California Creates Exemption from Finance Lenders Law for Certain Nonprofits

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The state of California amended its Finance Lenders Law in an effort to help individuals obtain access to affordable, credit-building small dollar loans. The new law makes exempt from Finance Lenders Law a nonprofit organization that facilitates one or more zero-interest, low-cost loans with a minimum principal amount upon origination of $250 and a maximum principal amount upon origination of $2,500 if certain requirements are met. These requirements include, among other things, that the organization is exempt from federal income taxes, that no part of the net earnings of the organization inures to the benefit of a private person, and that the loan terms meet certain standards.

In addition, the law requires organizations exempt under the provision to:

  • Offer a borrower a credit education program or seminar at no cost to the borrower
  • Report each borrower's payment performance to at least one consumer reporting agency
  • Underwrite each loan and ensure that a loan is not made if the organization determines that the borrower's total monthly debt service payments exceed a specified amount

The legislation becomes effective on January 1, 2015.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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