Prompted by rising interest rates, a group of California mortgage lenders is accelerating its efforts to get a final judicial determination that a section of the California constitution violates the United States Constitution.
The section in question fixes 10 per cent as a maximum rate of interest on loans but provides that some lenders are exempt from the 10 per cent ceiling. Some savings and loan associations and banks are exempt, but others may not be.
Mortgage banking companies are not exempt and it is they who have been the prime movers in the court test. They have been joined by some of the major life insurance companies.
A "Committee Against Unfair Interest Limitation" was formed to test the exemption. The committee filed suit to require the state attorney general to declare the entire section of the state constitution void. California bankers and consumer loan companies joined the suit on the side of the state attorney general.
Last fall, a Los Angeles County superior court ruled in favor of the Committee Against Unfair Interest Limitation on the ground that the California constitution violated both the equal protection clause and the interstate commerce clause of the U.S. Constitution.
The decision was appealed last month.
Alvin S. Kaufer of Los Angeles, attorney for the committee, said a motion was to be filed to get the case directly before the California Supreme Court without waiting for an appelate court decision.
He said the action will be taken because interest rates on home loans in California are approaching 10 per cent - the constitutional maximum for non-exempt mortgage lenders - and an early decision is necessary.
During a severe credit crunch in 1973-74, when home mortgage interest rates exceeded 10 per cent in many parts of the country, California mortgage bankers were at a competitive disadvantage as compared to exempt institutions.
Kaufer said the savings and loan industry in California has largely remained on the sidelines in the controversy in the belief that S&Ls are exempt from the limitation, that federally chartered S&Ls are not covered by the exemption.
Kaufer said he believes California banks joined the case not so much to protect their competitive position in the home loan business as to see that the case did not result simply in the elimination of the exemption. This would have left a 10 per cent interest ceiling in effect for consumer loans for household appliances, automobiles and other goods.