Exemptions - Commercial Loans - Financial - CA

Section § 22550

This law states that certain rules do not apply to commercial loans that are $5,000 or more, or to licensed finance lenders handling these types of loans. However, this exemption is only valid if the section is not being used to avoid other loan regulations.

Sections 22152, 22154, 22155, 22163, and 22164 do not apply to any commercial loan of a bona fide principal amount of five thousand dollars ($5,000) or more, or to a duly licensed finance lender in connection with any such loan or loans, if the provisions of this section are not used for the purpose of evading this division.

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Section § 22551

This section explains how to determine whether a loan is genuinely for $5,000 or more. If a borrower applies for less, but the loan provided is $5,000 or more without a valid reason and then quickly reduced back down, it's not considered a genuine $5,000 loan. For revolving credit or open-end loans, if the line of credit is $5,000 or more, it's considered valid even if the actual amount borrowed drops below $5,000. Additionally, if the loan is disguised as a sale or lease, it doesn't affect the genuine status of the loan amount. The 'bona fide principal amount' should not include fees or charges when determining if the loan exceeds regulatory limits, but these can be considered in refinancing, so long as it's not to bypass limits.

In determining whether a loan is a loan of a bona fide principal amount of the specified amount or more, the following principles shall apply:

(a) If a borrower applies for a loan in a bona fide principal amount of less than the specified amount and a loan to that borrower of a bona fide principal amount of the specified amount or more is made by a licensed finance lender, no adequate economic reason for the increase in the size of the loan exists, and by prearrangement or understanding between the borrower and the licensee a substantial payment is to be made upon the loan with the effect of reducing the bona fide principal amount of the loan to less than the specified amount within a short time after the making of the loan other than by reason of a requirement that the loan be paid in substantially equal periodical installments, then the loan shall not be deemed to be a loan of the bona fide principal amount of the specified amount or more.

(b) A subsequent advance of money of less than a bona fide principal amount of the specified amount pursuant to a revolving or open-end loan agreement or similar agreement between a borrower and a licensed finance lender which gives the borrower the right to draw upon all or any part of the line of credit, or a loan agreement providing for the making of advances to the borrower from time to time up to an aggregate maximum amount which gives the borrower the right to draw all or any part of the total amount, shall be deemed to be a loan of a bona fide principal amount of the specified amount or more if the line of credit or the aggregate maximum amount is a bona fide principal amount of the specified amount or more and the initial advance was a bona fide principal amount of the specified amount or more even though the actual unpaid balance after the advance or at any other time is less than a bona fide principal amount of the specified amount.

(c) If a loan made by a licensed finance lender has a bona fide principal amount of the specified amount or more, the fact that the transaction is in the form of a sale of accounts, chattel paper, goods, or instruments, or a lease of goods, or in the form of an advance on the purchase price of any of the foregoing, shall not be deemed to affect the bona fides of the amount thereof.

(d) For the purposes of this section, “the specified amount” means five thousand dollars ($5,000).

(e) For the purposes of determining whether the loan amount exceeds a regulatory ceiling, the “bona fide principal amount” shall not be comprised of any charges or any other fees or recompense specified in Sections 22500, 22501, and 22601. Nothing in this subdivision shall be construed to prevent those specified charges, fees, and recompense that have been earned and remain unpaid in an existing loan from being considered as part of the bona fide principal amount of a new loan to refinance that existing loan, provided the new loan is not made for the purpose of circumventing a regulatory ceiling provision. This subdivision is intended to define the meaning of “bona fide principal amount” as used in this division solely for the purposes of determining whether the loan amount exceeds a regulatory ceiling, and is not intended to affect the meaning of “principal” for any other purpose.

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