Le v. Elevate Credit, Inc.

• Docket Number: B319914
• Decision Date: 01 August 2023
• Parties: DANH LE, Plaintiff and Appellant, v. ELEVATE CREDIT, INC. et al., Defendants and Respondents
• Court: California Court of Appeals Court of Appeals

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DANH LE, Plaintiff and Appellant, v. ELEVATE CREDIT, INC. et al., Defendants and Respondents

B319914

California Court of Appeals, Second District, Second Division

August 1, 2023

NOT TO BE PUBLISHED

APPEAL from an order of the Superior Court of Los Angeles County. No. 21STCP03900 Kristin S. Escalante, Judge. Affirmed.

Zimmerman Reed, Caleb Lucas-Hansen Marker and Flinn T Milligan for Plaintiff and Appellant.

Morrison &Foerster, Nancy R. Thomas, Matthew E. Ladew and James R. Sigel for Defendants and Respondents.

ASHMANN-GERST, Acting P. J.

Plaintiff and appellant Danh Le (Le) took out 17 separate loans from defendant and respondent Rise Credit of California, LLC (Rise Credit).^[1] After either cancelling these loans or paying them back in full, Le initiated an arbitration proceeding, alleging that the interest rates to which he had agreed were unconscionable. The arbitrator denied Le's claims, and Le petitioned the trial court to vacate the arbitration award. The trial court denied Le's petition, and Le appeals.

We affirm.

FACTUAL BACKGROUND

I. The parties A. Le

Le is a highly educated software engineer. After immigrating to the United States in 1975, he earned a B.S. and an M.S. from the Georgia Institute of Technology. He then began to work for well-known companies, including Boeing, Raytheon, Hughes, and General Research Corporation, and he continued to do so during the time when he obtained the loans at issue and through the date of the arbitration hearing. Le took all his coursework in English; he does his engineering work, for which he obtained a classified clearance, in English; and he testified in English with "no difficulty" at the arbitration hearing.

B. Rise Credit

Rise Credit's "business practice is to provide access to credit to non-prime borrowers." It offers unsecured consumer loans at interest rates commensurate with the level of risk it incurs when it offers those loans. Rise Credit does not sue borrowers who default, which increases costs. Its interest rates also reflect its other costs, including: (1) origination costs (including advertising, underwriting, and payments to third-party vendors for applicant credit data); (2) servicing costs; (3) costs of funds; and (4) costs of consumer-facing contractual provisions, including a five-day rescission window and no prepayment penalties.

The lender uses an underwriting model that "pull[s] from several credit bureaus [and] data sources up to 10,000 different variables to . . . assess the capacity and the ability to repay." It employs "35 to 40 data scientists on staff that are focused on . . . making the right decision and considering the capacity and the ability for a consumer to repay."

II. Rise Credit's loan agreements

When Rise Credit offers borrowers loans at the challenged interest rates, it provides them both time to decide and notice about the rates. Applicants have 10 days to decide whether to accept, and roughly 20 percent of borrowers opt not to take the loan. Even after a borrower accepts a loan, he or she has at least five days to change his mind and cancel it with no penalty.

In each loan agreement, just below the table with the payment summary, Rise Credit includes a bold, all-caps "WARNING" advising borrowers to consider other financing options: "This Loan is not meant to help with your long-term credit needs. Repeated or frequent use can create serious financial problems for you. We encourage you to think about the costs and benefits of all alternatives before borrowing." (Bolding omitted.)

Le's loan agreements also contained an arbitration provision. Le's arbitration agreement with Rise Credit provides that, in addition to the grounds enumerated in the Federal Arbitration Act, the parties have "the right to judicial review of (a) whether the findings of fact rendered by the arbitrator are supported by substantial evidence and (b) whether the conclusions of law are erroneous under the substantive law of California and applicable federal law." III. Le's loans

From 2017 to 2019, Le executed 17 agreements with Rise Credit, each for $3,500 loans, quickly rescinding or repaying them each time. Although Le initially responded to a mailer from Rise Credit, he testified that he did not need a mailer to find or apply for a loan, and he could not even remember details about which lenders had sent him mailers.

Of his 17 loans, Le canceled six of them free of charge. As for the other 11 loans, Le repaid them all in "about 25 days"- taking advantage of provisions allowing borrowers to pay off their loans early with no prepayment penalty. At the time, Rise Credit's applicable interest rate for first-time borrowers was 135 percent to 235 percent (though the rates on Le's loans were all slightly under 200 percent). In total, Le "paid just a little over $7,500 in interest for all of his Rise [Credit] loans over just under three years, a small portion of the overall debt" of $59,500.

These 17 Rise Credit loans were not the only ones Le secured. During this same period, Le also availed himself of many other options, including friends and family, credit cards, credit union loans, 401(k) loans, and unsecured loans from at least six of Rise Credit's competitors. The loans that Le took out from Rise Credit's competitors similarly bore interest rates of 130 percent to 230 percent. Although Le suggested that "he had some personal need for funds mostly to help family members," he has never identified "any medical urgency or other necessities of life for which he needed money."

IV. Legislature adopts a rate cap after Le originated his loans

In 2020, the California Legislature amended the Finance Code to prelude lenders from charging more than 36 percent interest on loans between $2,500 and $10,000. (Fin. Code, § 22304.5.) Because loans to nonprime borrowers would no longer be profitable at this interest rate given their credit profiles and related credit risks, Rise Credit stopped offering its product in California.

Le originated all of his loans before this change to the Finance Code, and he acknowledges that the recently amended statute does not apply to any of his loans.

PROCEDURAL BACKGROUND

I. The arbitration proceeding and award

In or around June 2020, Le initiated the underlying arbitration proceeding against Rise Credit and Elevate, alleging claims stemming from his loans. By the time of the hearing, the "material issues of fact" were limited to "whether the interest rates at issue were unconscionable and unlawful" and whether Rise Credit's "conduct in entering into the loans was 'willful' such that it could affect the unconscionability analysis[.]"

During the hearing, among other things, Rise Credit presented a demonstrative exhibit (a "slider") showing the various ways Le could customize his loan terms when he borrowed from the lender. Le testified when he first applied for the loan with Rise Credit, or at any time during his loans with Rise Credit, he never saw the "slider" regarding his loans.

After a multiday hearing, the arbitrator issued a detailed 26-page award, finding the interest rate in this case "shockingly high," but rejecting Le's claim that the rate was unconscionable.

As relevant here, the arbitrator found that Rise Credit's "business practice is to provide access to credit to non-prime borrowers, who were not overly pressured into entering into, and had a meaningful choice regarding the loans at issue." In fact, Rise Credit warns borrowers and discloses, not hides, the high costs of its loans.

As for Le, the arbitrator found that he was "a serial borrower, knowledgeable and somewhat sophisticated in his endeavor to obtain funds for his needs," and that he "would go looking" for loans. The arbitrator determined that Le's sophisticated borrowing practices, including his prompt payments and cancellations, sometimes "depriv[ed] the lend[er] of the full fruits (interest) of their bargain." Le "understood that these were expensive loans, and he understood the interest rates and attendant consequences. He knew how to rescind and have use of the funds for the longest time possible without cost, before returning them."

"[S]ignificantly," the arbitrator found, Le "has no debt now," and there was "no showing he used one loan to pay off another nor did he stack them." Rather, "[t]hroughout his relationship with [Rise Credit], he controlled his borrowing."

Regarding Le's claim that he had not seen the "slider" showing the ways he could customize the terms of his loans, the arbitrator expressly found him not credible.

The arbitrator then found that the interest rates in Rise Credit's loans to Le were not unconscionable by applying the factors set out in De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966 (De La Torre), "the leading case on the issue," to the particular facts here.

First, the arbitrator found that the circumstances of Le's transactions evinced no significant degree of procedural unconscionability. There was "no oppression," as Le "is a well-educated person who speaks, understands, works in and [was] educated in English," and he testified that "based on his math training, he understands interest rates and understood those on his loans." There also was "no duress" or "sharp practices," emphasizing that Le "was never pressured by Rise [Credit] and could take [his] time to decide if the first or any of the 17 loans were right for him." And, "there was no surprise as to any term," all of which were "prominently displayed." Thus, Le "was well aware of the loan terms, and he kept coming back knowing them as well."

Second the arbitrator found that Le failed to meet his burden of demonstrating that the interest rates for his 17 loans were substantively unconscionable. Le's...