California Revives De Minimis Lender License Exemption

In California, any person engaging in the business of a finance lender or broker must obtain a license from the commissioner of the Department of Financial Protection & Innovation. The California Finance Code defines "finance lender" as a person (which includes corporations and other entities) who lends money and takes, as security, "any contract or obligation involving the forfeiture of rights in or to personal property, the use or possession of which 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." Cal. Fin. Code §§ 22008, 22009.

California law provides a number of exemptions to this general licensure requirement. Historically, these exemptions included a "de minimis" provision that exempted from licensure any person who makes not more than one commercial loan in a 12-month period. Cal. Fin. Code § 22050.5. This exemption was first added in 1997, then reenacted in 2016 to include a "sunset" provision, which provided that the statute would automatically expire after five years. Senate Bill (SB)-777. Although a bill was introduced in February 2021 to remove the sunset provision, the legislature did not enact it, and the exemption expired by its terms on Jan. 1, 2022.

In early 2022, legislation was introduced to revive the de minimis exemption. According to supporters of the bill, the exemption's expiration delayed millions of dollars of potential investment in underserved communities, impacting low-income Californians. Office of Senate Floor Analyses, SB-577 (April 8, 2022). An urgency provision was added, permitting the bill to go into immediate effect if enacted. After unanimous approval by the Senate and Assembly, SB-577 was signed into law by Gov. Gavin Newsom and became effective on April 28, 2022.

Importantly, the new legislation contains no sunset provision, meaning the de minimis exemption is here to stay.

The de minimis exemption, as revived by SB-577, can be found in Cal. Fin. Code § 22050.5.