Under the CFL, what is the maximum interest rate a licensed finance lender can charge on a consumer loan of $2,500?
Correct Answer
D) 36% per annum plus the federal funds rate
For a California Financing Law consumer loan with a bona fide principal amount of at least $2,500 but less than $10,000, Financial Code section 22304.5 caps charges at an annual simple interest rate of 36% per annum plus the federal funds rate.
Why This Is the Correct Answer
36% per annum plus the federal funds rate is correct. For a California Financing Law consumer loan with a bona fide principal amount of at least $2,500 but less than $10,000, Financial Code section 22304.5 caps charges at an annual simple interest rate of 36% per annum plus the federal funds rate. Option D is correct because the $2,500 loan falls into the CFL loan-size band governed by the 36% per annum plus federal funds rate cap.
Why the Other Options Are Wrong
Option A: 10% per annum
10% is the general California usury rate for unlicensed lenders, not the CFL rate schedule.
Option B: 2.5% per month
2.5% per month is not the CFL cap for this loan-size band; the statute uses an annual simple interest cap of 36% plus the federal funds rate.
Option C: Any rate agreed upon by the parties
Rates are not unlimited even for licensed lenders. The CFL rate schedule applies.
Memory Technique
CA -> ca-cfl-finance-lenders-brokers-licensing-records-reports
Exam Tip
CFL questions often test whether the person is lending, brokering, doing MLO activity, using a branch, meeting residential mortgage net worth and bond requirements, keeping records, filing reports, or facing DFPI examination/enforcement authority.
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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