February 6, 2023

Volume XIII, Number 37

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February 03, 2023

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California Bill Would Ban This Unusual "Purpose Credit"

Regulation U, 12 CFR § 221.1 – 221.125, imposes certain requirements for lenders, other than securities brokers and dealers, who extend credit secured by margin stock.  Regulation U defines "purpose credit" as "any credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock".  12 CFR § 221.2.  

California Assembly Member Brian Maienschein recently introduced a bill that takes aim at another type of "purpose credit".  His bill, AB 2380, would prohibit a licensee under the California Financing Law from making "a consumer loan to a borrower if that loan is to purchase a dog or cat".  The Assembly Member's press release describes the bill as barring "predatory consumer loans from being offered for the purchase of a dog or cat".  As introduced, however, the bill would ban all consumer loans for this purpose, not simply "predatory consumer loans", a term not defined or otherwise used in the California Financing Law. ("Consumer loan" is defined in Financial Code Section 22203).

"Every dog has like me the impulse to question, and I have like every dog the impulse not to answer."1

For me, the Assembly Member's bill does raise a few questions.  Why, for example, will commercial loans for the purchase of canines and felines be permissible, but not consumer loans?  Why will it be okay to borrow money from a CFL licensee to acquire a parakeet or horse for your family but not a Jellicle cat?  Why will consumers be allowed to purchase a dog or cat with a credit card but not on credit from a CFL licensee?  Why will sellers be permitted to enter into conditional sales contracts for the purchase of dogs and cats while forbidding borrowing from CFL licensees? 

FOOTNOTE

1Franz Kafka, Investigations of a Dog.

© 2010-2023 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 62
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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