California Ban on Unusual Purpose Credit
Regulation U, 12 CFR § 221.1 – 221.125, imposes certain requirements on lenders, other than brokers and dealers in securities, who provide credit secured by shares on margin. Regulation U defines “purpose credit” as “any credit for the purpose, whether immediate, incidental, or ultimate, of purchasing or carrying margin stock.” 12 CFR § 221.2.
California Assemblyman Brian Maienschein recently introduced a bill that seeks a different type of “credit for purposes.” His bill, AB 2380, would prohibit a licensee under California finance law from making “a consumer loan to a borrower if that loan is for the purchase of a dog or a cat.” The MP’s press release describes the bill as prohibiting “the offering of predatory consumer loans for the purchase of a dog or cat”. As introduced, however, the bill would prohibit all consumer lending for this purpose, not just “predatory consumer lending,” a term not defined or otherwise used in California law on funding. (“Consumer Loan” is defined in Section 22203 of the Financial Code).
“Every dog, like me, has the urge to question, and I, like every dog, have the urge not to answer.”1
For me, the member’s bill raises a few questions. Why, for example, will commercial loans for the purchase of dogs and felines be authorized, but not consumer loans? Why is it okay to borrow money from a CFL licensee to get a parakeet or horse for your family, but not a Jellicle cat? Why will consumers be allowed to purchase a dog or cat with a credit card but not on credit from a CFL licensee? Why will sellers be allowed to enter into conditional sales contracts for the purchase of dogs and cats while prohibiting borrowing from CFL licensees?
1Franz Kafka, Investigations of a dog.
© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 62