A CFL licensee writes a $6,400 consumer loan when the federal funds rate is 4.75% and wants to charge 43% simple interest. Assuming 4.75% is the applicable reference federal funds rate under section 22304.5, does the proposed 43% rate exceed the cap?
Correct Answer
C) Over the cap: 36% plus the federal funds rate is 40.75% on this loan
For a bona fide principal of at least $2,500 but under $10,000 the maximum annual simple interest is 36 percent plus the federal funds rate, which is 40.75 percent here. Other choices: the Financing Law does cap rates on these loans; 10 percent is the constitutional usury ceiling, which a CFL licensee is exempt from; and there is no 45 percent ceiling. Source: Cal. Fin. Code § 22304.5
Why This Is the Correct Answer
For a bona fide principal of at least $2,500 but under $10,000 the maximum annual simple interest is 36 percent plus the federal funds rate, which is 40.75 percent here. Other choices: the Financing Law does cap rates on these loans; 10 percent is the constitutional usury ceiling, which a CFL licensee is exempt from; and there is no 45 percent ceiling. Source: Cal. Fin. Code § 22304.5
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