustifiable and unreasonable classification thereof through (a) application only to the so-called unsecured or non-exempt group of loan operators, (b) application only to loans of $300 or less, and (c) exemption of real estate loans.” (Pp. 436-437, 102 P.2d p. 329.)

In rejecting petitioner's equal protection contention, the court stated:

“Banks, trust companies, building and loan associations, industrial loan companies and credit unions are all created by special laws and are subject to inspection, supervision and control, which justify their exemption from other forms of regulation. The exemption of licensed pawnbrokers is justified for the same reason, and also because legislation regulating them has been consistently upheld as proper classification. (Citation.) The same principles are applicable to the exemption of licensed personal property brokers, since legislation applicable to them alone has been upheld as reasonable and proper classification. (Citations.) Moreover, their exemption is not absolute, but applies only to transactions subject to the Personal Property Brokers Act.

“Non-profit agricultural cooperatives, and corporations lending money pursuant to the Agricultural Credits Act of 1923 clearly engage in a limited field of business. As to the first group, it is hardly to be expected that non-profit cooperatives would indulge in ‘loan shark’ practices. Accordingly, as this court said in Eaker v. Bryant, supra (24 Cal.App. 87, 93-94, 140 P. 310), ‘we may reasonably assume that the Legislature has not found any abuse in that business requiring public correction’. The same statement may properly be made as to the remaining group of corporations lending money pursuant to the Agricultural Credits Act of 1923. Also, their operations are subject to the regulation and control of the Farm Credit Administration, which is another reason why they may properly be exempted.” (P. 438, 102 P.2d p. 329.)

Finally, the court in Fuller answered the contention whether legislation applicable only to loans of $300 or less may be upheld. The court concluded: “This leaves for consideration the question whether legislation applicable only to loans of $300 or less may be upheld. There is no doubt about the answer.

“The propriety and reasonableness of a classification of the loan business, based on size of individual transactions, has been approved in practically all cases where the matter has been questioned. In re Halck, supra ; Koen v. State, 162 Tenn. 573, 39 S.W.2d 283. Nor does such legislation conflict with any provision of the federal Constitution. (Engel v. O'Malley, 219 U.S. 128 (31 S.Ct. 190, 55 L.Ed. 128).)” (P. 438, 102 P.2d p. 329.)

The United States Supreme Court has rejected attacks on lender classifications. (Griffith v. Connecticut (1910) 218 U.S. 563, 31 S.Ct. 132, 54 L.Ed. 1151; Mutual Loan Co. v. Martell (1911) 222 U.S. 225, 32 S.Ct. 74, 56 L.Ed. 175.)

In Griffith, the challenged statute exempted the following from its provisions: (1) Loans made by national banks, banks and trust companies incorporated in Connecticut, and pawnbrokers operating in compliance with Connecticut law; (2) loans made to national banks and banks and trust companies incorporated in Connecticut; and (3) loans secured by mortgages on real property.

The Supreme Court, in upholding the exemption given certain lenders, stated:

“ ‘The exception from its operation of loans by national banks was merely a recognition of the legal effect, in excluding state legislation on the same subject, of the statutes of the United States which regulate their right to make such contracts. The further exception in favor of loans by trust companies chartered by this state was fully justified by the peculiar character of these institutions, each created by a special act of legislation, and subject to the inspection of the bank commissioners. (Citation.) There was also reasonable cause for the exception as to pawnbrokers. Their business can only be carried on by those found by public authority to be suitable persons to engage in it, and its character is such as to make it not improper to allow a charge of interest beyond the limit of 15 per cent a year.’ ” (218 U.S. at 569-570, 31 S.Ct. at 133-34, quoting from State v. Hurlburt, 82 Conn. 232, 72 A. 1079.)

This court may not reject the clear holding of the California Supreme Court in Carter upholding article XV against an equal protection attack. The persuasive and definitive holding in Carter is binding upon this court.

As a consequence, it is clear that that portion of the trial court judgment holding article XV unconstitutional as to “non-consumer loans” must be reversed. By parity of reasoning, the trial court judgment holding that article XV is constitutional as to “consumer loans” must be affirmed.

In addition, the trial court judgment stating “If the 10 percent charge limitation in Article XV is not unconstitutional as applied to non-consumer loans, the Court construes and interprets Article XV so as to make the 10 percent interest charge limitation not applicable to non-consumer loans” is contrary to Carter and must also be reversed.

Plaintiffs contend that the three California decisions, that is, Carter v. Seaboard Finance Co., supra, 33 Cal.2d 564, 203 P.2d 758, Baruch Inv. Co. v. Huntoon, supra, 257 Cal.App.2d 485, 65 Cal.Rptr. 131, and Mission Hills Dev. Corp. v. Western Small Business Inv. Co., supra, 260 Cal.App.2d 923, 67 Cal.Rptr. 505, are not authoritative because (1) The three cases were all decided before the radical interest rate increases of the 1970's; (2) in none of the cases was the question of constitutionality under the Commerce Clause ever present or decided; (3) in all of the cases the question regarding constitutionality was either not at issue between the parties (and consequently the court's discussion of the issue was dictum), or it was raised for the first time on appeal and there was no evidence at the trial to support the position on appeal.

This claim is without merit. Plaintiffs' contention that the cases were decided before the interest rate increases in the 1970's and therefore are not authoritative is not persuasive. The interest rate increases which are the subject of this decision occurred during approximately only a nine-month period beginning in mid-1974. This increase for a nine-month period at most restricted plaintiffs' activities in California for a short period of time. The appellate courts in Carter, Baruch and Mission Hills rejected constitutional attacks that for all intents and purposes prevented the moving parties from engaging in the lending business for the entire period following the 1934 adoption of article XV, then article XX. In short, the appellate courts in the three decisions precluded participation for periods much beyond the nine-month period in this case.

Plaintiffs claim that the decisions did not involve attacks under the Commerce Clause of the United States Constitution does not, of course, mean that the decisions are not complete answers to their equal protection attack. Finally, plaintiffs' third claim, that is, that the decision of the courts was dicta, is completely answered by the language of the Supreme Court in Carter. The Supreme Court stated: “The Attorney General has suggested that if this court is to arrive at the conclusions hereinbefore announced two federal Constitutional questions arise on the face of our Constitution and statute. These questions have been briefed by counsel representing opposing views, and it is requested that we inquire into and decide whether Section 22 of Article XX (now article XV) and the interest limitations of the Personal Property Brokers Act are valid under the equal protection clause of the Fourteenth Amendment. Specifically it is stated that a possible violation of that Amendment is found in the 1934 constitutional classification of personal property brokers as a preferred group, as against the public in general and as against other lenders similarly situated, and in the classification of loans in the Personal Property Brokers Act by which lenders of more than $300 are subject to restrictions less severe than lenders of lesser sums. These problems are inherent in the case before us and in view of their importance in the enforcement of the law they should be answered.” (33 Cal.2d at pp. 586-587, 203 P.2d at p. 772.)

Thus, it is apparent that the decision in Carter is not dicta. It is evident that if the Supreme Court had found the provisions were unconstitutional, the court's holding would have been different. Plaintiffs' claim that Carter, Baruch and Mission Hills are not authoritative is rejected.

COMMERCE CLAUSE

Plaintiffs contend that the California Usury Law is unconstitutional under the Commerce Clause of the United States Constitution because (1) the usury laws create an unusual burden on and discrimination against interstate commerce, and (2) there are reasonable alternatives available and the state must utilize these alternatives.

We reject this contention and hold that the California Usury Law is constitutional under the Commerce Clause.

It has long been established that the Commerce Clause authorizes Congress to regulate interstate commerce as it deems appropriate within the framework of the United States Constitution.

Its power is plenary over interstate commerce. The Constitution allows Congress to enact federal legislation that burdens interstate commerce; it allows Congress to empower the states to enact legislation on the subject; see E. g., Prudential Ins. Co. v. Benjamin (1946) 328 U.S. 408, 66 S.Ct. 1142, 90 L.Ed. 1342.

By way of illustration, in Panhandle Pipe Line Co. v. Comm'n (1947) 332 U.S. 507, 68 S.Ct. 190, 92 L.Ed. 128, the United States Supreme Court held that federal regulation over interstate gas pipelines which left aspects of regulation to the states precluded a challenge under the Commerce Clause to the specific state regulations.

The court stated:

“Congress has undoubted power to define the distribution of power over interstate commerce. (Citations.) Here the power has been exercised in a manner wholly inconsistent with exclusion of state authority over the sales in question.

“(T)he policy which we think Congress has clearly delineated for permitting and supporting state regulation removes any necessity for determining the effect of the commerce clause independently of action by Congress and taken as operative in its silence.” (332 U.S. 521-524, 68 S.Ct. 197-99.)

Concerning the subject of interest rates, it is clear that Congress has deferred to the states for regulation for over a century.

In 1864 the Congress in the National Bank Act (now 12 U.S.C.A. s 21 et seq.) recognized state usury laws and incorporated them into its regulatory framework. (12 U.S.C.A. s 85.) 12 U.S.C.A. section 85 expressly provides that state laws regulate the interest rate a national bank located in such state may charge on loans, Congress has made it clear that it recognizes the validity of state usury laws and the congressional action manifests a validation of those laws. It is clear that Congress is accommodating the state interest in protection against usury.

The congressional approval of state usury laws is further manifested in the enactment of 12 U.S.C.A. section 1709-1a. That section provides:

“(a) The provisions of the constitution of any State expressly limiting the amount of interest which may be charged, taken, received, or reserved by certain classes of lenders and the provisions of any law of that State expressly limiting the amount of interest which may be charged, taken, received, or reserved shall not apply to

“(1) any loan or mortgage which is secured by a one-to four-family dwelling and which is (A) insured under title I or II of the National Housing Act, or (B) insured, guaranteed, or made under chapter 37 of Title 38; or

“(2) any temporary construction loan or other interim financing if at the time such loan is made or financing is arranged, the intention to obtain permanent financing substantially by means of loans or mortgages so insured, guaranteed, or made is declared.

“(b) The provisions of this section shall apply to such loans, mortgages, or other interim financing made or executed in any State until the effective date (after June 30, 1976) of a provision of law of that State, limiting the amount of interest which may be charged, taken, received, or reserved on such loans, mortgages, or financing.”

The legislative history of section 1709-1a demonstrates it was enacted with specific and explicit reference to article XV of the California Constitution.

Senate Report No. 94-806 in making this clear states: “At present, this section would apply only to California.”

Section 1709-1a demonstrates the intent of Congress that the State of California may determine its own usury law. It is clear that Congress was advised that article XV could cause mortgage bankers to cease their lending operations when the market rate exceeded the 10 percent maximum.

It is abundantly clear the issue of preemption concerning California Usury Law was explicitly before the Congress. Rather than preempt the subject matter, Congress restricted its preemption only to VA and FHA loans.

The most important congressional intent established by the enactment of section 1709-1a is that even to the limited preemption (preemption of California Usury Law only as to VA and FHA loans), California's Usury Law, if later enacted, would supersede this federal preemption.

If the intent of Congress to defer to, and not to preempt, state usury laws is not abundantly clear from the terms of the statute, the Senate Report spells it out:

“To reflect the Congressional policy of permitting a State the primary opportunity to determine its usury statutes, subsection (b) of section 8 of the reported bill (now section 1709-1a(b)) would allow the State to override the exemption by taking the appropriate action at the State level to reassert or restate any usury provision that may have been altered or affected by the passage of this amendment.”

By way of a final example, congressional approval and validation of state usury laws is found in the Federal Truth in Lending Act, 15 U.S.C.A. section 1601 et seq.

In 15 U.S.C.A section 1610(b), Congress expressly deferred to state usury laws as follows:

“(b) This subchapter does not otherwise annul, alter or affect in any manner the meaning, scope or applicability of the laws of any State, including, but not limited to, laws relating to the types, amounts or rates of charges, or any element or elements of charges, permissible under such laws in connection with the extension or use of credit, nor does this subchapter extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply.”

The United States Court of Appeals for the Third Circuit in Aldens, Inc. v. Packel, 524 F.2d 38 (3rd Cir. 1975, cert. denied sub. nom., Aldens v. Kane, 425 U.S. 943, 96 S.Ct. 1684, 48 L.Ed.2d 187), held:

“(A)lthough Congress has acted comprehensively in the field of retail installment credit in the Federal Truth in Lending Act, Act of May 29, 1968, Pub.L.No.90-321, Title I, s 102 et seq., 82 Stat. 146, 15 U.S.C. ss 1601-65, it has not seen fit to regulate interest rates in that field. It has, moreover, expressly deferred to state authority. See 15 U.S.C. s 1610(b):

‘This subchapter does not otherwise annul, alter, or affect in any manner the meaning, scope or applicability of the laws of the State, including, but not limited to, laws relating to the types, amounts or rates of charges, or any element or elements of charges, permissible under such laws in connection with the extension or use of credit, nor does this subchapter extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply.’

This express congressional recognition of the appropriateness of a state law role with respect to interest rates in the field of consumer credit serves to (show that a uniform national rule is not necessary). It might be argued that s 1610(b) may be construed as an express adoption of state law as the appropriate federal standard for measuring interest rates in consumer credit transactions. But even if s 1610(b) is not so construed, at a minimum it is a congressional recognition that the maximum level of interest rates in consumer credit transactions is not a subject matter requiring a uniform national rule. In face of this express congressional recognition that national uniformity is not required it would not, we suppose, be open to the Court to hold otherwise.“ (524 F.2d at 46-47.)

The court in Aldens succinctly answers plaintiffs' attack on California's Usury Law. The court stated (pp. 47-49):

“The fundamental issue is whether the national interest in the free movement of money, credit, goods and services outweighs the valid local interest in restricting maximum interest rates on consumer ‘loans' and setting uniform contract terms for such transactions. Before the emergence of a national currency and a national monetary policy, and especially before the emergence of national concern over consumer protection in interstate commerce, the issue would not have been seriously debated. But even in the period since these developments, no case that we have been referred to has even so much as hinted that usury laws and related contract laws are not appropriate matters for local regulation. This despite the facts that such laws do burden interstate commerce, and that the burden is increased by the lack of uniformity. (Fn.) Considering, however, the historical recognition that the states may, despite the burden on commerce, enact varying usury laws and varying contract laws, any judgment that the present proliferation of regulations of consumer credit transactions has burdened commerce unduly must be made by Congress.”

The law is firmly established that Congress has plenary power of interstate commerce including the regulation of state usury rates. Congress, however, has repeatedly and expressly left the matter of usury rate regulation to the states. Since Congress has so declared, the matter of usury is for the states until Congress otherwise declares. Under the Commerce Clause of the United States Constitution, Congress has the last word on the subject and Congress has spoken.

Thus, it is clear that article XV of the California constitution is valid and it may be not successfully attacked on the ground that it violates the Commerce Clause of the United States Constitution.

Plaintiffs have cited innumerable cases dealing with the Commerce Clause and have asked this court to conduct a balancing test regarding plaintiffs' Commerce Clause attack on California's Usury Law.

In light of the determination that Congress has expressly deferred to the states regarding interest rates, this issue is not reached. The issue raised by plaintiffs would apply, if at all, only if Congress had not deferred to the states concerning the regulation of usury.

Plaintiffs' contention that the trial court had no jurisdiction to determine that the California Usury Law was constitutional as applied to consumer loans is patently without merit. The issue of the validity of article XV was raised by plaintiffs in both their complaint and amended complaint. The complaints in intervention alleged that article XV was constitutional in all respects. In addition, the trial court deemed the complaints in intervention to be answers pursuant to plaintiffs' counsel's request.

In short, the fact that plaintiffs sought to have article XV declared unconstitutional did not deprive the trial court of jurisdiction to declare article XV constitutional as to non-consumer loans.

The judgment is reversed insofar as it holds article XV unconstitutional as to “non-consumer loans” and insofar as it holds that article XV does not apply to “non-consumer loans.”

The judgment is affirmed insofar as it holds article XV constitutional in all other respects. Each party to bear its own costs.

FOOTNOTES

FOOTNOTE.  

1.  As used herein, California's Usury Law, hereinafter sometimes referred to as Usury Law, is defined as California Constitution, article XV, which reads as follows:“The rate of interest upon the loan or forbearance of any money, goods or things in action, or on accounts after demand or judgment rendered in any court of the State, shall be 7 per cent per annum but it shall be competent for the parties to any loan or forbearance of any money, goods or things in action to contract in writing for a rate of interest not exceeding 10 per cent per annum.“No person, association, copartnership or corporation shall by charging any fee, bonus, commission, discount or other compensation receive from a borrower more than 10 per cent per annum upon any loan or forbearance of any money, goods or things in action.“However, none of the above restrictions shall apply to any building and loan association as defined in and which is operated under that certain act known as the ‘Building and Loan Association Act,’ approved May 5, 1931, as amended, or to any corporation incorporated in the manner prescribed in and operating under that certain act entitled ‘An act defining industrial loan companies, providing for their incorporation, powers and supervision,’ approved May 18, 1917, as amended, or any corporation incorporated in the manner prescribed in and operating under that certain act entitled ‘An act defining industrial loan companies, providing for their incorporation, powers and supervision,’ approved May 18, 1917, as amended, or any corporation incorporated in the manner prescribed in and operating under that certain act entitled ‘An act defining credit unions, providing for their incorporation, powers, management and supervision,’ approved March 31, 1927, as amended or any duly licensed pawnbroker or personal property broker, or any bank as defined in and operating under that certain act known as the ‘Bank Act,’ approved March 1, 1909, as amended, or any bank created and operating under and pursuant to any laws of this State or of the United States of America or any nonprofit cooperative association organized under Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code in loaning or advancing money in connection with any activity mentioned in said title or any corporation, association, syndicate, joint stock money, or partnership engaged exclusively in the business of marketing agricultural, horticultural, viticultural, dairy, live stock, poultry and bee products on a cooperative nonprofit basis in loaning or advancing money to the members thereof or in connection with any such business or any corporation securing money or credit from any Federal intermediate credit bank, organized and existing pursuant to the provisions of an act of Congress entitled ‘Agricultural Credits Act of 1923,’ as amended in loaning or advancing credit so secured, nor shall any such charge of any said exempted classes of persons be considered in any action or for any purpose as increasing or affecting or as connected with the rate of interest hereinbefore fixed. The Legislature may from time to time prescribe the maximum rate per annum of, or provide for the supervision, or the filing of a schedule of, or in any manner fix, regulate or limit, the fees, bonus, commissions, discounts or other compensation which all or any of the said exempted classes of persons may charge or receive from a borrower in connection with any loan or forbearance of any money, goods or things in action.“The provisions of this section shall supersede all provisions of this Constitution and laws enacted thereunder in conflict therewith.”

2.  The term “consumer loans” is defined in the judgment as follows: “. . . the term ‘consumer loans' means loans made to natural persons, the proceeds of which are intended to be used primarily for personal, family or household purposes.”The term “non-consumer loans” is defined in the judgment as follows: “. . . the term ‘non-consumer loans' means all loans other than consumer loans and includes, but is not limited to, loans made to natural persons, partnerships, corporations, trusts or other entities for business purposes, agricultural purposes, and/or for the purpose of acquiring, constructing or refinancing real property, and all loans made for the purpose of acquiring, constructing or refinancing single family residences and multi-family residences, including owner-occupied residences.”

3.  The Commerce Clause is set forth in article I, section 8, of the United States Constitution as follows:“1. The Congress shall have Power . . .“. . .“3. To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;”

4.  The Equal Protection Clause is set forth in article XIV, section 1, of the United States Constitution. Section 1 reads as follows:“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

5.  In this regard, the judgment states as follows:“8. This Judgment is prospective only in its operation, meaning that it shall have no effect upon any transactions entered into prior to the finality of the judgment herein. As used herein, the term ‘finality of judgment’ means time for appeal from Judgment having expired and no appeal taken, or appeal taken and decided, and remittitur filed in this Court. The Court finds that it would be unfair and contrary to public policy for the Judgment herein to have any application other than prospective.”

6.  All of the parties, that is, plaintiffs, defendants and intervenors, have appealed from various aspects of the judgment of the trial court. For convenience, we will refer to the parties on this appeal as they were designated in the trial court.

7.  Plaintiffs in their brief asked this court “to enjoin the Attorney General from prosecuting criminal actions under the 1918 Initiative as amended.” However, since this issue was pursued neither at trial nor in plaintiffs' brief, the issue is deemed waived. (See Coronet Credit Corp. v. West Thrift Co. (1966) 244 Cal.App.2d 631, 642, 53 Cal.Rptr. 433; 6 Witkin, Cal.Procedure (2d ed. 1971) Appeals, s 425, p. 4391.

8.  Defendants also appeal from the paragraph of the trial court judgment that states nothing adjudicated by the court affects the repeal by article XV of the 12 percent interest limit of the 1918 Initiative.

9.  Amici curiae are as follows:(1) California Independent Mortgage Brokers Association urges this court to hold the Usury Law unconstitutional in its entirety. As an alternative, Amicus requests this court to make no ruling concerning the constitutionality of the Usury Law as applied to consumer loans if the court concludes that the Usury Law is not unconstitutional in its entirety.(2) Pacific Lighting Corporation seeks affirmance of the trial court judgment declaring the Usury Law unconstitutional as to non-consumer loans.(3) The Guardian Life Insurance Company of America and The Public Employees Retirement System of the State of California seek affirmance of the trial court judgment declaring the Usury Law unconstitutional as to non-consumer loans and seek full retroactive effect to this decision, and(4) The American Council of Life Insurance seeks affirmance of the judgment that the California 10 percent interest limitation is unconstitutional in accord with plaintiffs' position.

10.  The 1918 Initiative reads as follows:“The people of the State of California do enact as follows:“Section 1. The rate of interest upon the loan or forbearance of any money, goods or things in action or on accounts after demand or judgments rendered in any court of this state, shall be seven dollars upon the one hundred dollars for one year and at that rate for a greater or less sum or for a longer or a shorter time; but it shall be competent for parties to contract for the payment and receipt of a rate of interest not exceeding twelve dollars on the one hundred dollars for one year and not exceeding that rate for a greater or less sum or for a longer or shorter time, in which case such rate exceeding seven dollars on one hundred dollars shall be clearly expressed in writing.“Sec. 2. No person, company, association or corporation shall directly or indirectly take or receive in money, goods or things in action, or in any other manner whatsoever, any greater sum or any greater value for the loan or forbearance of money, goods or things in action than at the rate of twelve dollars upon one hundred dollars for one year; and in the computation of interest upon any bond, note, or other instrument or agreement, interest shall not be compounded, nor shall the interest thereon be construed to bear interest unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged therewith. Any agreement or contract of any nature in conflict with the provisions of this section shall be null and void as to any agreement or stipulation therein contained to pay interest and no action at law to recover interest in any sum shall be maintained and the debt can not be declared due until the full period of time it was contracted for has elapsed.“Sec. 3. Every person, company, association or corporation, who for any loan or forbearance of money, goods or things in action shall have paid or delivered any greater sum or value than is allowed to be received under the preceding sections, one and two, may either in person or his or its personal representative, recover in an action at law against the person, company, association or corporation who shall have taken or received the same, or his or its personal representative, treble the amount of the money so paid or value delivered in violation of said sections, providing such action shall be brought within one year after such payment or delivery. And any person, company, association or corporation, who shall ask, demand, receive, take, accept or charge more than twelve per centum per annum upon the sum of money actually loaned for the forbearance, use or loan thereof, when the repayment of the money loaned shall be secured by a mortgage, trust deed, bill of sale, assignment, pledge, receipt or other evidence of debt, except corporation bonds, and municipal and other public bonds, upon property, real or personal or by assignment of wages, or ask, demand, receive, take, accept or charge more than an amount equal to five per cent so actually loaned and secured in all sums of one thousand dollars or less, and three per cent on all sums over one thousand dollars in full for all examinations, views, fees, appraisals, commissions, renewals made within one year from date of loan and charges of any kind or description whatsoever, except abstracts or certificates of title charges made under the Torrens land law or otherwise, in the procuring, making and transacting of the business connected with such loans, or who shall ask, demand, receive, take, accept or charge any fee, bonus or commission whatsoever for the use or loan or the procuring of such loan of any sum of money for a shorter period than six months when said loan is not secured by a mortgage or pledge upon real estate, or shall violate the provisions of sections one and two of this act, shall be guilty of a misdemeanor and upon conviction thereof shall be punished for the first offense by a fine of not less than twenty-five dollars nor more than three hundred dollars, or by imprisonment not more than six months, or by both such fine and imprisonment, and for each subsequent offense and conviction shall be punished by a fine not less than one hundred dollars nor more than five hundred dollars and by imprisonment not less than six months nor more than one year. The penalties herein provided for the violation of this section and said sections one and two shall apply to and be imposed upon each member of any unincorporated company, association, or of any co-partnership and upon each officer and director of a corporation who shall violate either of said sections.“Sec. 4. Sections one thousand nine hundred seventeen, one thousand nine hundred eighteen, one thousand nine hundred nineteen and one thousand nine hundred twenty of the Civil Code and all acts and parts of acts in conflict with this act are hereby repealed.“Sec. 5. This act whenever cited, referred to, or amended may be designated simply as the ‘usury law.’“(Amendment 1970)“The people of the State of California do enact as follows:“Section 1. Section 3 of the act cited in the title is amended to read:“Sec. 3. (a) Every person, company, association or corporation, who for any loan or forbearance of money, goods or things in action shall have paid or delivered any greater sum or value than is allowed to be received under the preceding sections, one and two, may either in person or his or its personal representative, recover in an action at law against the person, company, association or corporation who shall have taken or received the same, or his or its personal representative, treble the amount of the money so paid or value delivered in violation of said sections, providing such action shall be brought within one year after such payment or delivery.“(b) Any person who willfully makes or negotiates, for himself or another, a loan of money, credit, goods, or things in action, and who directly or indirectly charges, contracts for, or receives with respect to any such loan any interest or charge of any nature, the value of which is in excess of that allowed by law, is guilty of loan-sharking, a felony, and is punishable by imprisonment in the state prison for not more than five years or in the county jail for not more than one year. This subdivision shall not apply to any person licensed to make or negotiate, for himself or another, loans of money, credit, goods, or things in action, or expressly exempted from compliance by the laws of this state with respect to such licensure or interest or other charge, or to any agent or employee of such person when acting within the scope of his agency or employment.”

HINZ, Associate Justice.* FN* Assigned by the Chairperson of the Judicial Council.

LILLIE, Acting P. J., and HANSON, J., concur.

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