This Time It’s Forever: California Poised to Reinstate One-Loan Exemption

The California State Legislature provided commercial lenders with welcome news this week when the California Senate passed Senate Bill 577 (“SB 577”).  If it is signed by the governor, SB 577 will reinstate the de minimis exemption from the California Financing Law (“CFL”) for lenders making a single commercial loan of $5,000 or more in a 12-month period.

The CFL requires a license to make commercial loans of any dollar amount, including unsecured or real estate-secured loans.  Despite its broad scope, the CFL contains a number of exemptions.  Prior to January 1, 2022, the CFL contained a de minimis exemption, which provided that the CFL did not apply to any person who made no more than one commercial loan of $5,000 or more in a 12-month period.  However, the legislation that originally enacted the de minimis exemption contained a “sunset” provision, under which the exemption would be automatically repealed on January 1, 2022 without any further action from the legislature.  Although legislation was introduced in the California legislature’s 2021 session that, if enacted, would have extended the de minimis exemption indefinitely, the legislation ultimately was not enacted in the 2021 legislative session.  As a result, the de minimis exemption was automatically repealed as of January 1, 2022, and lenders making a single commercial loan became subject to the CFL (unless another basis for an exemption existed).  This caused a scramble by some commercial lenders that previously relied on the exemption to make loans in California to apply for a CFL license, which can be an arduous and time-intensive process.

SB 577 contains an urgency provision so, if enacted, it will take effect and restore the de minimis exemption immediately.  Perhaps most importantly, SB 577 does not contain a “sunset” provision, so the de minimis exemption will be indefinitely adopted as part of the CFL, and can only be repealed by a subsequent legislative action.  SB 577 is now with Governor Gavin Newsom for his signature, and we expect that the Governor will ultimately sign the bill into law.