A private lender in California charges exactly 10% interest on an unsecured personal loan. The current SF Federal Reserve discount rate is 7%. Is this loan usurious?
Correct Answer
A) No, because the usury ceiling is the greater of 10% or 5% + 7% = 12%, and 10% is below 12%
The usury ceiling is the GREATER of 10% or 5% + the Fed discount rate (7%) = 12%. Since 12% is greater than 10%, the ceiling is 12%. The lender's 10% rate is well below this ceiling, so the loan is not usurious.
Why This Is the Correct Answer
The usury ceiling is the GREATER of 10% or 5% + the Fed discount rate (7%) = 12%. Since 12% is greater than 10%, the ceiling is 12%. The lender's 10% rate is well below this ceiling, so the loan is not usurious.
Why the Other Options Are Wrong
Option B: Yes, because 10% exceeds the constitutional limit
10% does not exceed the constitutional limit because the floating component (5% + 7% = 12%) has raised the ceiling above 10%.
Option C: No, because 10% does not exceed the usury ceiling of 12%
While the conclusion is correct (not usurious), this answer misstates the reason; the ceiling is 12% because of the formula, and 10% is indeed below it, but the reasoning must reference the correct formula.
Option D: Yes, because the usury limit for unsecured loans is 7%
There is no separate 7% limit for unsecured loans; the Article XV formula applies regardless of whether the loan is secured or unsecured.
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
More UST Questions
In a pricing desk question, an audit analyst sees facts tied to Prohibited Misrepresentation. What should the file reflect?
An applicant previously had an MLO license revoked by a state regulator. Under the SAFE Act minimum standards for a new state-licensed MLO license, which statement is correct?
Which statement correctly distinguishes a license suspension from a license revocation?
A state regulator has issued an order suspending an MLO's authority effective immediately. The MLO has filed an appeal, but no stay has been granted. What should the MLO do?
An MLO license application asks whether the applicant has been the subject of a regulatory order. The applicant has a recent consent order that falls within the question. What is the proper response?
Why does NMLS maintain licensing and enforcement information that participating regulators can access?
A regulator issues a final license suspension without giving the MLO notice of the alleged violation or any opportunity to respond, even though applicable law requires both. What issue is presented?
A regulator finds that an MLO charged consumers prohibited fees. Which set of actions is consistent with the enforcement tools contemplated by Regulation H?
An MLO's license status in NMLS changes to suspended, with no stay or reinstatement shown. What is the immediate operational effect?
Which fact most directly supports disciplinary action against an MLO rather than merely a request for additional application information?
People Also Study
Federal Mortgage-Related Laws
24% of exam
General Mortgage Knowledge
20% of exam
Mortgage Loan Origination Activities
27% of exam
Ethics, Fraud & Consumer Protection
18% of exam