Under Article XV of the California Constitution, what is the maximum interest rate that may be charged on a loan or forbearance of money that is NOT arranged through a licensed real estate broker?
Correct Answer
B) 10% per annum or 5% plus the Federal Reserve Bank of San Francisco discount rate, whichever is greater
Article XV of the California Constitution sets the usury limit at the greater of 10% per annum or 5% plus the Federal Reserve Bank of San Francisco discount rate on the 25th day of the month preceding the earlier of the date of execution or the date of making of the loan.
Why This Is the Correct Answer
Article XV of the California Constitution sets the usury limit at the greater of 10% per annum or 5% plus the Federal Reserve Bank of San Francisco discount rate on the 25th day of the month preceding the earlier of the date of execution or the date of making of the loan.
Why the Other Options Are Wrong
Option A: 5% per annum
5% per annum is far below the constitutional usury limit and does not reflect either prong of the Article XV formula.
Option C: 12% per annum
12% per annum is not the constitutional limit; it exceeds the fixed 10% prong and does not account for the floating rate component.
Option D: The rate set annually by the California Commissioner of Financial Protection and Innovation
The DFPI Commissioner does not set the usury rate; it is established constitutionally in Article XV, not by regulatory action.
Memory Technique
CA -> ca-usury-real-estate-broker-exemptions-interest-penalties
Exam Tip
Usury questions require separating personal-purpose loans, other-use loans, regulated-lender exemptions, real estate broker arranged real-property loans, and nonexempt private-lender scenarios.
Common Mistakes to Avoid
- -Using a national baseline answer when California has agency-specific DFPI or DRE requirements
- -Confusing CFL, CRMLA, covered-loan, usury, servicing, and DRE endorsement rules
- -Relying on legacy California state-exam or education assumptions instead of current NMLS source pages
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