California requires strict compliance with its finance lenders law, and you might be surprised to learn who is subject to the law. Found in Division 9 of the California Financial Code, the California Finance Lenders Law (CFLL) defines a finance lender as “any person who is engaged in the business of making consumer loans and making commercial loans.”
What’s the big deal? For one thing, a lender who complies with CFLL gets a license exempting the lender from California’s restrictive lending law — the usury provisions.
Essentially, California’s usury statute caps the annual interest rate a lender can charge a borrower at the higher of either 10.0 percent or the federal discount rate plus 5.0 percent. (The current federal discount rate is 0.75 percent.)
A careful look at the law and your lending history is necessary to determine applicability of the CFLL. For example, a business may be subject if it made more than one loan during the last 12 months. This is true even if the lender is located outside of California, if the negotiation, credit investigation, or repayment of the loan takes place in California, or the loan was to a California borrower.
Likewise, a business may be subject to the law even if the loans it made were to its own employees, unless the loans were interest-free with no profit or gain by the employer. Incidentally, borrowers cannot legally waive any provision of the CFLL.
Hedge funds that regularly make loans as part of their portfolio are not exempt from the CFLL, nor are venture capital companies that make bridge loans to operating companies, unless the bridge loans qualify for an exemption.
On other hand, certain entities that regularly make loans are not subject to the CFLL, including banks and savings and loan associations, mortgage lenders, credit unions, licensed pawn brokers, licensed check cashers, or those licensed under the deferred deposit transaction law.
If you are a business that may be subject to California’s CFLL, consult with an attorney experienced in commercial and consumer lending, finance, and litigation. The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at firstname.lastname@example.org, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.