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California Interest Rate Laws

Laws relating to interest rates in the State of California are dealt under various Statutes.  According to Article XV (Usury) of the Constitution of the State of California, Section 1, the maximum rate of interest upon the loan or forbearance of any money, goods or things shall be seven percent per annum.  At the same time, if parties agree upon in writing then the interest rate shall not exceed 10 percent per annum.  As described in California Code, Uncodified Initiative Measures and Statutes 1919-1 Section 3, any person, company, association or corporation, who had paid any greater sum or value for any loan or forbearance than allowed under the law can recover  treble the amount of the money so paid from any person, company, association or corporation who received such interest illegally.  Under the same Section, any person who willfully makes or negotiates for a loan of money, whereby s/he directly or indirectly charges interest for such loans in excess of that allowed by law, shall be punishable by imprisonment in the state prison for not more than five years or in the county jail for not more than one year.

Under Article XV Section 1, of the Constitution of the State of California, the rate of interest upon a judgment rendered in any court of this state shall be set by the Legislature at not more than 10 percent per annum.  Such rate may be variable and based upon interest rates charged by federal agencies or economic indicators, or both.

In the absence of the setting of such rate by the Legislature, the rate of interest on any judgment rendered in any court of the state shall be 7 percent per annum.

Certain types of transactions and entities are exempt from the state law on usury and interest rates.  The exceptions are:   

1. Section 1100.1 of California Insurance Code: This Section creates and authorizes incorporated admitted insurers as an exempt class of persons pursuant to Section 1 of Article XV of the Constitution (Maximum allowed interest rates).

2. Section 25211.5 of California Corporations Code: A broker dealer acting pursuant to a certificate is exempted from the usury provisions of the State Constitution.

3. Section 25116 of California Corporations Code: An evidence of indebtedness issued pursuant to a qualification under Chapter two (Issuer Transactions), and the purchasers or holders shall be exempt from the usury provisions of the State Constitution.

4. Section 31410 of California Financial Code: Licensed business and industrial development corporations are exempted class of persons from the usury provisions of the State Constitution.

5. Section 1504 of California Financial Code: State and National Banks acting as trustees are exempted from the usury provisions of the State Constitution.

6. Section 1716 of California Financial Code: A foreign Bank is exempted from the usury provisions of the State Constitution.

7. Section 3707 of California Financial Code: Restrictions upon rates of interest shall not apply to loans or forbearances arranged by a bank holding company or a subsidiary of a bank holding company which is not a bank.

8. Section 7675 of California Financial Code: Restrictions upon rates of interest shall not apply to loans or forbearances arranged or made by a federal association, a qualified foreign savings association, an entity that is a savings and loan holding company, a subsidiary of a savings and loan holding company that is not an association, or a service corporation which is a subsidiary of an association, a federal association, or a qualified foreign savings association.

Cal Const, Art. XV § 1

Interest rates
The rate of interest upon the loan or forbearance of any money, goods, or things in action, or on accounts after demand, shall be 7 percent per annum but it shall be competent for the parties to any loan or forbearance of any money, goods or things in action to contract in writing for a rate of interest:
(1) For any loan or forbearance of any money, goods, or things in action, if the money, goods, or things in action are for use primarily for personal, family, or household purposes, at a rate not exceeding 10 percent per annum; provided, however, that any loan or forbearance of any money, goods or things in action the proceeds of which are used primarily for the purchase, construction or improvement of real property shall not be deemed to be a use primarily for personal, family or household purposes; or
(2) For any loan or forbearance of any money, goods, or things in action for any use other than specified in paragraph (1), at a rate not exceeding the higher of (a) 10 percent per annum or (b) 5 percent per annum plus the rate prevailing on the 25th day of the month preceding the earlier of (i) the date of execution of the contract to make the loan or forbearance, or (ii) the date of making the loan or forbearance established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13a of the Federal Reserve Act as now in effect or hereafter from time to time amended (or if there is no such single determinable rate of advances, the closest counterpart of such rate as shall be designated by the Superintendent of Banks of the State of California unless some other person or agency is delegated such authority by the Legislature).
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Cal Uncod Init Measures & Stats Deer 1919-1 § 3

Rights of person paying illegal interest; Penalty for violations
(a) Every person, company, association or corporation, who for any loan or forbearance of money, goods or things in action shall have paid or delivered any greater sum or value than is allowed to be received under the preceding sections, one and two, may either in person or his or its personal representative, recover in an action at law against the person, company, association or corporation who shall have taken or received the same, or his or its personal representative, treble the amount of the money so paid or value delivered in violation of said sections, providing such action shall be brought within one year after such payment or delivery.
(b) Any person who willfully makes or negotiates, for himself or another, a loan of money, credit, goods, or things in action, and who directly or indirectly charges, contracts for, or receives with respect to any such loan any interest or charge of any nature, the value of which is in excess of that allowed by law, is guilty of loan-sharking, a felony, and is punishable by imprisonment in the state prison for not more than five years or in the county jail for not more than one year. This subdivision shall not apply to any person licensed to make or negotiate, for himself or another, loans of money, credit, goods, or things in action, or expressly exempted from compliance by the laws of this state with respect to such licensure or interest or other charge, or to any agent or employee of such person when acting within the scope of his agency or employment.

Cal Ins Code § 1100.1

Admitted incorporated insurers
Every admitted incorporated insurer may under a certificate of authority issued pursuant to the provisions of Article 3 (commencing with Section 699), engage in this state in the type of loan transactions otherwise permitted by law without obtaining any other license or certificate.
Pursuant to the authority contained in Section 1 of Article XV of the State Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligation of, loans made by, or forbearances of, any incorporated admitted insurer.
This section creates and authorizes incorporated admitted insurers as an exempt class of persons pursuant to Section 1 of Article XV of the Constitution.

Cal Corp Code § 25211.5

Exemption of broker-dealer from usury provisions
A broker-dealer acting pursuant to a certificate which is then in effect and which is issued pursuant to Section 25211, shall be exempt from the usury provisions of the State Constitution. This section creates and authorizes a class of persons pursuant to Section 1 of Article XV of the Constitution.

Cal Corp Code § 25116

Exemption of qualification from usury provisions
(a) An evidence of indebtedness issued pursuant to a qualification under this chapter or Chapter 3 (commencing with Section 25120), and the purchasers or holders thereof, shall be exempt from the usury provisions of the Constitution, subject to compliance by the issuer and purchaser with the terms and requirements that may be imposed by the commissioner as a condition of the qualification. This section creates and authorizes a class of transactions and persons pursuant to Section 1 of Article XV of the Constitution.
(b) Any evidence of indebtedness issued in compliance with this section shall be entitled to the benefits of the usury exemption contained in this section regardless of whether subsequent to its issuance the evidence of indebtedness is determined by a court of competent jurisdiction to be a “security.”

Cal Fin Code § 1504

Exemption from interest rate restrictions
Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made or arranged by, or forbearances of, any of the following that is authorized to engage in the trust business, when acting in its fiduciary capacity:
(a) Any California state bank.
(b) Any national bank that maintains its main office or a branch office in this state.
(c) Any foreign (other state) state bank that maintains a branch office in this state.
This section creates and authorizes an exempt class of persons pursuant to Section 1 of Article XV of the Constitution.
This section does not exempt a bank authorized to transact a trust business or a subsidiary thereof from complying with all other laws and regulations governing the business in which the bank or subsidiary is engaged.

Cal Fin Code § 1716

Exemption from interest rate restrictions
Any foreign (other nation) bank that, at the time it makes a loan or forbearance or executes a contract therefor, has assets equal to at least one hundred million dollars ($100,000,000), is licensed to maintain an office in California, is licensed or otherwise authorized by another state of the United States to maintain an agency or branch office in that state, or maintains a federal agency or federal branch in any state of the United States is exempted from the restrictions of Section 1 of Article XV of the Constitution relating to rates of interest upon the loan or forbearance of any money, goods, or things in action or on accounts after demand.
This section does not exempt a foreign (other nation) bank or a subsidiary thereof from complying with all other laws and regulations governing the business in which such a bank or subsidiary is engaged.
This section creates and authorizes an exempt class of persons pursuant to Section 1 of Article XV of the Constitution.

Cal Fin Code § 3707

Exemption from interest rate restrictions
Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made or arranged by, or forbearances of or arranged by, a bank holding company or a subsidiary of a bank holding company which is not a bank. As used in this section, the terms “bank holding company” and “subsidiary” mean a bank holding company or subsidiary as defined in Chapter 17 (commencing with Section 1841) of Title 12 of the United States Code.

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Cal Fin Code § 7675

Applicability; “Savings and loan holding company”; “Subsidiary”; “Foreign savings association”
(a) Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made or arranged by, or forbearances of, an association; a federal association; a qualified foreign savings association; an entity that is a savings and loan holding company; a subsidiary of a savings and loan holding company that is not an association; or a service corporation which is a subsidiary of an association, a federal association, or a qualified foreign savings association. As used in this section, the terms “savings and loan holding company” and “subsidiary” mean a savings and loan holding company or a subsidiary, as defined in Section 10 of the Home Owners Loan Act, as amended (12 U.S.C. Sec. 1467a), and the term “service corporation” means a service corporation described in Section 5(c) (4) (B) of the Home Owners Loan Act of 1933 (12 U.S.C. Sec. 1464), as amended, or Section 7252, or a wholly owned subsidiary referred to in Section 7300.


Inside California Interest Rate Laws