California generally requires that persons engaged in the business of making loans be licensed. If not licensed under some other statute (such as the banking, credit union or residential mortgage lending laws), a lender will generally be subject to licensing under the California Financing Law (fka California Finance Lenders Law). Anyone who has applied for a CFL license from the Department of Financial Protection & Innovation can tell you that the process is a confusing, time consuming and frustrating experience.

The CFL currently includes two de minimis exemptions. The first exempts any person who makes no more than one loan in a 12-month period if that loan is commercial loan as defined in Section 22502 of the California Financial Code. Cal. Fin. Code § 22050.5 The second exempts any person who makes five or fewer loans in a 12-month period, provided these loans are commercial loans as defined Section 22502 and the loans are "incidental" to the business of the person relying upon the exemption. 

This latter exemption does not work for special purpose lending entities that are formed to make more than one, but fewer than six , commercial loans in a 12-month period because their loans are not "incidental" to their business. Consequently, these lenders must complete the arduous licensing process, which typically takes months to complete. The California legislature is now considering a novel solution. Rather than exempt these lenders, the legislature is proposing to deem them to be licensed under the CFL. If enacted, AB 2981 would add a new subdivision (h) to Section 22100 to provide as follows:

A lender that does not make or broker residential mortgage loans or consumer loans shall be deemed a licensee under this article when the lender makes five or fewer commercial loans annually and the principal amount of all loans made by the lender in the preceding and current calendar year have each exceeded three hundred fifty thousand dollars ($350,000).

While interesting, this approach raises, but fails to answer, a number of important questions. For example, can a person simply be deemed "licensed" even without that person's knowledge or consent? How will the DFPI determine who is and who isn't licensed under the CFL?