Article 3 - Loan Limits

California Financial Code — §§ 1480-1498

Sections (19)

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

For the purpose of this article:

(a)“Obligations” means the total sums for the payment of which a person is obligated, primarily or secondarily, to a commercial bank.

(b)Obligations of a person include obligations of others to a commercial bank arising out of loans made by the bank for the benefit of the person.

(c)Obligations of an individual include the obligations of a partnership or association for which obligations the individual is liable.

(d)Obligations of a partnership include the obligations of its members who are liable for its obligations.

(e)Obligations of a corporation include the obligations of all subsidiaries in which it owns or controls a majority interest, except to the extent and under such restrictions as the commissioner may prescribe in specific instances upon special application made by any bank prior to the creation of the obligations.

(f)Obligations of a sovereign government or agency include the obligations of instrumentalities or political subdivisions of the government or agency, except to the extent and under such restrictions as the

commissioner may prescribe in specific instances upon special application made by any bank prior to the creation of the obligations.

(g)Obligations of a limited liability company include the obligations of all subsidiaries in which it owns or controls a majority interest, except to the extent and under any restrictions the commissioner may prescribe in specific instances upon special application made by any bank prior to the creation of the obligations.

§ 1481

Amended by Stats. 2022, Ch. 452, Sec. 101. (SB 1498) Effective January 1, 2023.

The obligations, as defined in Section 1480, excepting the obligations described in Section 1485 and the obligations described in Section 1483, of any one person owing to a commercial bank at any one time shall not exceed the following limitations:

(a)Obligations which are unsecured shall not exceed 15 percent of the sum of the shareholders’ equity, allowance for loan losses, capital notes, and debentures of the bank.

(b)Obligations, secured and unsecured, in all shall not exceed 25 percent of the sum of the shareholders’ equity, allowance for loan losses, capital notes, and debentures of the bank.

The calculation in subdivision (a) and this subdivision shall conform to a

commercial bank’s one-time election to opt out of the requirement to include all components of accumulated other comprehensive income pursuant to, and in accordance with, the authority granted in paragraph (2) of subdivision (b) of Section 324.22 of Part 324 of Title 12 of the Code of Federal Regulations.

Obligations arising out of the discount of commercial or business paper actually owned by the person negotiating the same and endorsed by such person without limitation, together with the secured and unsecured obligations, if any, of such person, shall not exceed 40 percent of the sum of the shareholders’ equity, allowance for loan losses, capital notes, and debentures of the bank.

No commercial bank shall be required, solely by reason of the amendments of this article, to dispose of or reduce any loan which complied with the applicable limitations of this division at the time such loan was made, nor shall any such bank be

prevented solely by reason of the provisions of this article from renewing any such loan from time to time.

§ 1482

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

An obligation shall not be deemed secured by personal property or collateral unless the personal property or collateral held as security is of a kind which has not been declared ineligible by the commissioner and unless it has a market value at least 15 percent greater than the amount of the obligations secured thereby or, if the security is a bank deposit, it shall have a face value at least equal to the amount of the obligations secured thereby. The commissioner may by general

regulation declare any particular kinds or classes of personal property ineligible as security. An obligation shall not be deemed secured by real property unless the obligation and the lien securing the same conform to the provisions of Section 1486, 1489, 1494, 1495, or 1496 or the first sentence of Section 1493. Secured and unsecured loans shall be represented by separate notes and shall not be combined in any way within one note or notes.

§ 1483

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

(a)In addition to the limitations contained in Section 1481 a commercial bank may issue letters of credit and a commercial bank may accept drafts or bills of exchange drawn upon it having not more than six months’ sight to run, exclusive of days of grace, which grow out of transactions involving the importation or exportation of goods; or which grow out of transactions involving the domestic shipment of goods; or which are secured at the time of acceptance by a

warehouse receipt or other such document conveying or securing title covering readily marketable staples. A commercial bank shall not accept such drafts or bills in the aggregate to an amount exceeding 150 percent of the sum of its shareholders’ equity, allowance for loan losses, capital notes, and debentures or, when authorized by the commissioner, to an amount exceeding 200 percent of the sum of its shareholders’ equity, allowance for loan losses, capital notes, and debentures. A commercial bank shall not accept such drafts or bills for any one person to an amount exceeding 10 percent of the sum of its shareholders’ equity, allowance for loan losses, capital notes, and debentures, unless the bank is and remains secured by either attached documents or some other actual security growing out of the same transaction as the acceptance.

(b)With respect to a bank which issues an acceptance, the limitations contained in this section shall not apply

to that portion of an acceptance which is issued by such bank and which is covered by a participation agreement sold to another institution.

§ 1484

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

With the approval of the commissioner a commercial bank may accept drafts or bills of exchange drawn upon it having not more than three months’ sight to run, exclusive of days of grace, drawn by banks or bankers in foreign countries for the purpose of furnishing dollar exchange as required by the usages of trade in the respective countries; provided, no commercial bank shall accept such drafts or bills of exchange for any one bank to any amount exceeding 10 percent of the sum of the

shareholders’ equity, allowance for loan losses, capital notes, and debentures of the accepting bank unless the draft or bill of exchange is accompanied by documents conveying or securing title or unless the bank is secured by some other adequate security. A commercial bank shall not accept such drafts or bills, whether secured or unsecured, in the aggregate to an amount exceeding 50 percent of the sum of its shareholders’ equity, allowance for loan losses, capital notes, and debentures.

§ 1485

Amended by Stats. 2013, Ch. 334, Sec. 38. (SB 537) Effective January 1, 2014.

The limitations of Section 1481 shall not apply to the following and the following shall not be included among the obligations of a person for the purpose of applying these limitations:

(a)Loans secured by obligations of the United States or by obligations unconditionally guaranteed both as to principal and interest by the United States, having a market value at least 10 percent in excess of the loans secured thereby.

(b)Loans in an amount and of a type or class previously approved in writing by the commissioner that are secured by not less than a like amount of obligations of the United States or by obligations unconditionally guaranteed

both as to principal and interest by the United States.

(c)Loans to the extent that they are covered by guarantees or by commitments to take over or to purchase without recourse made by (1) any Federal Reserve bank, (2) the United States, (3) any department, bureau, board, commission, agency, or establishment of the United States, including any corporation wholly owned directly or indirectly by the United States, or (4) any small business development corporation, urban development corporation, or rural development corporation incorporated pursuant to Part 5 (commencing with Section 14000) of Division 3 of Title 1 of the Corporations Code.

(d)Drafts or bills of exchange drawn in good faith against actual existing values with negotiable bills of lading attached, whether or

not accepted by the drawee.

(e)Bankers’ acceptances of other banks which are eligible for rediscount with a Federal Reserve bank.

(f)Obligations resulting from daily clearances through any clearinghouse association.

(g)Obligations that are fully guaranteed or fully insured or covered by a commitment to fully guarantee or fully insure by the Federal Housing Administration.

(h)Obligations, including portions thereof, to the extent secured by a segregated deposit account in the lending bank, provided a security interest in the deposit has been perfected under applicable law, and subject to all of the following conditions:

(1)Where the deposit is eligible for withdrawal before the secured obligation matures, the lending bank shall establish internal procedures to prevent release of the security without the lending bank’s prior consent.

(2)A deposit that is denominated and payable in a currency other than that of the obligation that it secures may be eligible for this exception if the currency is freely convertible to United States dollars.

(A)This exception applies only to that portion of the obligation that is covered by the United States dollar value of the deposit.

(B)The lending bank shall establish procedures to periodically revalue foreign currency deposits to ensure that the loan or extension of credit remains fully

secured at all times.

(i)Obligations described in Section 1510.

§ 1486

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

A commercial bank may lend on the security of a first lien on real property or a first lien on a leasehold under a lease which does not expire, or which has been extended or renewed so that it does not expire, for at least 10 years beyond the maturity date of the loan, if:

(a)The term of the loan does not exceed 10 years and the amount does not exceed 60 percent of the sound market value of the property or leasehold,

together with the improvements located on the property which are made subject to the lien, as determined by proper appraisal.

(b)The term of the loan does not exceed 30 years, is repayable in substantially equal installments not less often than monthly (or a variation therefrom as may be authorized under a loan executed pursuant to Section 1916.5 or 1916.8 of the Civil Code), with payments commencing not later than 60 days from the date of the loan or, in the case of a construction loan, commencing not later than one year from the date of the loan, and the amount does not exceed 90 percent of the sound market value of the property or leasehold, together with the improvements located on the property which are made subject to the lien, as determined by proper appraisal, provided, however, the loan may exceed 90 percent of the sound market value of the property or leasehold if that portion of the loan which is in excess of 90 percent is

guaranteed or insured by a private insurer licensed by the Insurance Commissioner.

(c)The loan is made pursuant to and in conformance with regulations adopted under Section 1916.12 of the Civil Code.

(d)The loan is on a farm or productive agricultural lands, the term does not exceed 30 years, is repayable in substantially equal installments not less often than annually, and the amount does not exceed 90 percent of the sound market value of the property or leasehold, together with the improvements located on the property which are made subject to the lien, as determined by proper appraisal.

(e)The term of the loan does not exceed six months and the amount does not exceed 85 percent of the sound market value of the property or leasehold, together with the improvements located on the property which are made subject

to the lien, as determined by proper appraisal.

(f)The term of the loan does not exceed 60 months, the amount does not exceed 85 percent of the sound market value of the property or leasehold, together with the improvements located on the property which are made subject to the lien, as determined by proper appraisal, and the loan is for the purpose of financing building operations under a plan providing for payment of the loan or providing for refinancing by loans otherwise permitted by this chapter.

A commercial bank may make a loan without regard to the above restrictions when necessary to facilitate the sale of real property owned by the bank.

§ 1487

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

(a)The provisions of any deed of trust or mortgage on real property which authorize any state or nationally chartered bank to accelerate the maturity date of the principal and interest on any loan secured thereby or to exercise any power of sale or other remedy contained in the deed of trust or mortgage, upon the failure of the trustor or mortgagor to pay, at the times provided under the terms of the deed of trust or mortgage, any taxes, rents, assessments, or

insurance premiums with respect to the real property securing the loan, or upon the failure to pay any advances made with respect to the deed of trust or mortgage by the state or nationally chartered bank, shall be enforceable whether or not an impairment of the security interest in the real property has resulted from the failure of the trustor or mortgagor to pay the taxes, rents, assessments, insurance premiums, or advances.

(b)“State or nationally chartered bank,” as used in this section and Section 1488, includes any person authorized by this state to make or arrange loans secured by real property, or a holding company of a state or nationally chartered bank or any successor in interest.

§ 1488

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

The provisions of any deed of trust or mortgage on real property which authorize any state or nationally chartered bank to receive and control the disbursement of the proceeds of any policy of fire, flood, or other hazard insurance respecting the real property shall be enforceable whether or not an impairment of the security interest in the property has resulted from the event that caused the proceeds of the insurance policy to become payable.

§ 1489

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

(a)The loan is fully guaranteed or insured or covered by a commitment to guarantee or

insure by the United States, the Federal Housing Administrator, or by any other agency of the United States which the commissioner shall have approved for the purposes of this subdivision as an issuer of insurance or guarantees of loans on real property, whether the proceeds of the guarantee or insurance is payable in cash or in obligations of the United States.

(b)The loan is fully guaranteed by the United States or any agency thereof pursuant to the “Servicemen’s Readjustment Act of 1944” or any act of Congress supplementary or amendatory thereof, or, if a portion of the loan is so guaranteed, then if the unguaranteed portion of the loan does not exceed 80 percent of the sound market value of the property or leasehold for loan purposes as determined by proper appraisal.

(c)The loan is one in which the Small Business Administration cooperates through agreements to participate

on an immediate or deferred basis under the Small Business Act, as amended.

§ 1490

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

A commercial bank shall not lend in the aggregate more than 5 percent of its assets upon the security of the stock of any one corporation or upon the security of the bonds of any one obligor except bonds of the United States or for the payment of which the credit of the United States is pledged, bonds of the State of California or for the payment of which the credit of the State of California is pledged, and bonds of any county, city and county, city, metropolitan water district, school

district, or irrigation district of the State of California which qualify as investments for savings banks.

§ 1491

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

No loan shall be made by any commercial bank upon the securities of one or more corporations, the payment of which loan is undertaken, in whole or in part, severally, but not jointly, by two or more persons in any of the following circumstances:

(a)If the borrowers or underwriters are obligated absolutely or contingently to purchase the securities, or any of them, collateral to the loan, unless the borrowers or

underwriters have paid on account of the purchase of the securities an amount in cash, or its equivalent, equal to at least 25 percent of the several amounts for which they remain obligated in completing the purchase of the securities.

(b)If the commercial bank making the loan is liable, directly or indirectly, or contingently, for the repayment of the loan or any part thereof.

(c)If its term, including any renewal thereof by agreement, express or implied, exceeds the period of one year.

(d)Or to an amount under any circumstances in excess of 25 percent of the sum of the commercial bank’s shareholders’ equity, allowance for loan losses, capital notes, and debentures.

§ 1492

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

Nothing in this chapter restricts a commercial bank in taking any lien on or pledge of any property as additional security for a loan already made in good faith.

§ 1493

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

A commercial bank holding a first lien on real property may take, or purchase and hold, or loan upon another and immediately junior lien but all such loans shall not exceed in the aggregate 90 percent of the sound market value of the property as determined by proper appraisal. A commercial bank may loan not to exceed the face value of a deed of trust or mortgage which constitutes a first lien upon real property, but in no event shall any such loan exceed 90 percent of the sound market

value of the property covered by said mortgage or deed of trust as determined by proper appraisal.

§ 1494

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

A commercial bank may lend on the security of a first security interest on stock or a membership certificate issued to a tenant-stockholder or resident-member by a completed fee simple cooperative housing corporation, as defined in Section 216 of the U.S. Internal Revenue Code, and the assignment by way of security of the borrower’s interest in the proprietary lease or right of tenancy in property issued by such cooperative housing corporation, provided all of the real property owned by

such corporation is located within the state, and further provided, that:

(a)The term of the loan does not exceed 30 years, is repayable in substantially equal installments (or such variation therefrom as may be authorized under a loan executed pursuant to Section 1916.5 or 1916.8 of the Civil Code), not less often than monthly, with payments commencing not later than 60 days from the date of the loan, and the amount does not exceed 80 percent of the sound market value of such certificates of stock or membership certificates; and

(b)The proprietary lease or right of tenancy in the property provides:

(1)That no sublease in excess of one year, amendment or modification to such proprietary lease or right of tenancy in the property shall be permitted or created without the lender’s prior written consent, and

(2)That in the event of the borrower’s default under such loan, the lender shall have the right, without the prior consent or approval of the cooperative housing corporation, to sell such shares or membership certificates at public or private sale following at least 30 days prior written notice to the borrower and to the cooperative housing corporation, at the address of the premises subject to the proprietary lease or right of tenancy in the property, and assign such proprietary lease or right of tenancy in the property to the purchaser who shall agree as a condition of such assignment to cure any defaults thereunder.

For all purposes of this division, such loan shall be considered a secured residential real estate loan and shall be subject to rules and regulations implementing the provisions of this section issued by the commissioner.

§ 1495

Amended by Stats. 2013, Ch. 334, Sec. 39. (SB 537) Effective January 1, 2014.

(a)A commercial bank may make amortized loans upon the security of residential real property to finance the purchase and installation of material or equipment designed to promote energy conservation or the efficient use of energy in the residential real property securing the loan, if all of the following apply:

(1)The residential real property securing the loan consists of not more than four dwelling units.

(2)The loan is made in connection with a concurrent loan authorized under Section 1486.

(3)The loan is in an amount not to exceed 10 percent of the loan

made under the authority of Section 1486.

(b)A commercial bank may make additional advances, or additional loans, to an existing borrower in order to finance the purchase and installation of material and equipment designed to promote energy conservation or the efficient use of energy in the residential real property securing the loan, if all of the following apply:

(1)The residential real property securing the loan consists of not more than four dwelling units.

(2)The aggregate of the additional loan or advance and the unpaid balance of the existing loan will not exceed that percent of the appraised value of the residential real property securing the loan permitted by Section 1486 immediately after the purchase and

installation of such material and equipment.

§ 1496

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

For the purpose of determining whether any loan or investment is secured by a first lien on real property as required by any provision of this division, none of the following shall be deemed a prior encumbrance unless any installment or payment thereunder, other than a rental or royalty under a lease, is due and delinquent:

(a)The lien of any tax, assessment, or bond levied or issued by any state or territory of the United

States or by any district, political subdivision, or municipal corporation thereof, except the lien of an assessment levied against a particular parcel of real property and of any bond given or issued pursuant to law in lieu of the payment of the assessment.

(b)A lien created by a contract and given to secure the payment for water to be furnished under the contract for the irrigation of the real property or any part thereof.

(c)A lease of the real property under which all rents or royalties are reserved to the owner.

(d)The lien of a bond given or issued pursuant to law in lieu of the payment of an assessment levied against a particular parcel of real property and the lien of any assessment levied to pay that bond, if the unpaid balance of the bond and the amount of the loan or investment combined do not exceed

the percentage of the sound market value of the real property permitted to be so loaned or invested by any provision of this division.

(e)A lien given to secure the payment of any assessment or subscription to meet the requirements of any law of the United States in respect to any irrigation project of the United States in any state or territory of the United States which may be levied, made, or received by any corporation or association formed to carry out the provisions of that law, if the unpaid balance of the assessment or subscription and the amount of the loan or investment combined do not exceed the percentage of the sound market value of the real property permitted to be so loaned or invested by any provision of this division.

§ 1497

Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.

No loan made by any bank in excess of any limitations contained in this division or which is made in violation of any of the provisions of this division shall be invalid or illegal as to the lender for that reason, nor shall any loan made to any bank in excess of the amounts permitted by this division be invalid or illegal as to the lender for that reason.

§ 1498

Amended by Stats. 2017, Ch. 514, Sec. 1. (SB 266) Effective January 1, 2018.

(a)Any state-chartered bank that extends consumer credit to a covered borrower, as those terms are defined in Part 232 (commencing with Section 232.1) of Subchapter M of Chapter I of Subtitle A of Title 32 of the Code of Federal Regulations, as published on July 22, 2015, on page 43560 in Number 140 of Volume 80 of the Federal Register, shall comply with the applicable provisions of Section 987 of Title 10 of the United States Code, as amended by 126 Stat. 1785 (Public Law 112-239), and Part 232 (commencing with Section 232.1) of Subchapter M of Chapter I of Subtitle A of Title 32 of the Code of Federal Regulations, as amended on the date described

above.

(b)A state-chartered bank that does not market or extend consumer credit to covered borrowers, as those terms are defined under Part 232 (commencing with Section 232.1) of Subchapter M of Chapter I of Subtitle A of Title 32 of the Code of Federal Regulations, as amended on the date described in subdivision (a), shall not be in violation of Section 394 of the Military and Veterans Code.