October 16, 2021

Volume XI, Number 289

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October 15, 2021

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October 14, 2021

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California Statute Permits Unlicensed "Small Dollar" Lending By Some Nonprofits

On the eve of the Great Depression, the United States Bureau of Printing and Engraving made a big change by introducing small bills.  The Bureau reduced the size of bills by about 30% to save money on ink and paper - the downsizing allowed 12 bills instead of 8 to be printed per sheet.

In 2014, the California legislature added Section 22066 to the Financial Code to encourage "small dollar" loans.   Cal. Stats.  2014, Ch. 190 (SB 896).  The statute's reference to small dollars, however, has nothing to do with the size of the currency being lent.   Rather, the statute exempts certain nonprofit organizations from the licensing requirement of the California Financing Law if they make small loans and meet numerous other conditions.  Under the statute, the principal loan amount at origination may not be less than $250 and not more than $2,500.  Only nonprofit organizations that qualify under Section 501(c)(3) of the Internal Revenue Code are eligible for the exemption.   Among other conditions to the exemption, loans must be interest-free and unsecured.

In July, the Department of Financial Protection & Innovation published its annual report on the program, which enjoyed only small states.  In a state with 40 million people, only 815 loans were approved in 2020, with an aggregate principal amount of $687,600.  The number of loan applicants, moreover, declined by 14% from the previous year.  The DFPI, however, received no complaints about the program.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 250
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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...

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