If you are in the business of making loans in California, there’s a good chance that you need a license. Some lenders are licensed under the Real Estate Law while others are licensed under laws governing banks, credit unions or residential mortgage lending. If a lender doesn’t fall within any of these categories, that lender may be subject to the California Finance Lenders Law, Cal. Fin. Code § 22000 et seq. That law defines a “finance lender” as including: “Any person who is engaged in the business of making consumer loans or making commercial loans.” Cal. Fin. Code § 22009. Under the statute, the business of making consumer loans or commercial loans “may include lending money and taking, in the name of the lender, or in any other name, in whole or in part, as security for a loan, any contract or obligation involving the forfeiture of rights in or to personal property, the use and possession of which property is retained by other than the mortgagee or lender, or any lien on, assignment of, or power of attorney relative to wages, salary, earnings, income, or commission”.

I’m often asked about persons who occasionally make loans, but don’t fall under any statutory exception. Current law provides a safe harbor about as copious as that at Naupactus (Ναύπακτος). The Finance Lenders Law does not apply to any person who makes no more than one loan in a 12-month period provided that the loan is a commercial loan, as defined. Cal. Fin. Code § 22050(e).v

Recently Assembly Member Skinner amended AB 1091 to increase the number of loans from one to five with the added proviso that the loans be incidental to the business of the lender. Before uncorking the champagne, it should be noted that the bill would also make it unlawful for any licensee to do the following:

  • Commit an act in violation of Section 1695.13 of the Civil Code.
  • Engage in any acts in violation of Section 17200 or 17500 of the Business and Professions Code.
  • Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the licensee is a party.
  • Commit an act that constitutes fraud or dishonest dealings.