A lender agrees to hold off on collection for 6 months and charges the borrower 14% on the deferred balance. Does California’s usury framework reach a forbearance even though no new funds are advanced?
Correct Answer
D) A forbearance is covered: the usury limits reach it as they reach a loan
The constitutional provision reaches any loan or forbearance, and section 1916.1 exempts a broker-arranged forbearance for the same reason, which would be unnecessary if forbearances were outside the rules. Other choices: new money is not the test; the lawfulness of the original rate does not carry forward; and no 12-month threshold applies. Source: Cal. Const. art. XV, § 1; Cal. Civ. Code § 1916.1
Why This Is the Correct Answer
The constitutional provision reaches any loan or forbearance, and section 1916.1 exempts a broker-arranged forbearance for the same reason, which would be unnecessary if forbearances were outside the rules. Other choices: new money is not the test; the lawfulness of the original rate does not carry forward; and no 12-month threshold applies. Source: Cal. Const. art. XV, § 1; Cal. Civ. Code § 1916.1
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