![]() ![]() ![]() Issues regarding the CFLL have become a hot bed of discussion throughout the California lending and legal industry because of recent CFLL amendments made with respect to unlicensed brokers. Attorney’s fees will be awarded in connection with any litigation arising from the usurious transaction if the borrower is the prevailing party. Such payments will apply toward the principal, and these damages may also be trebled. If a loan is usurious, damages to the lender will include recovery of all interest paid. For many years, the usury rate has been 10% since the federal discount rate has been below 5%. Under the California Constitution Code, 6 the general usury rate is the greater of 10% per annum or 5% over the federal discount rate established by the Federal Reserve Bank of San Francisco. Obtaining a license is not only important for a lender to avoid running afoul of restrictions and penalties under the CFLL but also to exempt the lender from usury. ![]() This transaction is not a true lease but a loan subject to the CFLL. An example would be a lease with a $1.00 purchase option. 5 The issue is that leases may not be “true leases” but instead disguised as loans or “leases intended as security.” If the lease is not a true lease, it is a loan subject to the CFLL. The CFLL applies to lenders, not companies that enter into true leases or conditional sale contracts. Legislative history also specifically identified bridge loans as lending activity that, when performed by a business that is not typically engaged in lending, would fall within this exemption. An example is a seller of goods that makes a loan to finance the goods - its main business is selling the goods, not financing. Legislative history indicates that the exemption’s intention was to eliminate an unnecessary burden on a business that may not be engaged in the lending business but that may make a few loans in a context unrelated to the lending business. 3Īnother important exemption is available for a lender making fewer than five California loans in a 12-month period, provided that these are commercial loans “incidental to the business of the person relying on the exemption.” 4 The drafters provided little guidance regarding the “incidental to the business of the person relying on the exemption” language. banks, savings and loan associations, industrial banks and credit unions doing business under applicable state or federal banking law, franchisors making loans to franchisees, California licensed real estate brokers making or arranging a loan secured by a lien on real property and venture capital companies under limited circumstances. 2īesides obtaining a license, other notable exemptions from the CFLL are for U.S. ![]() 1 There are various exemptions to the CFLL, such as obtaining a California Finance Lender’s License. The CFLL is located in California Financial Code §22000 and also under the California Code of Regulations. Under California law, “finance lenders” making loans in California must obtain a license from the California Department of Business Oversight (formerly the California Department of Corporations) and comply with the licensing and regulatory requirements of the California Finance Lender’s License law (CFLL).Ī “finance lender” is broadly defined in California Financial Code §22009 as “any person who is engaged in the business of making consumer loans or making commercial loans.” “Person” is generally defined as any individual or entity. Lenders who make loans to California residents must be keenly aware of California laws, especially when loans are referred or brokered by unlicensed persons. ![]()
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