New Federal Family Medical Leave Act (FMLA) Regulations & California Pregnancy Related Regulations


The U.S. Department of Labor (DOL) has issued new Family and Medical Leave Act (FMLA) regulations that will take effect on March 8, 2013 as a result of the DOL’s interpretation of the 2010 National Defense Authorization Act and the Airline Flight Crew Technical Corrections Act.

As part of these new regulations, employers with 50 or more employees must post the updated version of the Family Medical Leave Act Poster, Notice C (with a revision date of February 2013) by this Friday, March 8, 2013.  The poster must be displayed in a conspicuous place where applicants and employees may see it.  A copy of the updated version of the FMLA Poster can be found at the following link:


Please remember that California employers with 50 or more employees are also required to comply with the California Family Rights Act, which differs from federal law.


California’s Fair Employment & Housing Commission has recently amended and updated certain regulations pertaining to Pregnancy which include the following notable substantive changes:

  • Expansion of definition of “disabled by pregnancy.” The term “disabled by pregnancy” now includes needing time off for prenatal or postnatal care, gestational diabetes, pregnancy-induced hypertension, preeclampsia, post-partum depression, and loss or end of pregnancy. Please note that the list of conditions is not intended to be exclusive but rather are intended to be illustrative.
  • Prohibition of discrimination based on “perceived pregnancy.” It is now unlawful to discriminate or harass an employee based on “perceived pregnancy,” which the regulations define as being regarded or treated by an employer as being pregnant or having a related medical condition.
  • Clarification of definition of “four months.” An employer must grant up to four months of leave to an employee disabled by pregnancy. The new regulations specify that “four months” means one-third of a year, equaling 17 and one-third weeks.
  • Expanded accommodation and reinstatement rights. The revised regulations provide examples of how an employer can reasonably accommodate employees affected by pregnancy, including modifying work schedules, acquiring or modifying equipment or devices, and providing a reasonable amount of break time for lactation. Additionally, the regulations expand the right of an employee to reinstatement to the same or comparable position.

Employers with more than 5 employees are now required to use the following updated Pregnancy Related Regulation Notices:

For Employers with 5-49 employees, a copy of the updated version of California Pregnancy Disability Leave Notices can be found at the following link:


For Employers with 50 or more employees, a copy of the updated version of California Pregnancy Disability Leave Notices can be found at the following link:


Please be aware that your handbooks and policies may need to be updated to comply with these new regulations.

If you have any questions or would like to learn more about the new FMLA regulations and/or California Pregnancy Related regulations, please feel free to contact Carlos A. Becerra.

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Potential Liability Stemming From a Continuous Violation (Failure to Pay Overtime) May Stretch Way Beyond the Current Statute of Limitations (Up to the Hire Date).


On January 24, 2013, in a landmark ruling affecting Business & Professions Code section 17200 (Unfair Competition Law) cases, the California Supreme Court unanimously held in Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal. 4th 1185 that the common law equitable exceptions to the statute of limitations applied to UCL claims, settling a longstanding split within the Courts of Appeal.  Though the facts of the case did not pertain to labor or employment issues, the Supreme Court’s holding is extremely important for California businesses and employers, as the vast majority of business and employment litigation claims are coupled with UCL claims.


The dispute before the Supreme Court arose from a photocopy equipment lease between Jamsid Aryeh and Canon Business Solutions, Inc.

Mr. Aryeh ran a copying business under the name ABC Copy & Print and entered into two agreements with Canon (one in November 2001 for a black and white copier and one in February 2002 for a color copier) to lease copiers for a 60 month term. The agreements required Mr. Aryeh to pay monthly rent for each copier, subject to a maximum copy allowance.  If Mr. Aryeh exceeded the monthly allowance, he had to pay an additional per copy charge.  The agreements also provided that Canon would service the copiers.

Beginning in 2002, Mr. Aryeh noticed discrepancies between meter readings taken by Canon employees and the actual number of copies made on each copier, and he began compiling independent records.  Mr. Aryeh alleged that Canon employees had run thousands of test copies during 17 service visits between February 2002 and November 2004, which he claimed resulted in him exceeding his monthly allowances and having to pay excess copy charges and fees to Canon.

Mr. Aryeh did not file his complaint alleging Canon violated the UCL until January 31, 2008. In that complaint, Mr. Aryeh alleged that Canon knew or should have known it was charging for excess copies and that the practice of charging for test copies was both unfair and fraudulent.

Canon demurred to Mr. Aryeh’s complaint on the grounds that the UCL claim was barred by the statute of limitations set forth under Business & Professions Code section 17208 for the complaint had not been filed within four years of the first violation allegedly occurring in 2002.  The trial court sustained the demurrer.  Mr. Aryeh filed a second amended complaint that identified 13 overcharges within the four-year limitation period.  After Canon demurred for a second time, the trial court dismissed the action without leave to amend.

The trial court read state law as establishing that the clock on a UCL claim starts running when the first violation occurs.  Consequently, because the amended complaints established a first violation in 2002, the claim was barred by the four-year statute of limitations.  Mr. Aryeh appealed.

The Second District Court of Appeal, in a divided 2-1 decision, affirmed the trial court’s dismissal and held that the common law principles did not apply to avoid the statute of limitations.  The appellate court reasoned Mr. Aryeh knew shortly after entering into his second contract in February 2002 that Canon was overcharging for the test copies, but still waited to bring his case for another six years.  Mr. Aryeh appealed to the California Supreme Court and the Supreme Court granted review.


Justice Kathryn M. Werdegar wrote the opinion on behalf of the seven member California Supreme Court.  Justice Werdegar’s opinion held that the UCL’s silence on the issue of when a UCL claim accrues triggers a presumption in favor of applying settled common law exceptions to UCL claims.

Generally, a cause of action accrues at the time when the cause of action is complete with all of its elements, or when a suit may be maintained.  Thus, the period in which a plaintiff must bring suit or be barred, runs from the moment the claim accrues.  However, Justice Werdegar’s holding opened the flood gates to allowing common law exceptions to UCL claims, the two most pertinent being the continuing violation and continuous accrual doctrines.

As to the continuing violation doctrine, the doctrine aggregates a series of wrongs or injuries and treats the limitations period as accruing for all of them upon the commission or sufferance of the last of them.  The continuing violation doctrine is applied when a pattern of reasonably frequent and similar acts justify treating the acts as an indivisible course of conduct actionable in its entirety, despite some of it having occurred outside and some inside the statute of limitations.  The court rejected the applicability of this particular doctrine to Mr. Aryeh’s complaint because Mr. Aryeh had alleged a series of discrete, independently actionable wrongs, and was therefore not a situation where a wrongful course of conduct became apparent after an accumulation of multiple harms.

As to the continuing accrual doctrine, the doctrine provides that where there is an ongoing duty which is owed that is susceptible to recurring breaches, each breach of the duty owed triggers its own limitations period, such that a suit for relief may be partially time-barred as to older events but timely as to those within the applicable limitations period.   In determining whether the doctrine applied to Mr. Aryeh’s complaint, the court found that (1) Canon sent bills on a regular basis requesting payment for test copy charges that were unfair or fraudulent, (2) Canon had an ongoing duty not to impose unfair charges, and (3) this continuing duty to avoid unfair charges was susceptible to recurring breaches.  As a result, the Court held that the continuing accrual doctrine applied, and a new limitations period began with each alleged improper collection.  Thus, Mr. Aryeh’s allegations concerning monthly charges for copies made by Canon were not completely time-barred.


The Supreme Court’s ruling will have drastic implications for businesses and employers.

At a minimum, plaintiff employees and/or customers who have brought a UCL claim and seek to evade the complete voidance of their claims due to the UCL’s statute of limitations will analogize their case to the Aryeh decision and argue that their claim is only partially time barred under the continuous accrual doctrine.

At the other end of the spectrum, the Supreme Court left the door wide open for plaintiff employee(s) and/or customer(s) to aggregate a series of wrongs or injuries and treat the limitations period as accruing for all of them upon the commission or sufferance of the last of them under the continuing violation doctrine.  So long as the plaintiff employee(s) and/or customer(s) are able to distinguish themselves factually from Mr. Aryeh’s complaint and allege that the defendant in their situation exhibited a pattern of reasonably frequent and similar unlawful acts justifying application of the continuing violation doctrine, such plaintiffs will be able to seek redress for all of the acts as if they were an indivisible course of conduct actionable in its entirety.

Thus, a plaintiff employee who earned $15 per hour and was not lawfully paid 5 hours of overtime per week from defendant employer, may now have a potential claim against their employer for the entire time the employee was employed by the employer (i.e., potentially 30 years).  Putting this into perspective, the value of plaintiff employee’s claim against his/her employer jumped from merely $23,400 [52 wks x 5 hrs per wk x 4 yr statute of limitations x (1.5 x $15)] to $175,500 [52 wks x 5 hrs per wk x 30 yr employment x (1.5 x $15)].

Businesses and employers are encouraged to take heed to the Supreme Court’s ruling and take the necessary steps to make sure that it is in full compliance with the law in order to protect itself as much as possible from potential liability.

If you feel that a former employee(s) and/or customer(s) may potentially have a claim against you and/or your business, please feel free to contact me or any other attorney at Tredway, Lumsdaine & Doyle, LLP.

If you have any questions or would like to learn more about the issues raised by the Court in the decision, please feel free to contact me or any other attorney at Tredway, Lumsdaine & Doyle, LLP.

Written By: Carlos A. Becerra, Esq.



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Bloomberg Businessweek.com Article: “When a Small Employer Gets Sued by a Former Worker”

Tredway Lumsdaine & Doyle LLP (TLD) Partner, Matthew L. Kinley, contributed comments for the Businessweek.com article entitled “When a Small Employer Gets Sued by a Former Worker”.  Here is part of the excerpt from the article featuring Mr. Kinley:

“Another search should be for your business insurance policy, which may include a clause covering legal costs. “Call your insurance broker and quiz him,” says Matt Kinley, a partner in Southern California law firm Tredway Lumsdaine & Doyle. “Most general liability policies do not cover some special areas, like intellectual property cases or employment cases. [But] before you face an adverse legal issue, it is important to have a conversation about special riders to your policies that may be available for any risks that your business may face.”  In Herold’s case, he did have employment liability insurance, which paid all but $10,000 of the eventual $80,000 it took to fight his former employee’s wrongful termination claim over two years.”

To read more of this article, please click here.

To contact Matthew L. Kinley, please click here.

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Managing Partner Daniel R. Gold Authors New Chapter for the “Inside The Minds” Series

The Managing Partner of Tredway Lumsdaine & Doyle LLP (TLD), Daniel R. Gold, has authored a new chapter for the “Inside The Minds” series, ‘Strategies for Family Law in California’. The theme of this new chapter is: “Is That a Light at the End of the Tunnel or an Oncoming Train?”. As noted in the Introduction, the thrust of this chapter is not the 2008 “Great” Recession, but how the practice has fared, and will continue to fare, in spite of the economy. Legislative changes and topical social issues aside, practicing law in this area is really about people. The great lesson for lawyers is that people’s problems cannot always be solved by relying on what your professors told you.

To read the complete chapter, click here. Please read the legal disclaimer on page 2.

To purchase a copy of the book this chapter was originally included in, please visit www.west.thomson.com.

If you would like further information on this subject or to set up an appointment with Mr. Gold, please contact his office at (949) 756-0684.

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What Happens To Your Pet When Something Happens to You?

“This is a confidential memo to you as an animal lover and pet owner: we know that you love your pet more than anything and would do anything to keep them happy, comfortable and part of your family forever. But what happens when something happens to you?

Please consider addressing your pet in your will or trust and be sure that those documents are in conformance with the appropriate state laws. Generally you should plan to have your estate plan prepared for and according to the laws of the state in which you plan to die.

There are multiple ways to ensure your pet will be cared for if something happens to you. For example, you can make an informal promise with a family member, friend or neighbor to take in your pet and hope that he or she will follow through. This method is not binding and may leave you with a false sense of security in the event something happens to you.

A Will Can Work

If you are not going to set up a revocable trust, you can provide for your pet in your will with brief instructions and a monetary gift. But realize that in general, under California law, you cannot give a straight devise (a gift) in your will to an animal. See In re Estate of Russell (1968) 69 Cal.2d 200, 70 Cal.Rptr. 561, 444 P.2d 353. See also California Probate Code section 6102 where permitted devisees (gift recipients) include individuals, corporations, governments and organizations, but do not include animals.

A sample devise could be done as follows:

“I give to my friend, Jennifer Sawday, my beloved German Shepherd named Butch or any other pet I may have at the time of my passing. I also give to Jennifer Sawday the sum of $1,000 dollars. I request that Jennifer Sawday use these funds for the care of my pet, but I do not require that the funds be so used.”

This devise gives instructions as to whom should receive your pet and provides a sum of money to that person. You cannot require that the person use the money for the care of the pet nor can you give your pet money directly.

A Trust Is Recommended

If you desire to give your pet money ostensibly to be used for his or her care, a trust is recommended.

Since 2008, the California Probate Code allows a trust to be set up for the care of an animal.

California Probate Code section 15212 states, in summary, a trust may be created for the care of an animal or animals that are living at the lifetime of the person who created the trust.  In general, such a trust would terminate upon the death of the animal, if only one animal is being provided for, or upon the death of the last surviving animal being provided for in the trust.

For those of you familiar with the rule against perpetuities, such a trust for the term of the life of an animal is not voidable under the rule against perpetuities.  The rule against perpetuities states that a trust cannot last longer than 90 years under California law (think of a young tortoise or parrot who may live longer than 90 years after your passing). California has enacted the Uniform Statutory Rule Against Perpetuities (USRAP) (see California Probate Code sections 21200-21231), which provides that a trust may last at least 90 years before the common law rule is applied.  See California Probate Code section 21205.

Thus, under California Probate Code section 15212, you can set up or include in an existing revocable trust, a provision for your pet.  You can provide who shall receive custody of the pet and designate funds for the care of your pet.  You can provide as much detail as you desire regarding the use of those funds.  You can segregate a dollar amount, or a percentage of your estate for the care of your pet.  You could also state that the entirety of your estate is to be used for the care of your pet and then when your pet dies, the remaining funds will be distributed to your family, friends or organizations as you desire.  In your trust, you can also specify who would be the trustee to oversee the care and the funds for your pet.  The trustee does not need to be the same person who would receive custody of the animal…”

To read more of this article, please click here.

To contact Jennifer N. Sawday, please call (562) 901-3050 or e-mail jsawday @tldlaw.com.

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California’s New Mechanics Lien Law Effective July 1, 2012

We want you to be aware that as of July 1, 2012, sweeping changes have been made to Mechanics Lien Law that will affect the way that any person or entity in the construction industry does business. With the Legislature’s adoption of Senate Bill 189, significant substantive and technical changes to Mechanics Lien Law have been implemented. These changes encompass all construction remedies for both private and public projects, including the stop payment notice, stop work notice and payment bond claims. Effectively, the overhaul means that all of the most common notices, claims, and release forms must to be updated to ensure important legal rights are preserved.

Some of the most significant changes are highlighted below:

Relocation and Rearrangement of the Statutory Scheme

The Mechanics Lien Law previously found in California Civil Code §§ 3082-3267 have been moved to Civil Code §§ 8000-9566.

Changes to Definitions and Terminology

Although changes in terminology appear superficial, forms must be updated to reflect the new terminology and statutory scheme to avoid being invalidated for minor technical deficiencies.
The term “original contractor” has been replaced by “direct contractor.” The “20-day preliminary notice” will now be known simply as the “preliminary notice.” As this notice is a prerequisite for almost any statutory construction remedy and California courts construe these forms strictly, it is critical that preliminary notice forms are updated without delay. Finally, in order to clarify the purpose and further distinguish it from the stop work notice, the “stop notice” is now termed the “stop payment notice.”

Standardization of Notice Requirements

One of the more significant changes has to do with standardization of the notice provisions affecting almost all notices, including the preliminary notice, the stop notice, the notice of nonresponsibility, notice of completion or cessation, and others. The new statutory scheme sets forth the minimum content for any notice, establishes that notice given my mail is deemed complete five days after mailing, and lists requirements for proof that notice was given…

To read more, please click here.

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Checking In on Your Estate Plan: Is Your Revocable Trust Funded?

Now that tax season for most Americans is coming to a close, it is time to turn to the rest of your financial house to make sure all is in order.  Having a valid and up-to-date estate plan is crucial to your financial well-being. It protects your assets in case you become incapacitated.  It provides directions for disposition of your assets to your loved ones when you die. It can also minimize estate taxes.

The most important component for most estate plans executed in California is a Revocable Living Trust.  The terms of the Trust dictate who can manage your assets if you become incapacitated.  The terms also dictate what happens to your assets when you die: who gets what and under what terms.  A Trust is a game changer in a valid estate plan. It avoids the public court process of having to probate a Will.  It saves time and expenses.  It can also protect and preserve your estate for generations.  But the Trust itself must be funded.

Funding a Trust is the concept that most people struggle with.  Your assets, whether they are a home, a timeshare, a bank account, a business interest, a U.S. savings bond, shares of a company’s publicly traded stock, must be transferred into your Trust.

If a Trust has been validly executed, but not funded, it begs the question is there a Trust at all?  In a general sense, the law requires four components to create a valid Trust, whether Revocable or Irrevocable: (1) a settlor, (2) a trustee, (3) an intent to form the trust either orally or by a writing and (4) corpus.  The settlor is the person who is creating the Trust. The Trustee is the person or company who is managing the Trust.  A written instrument is not essential to a valid Trust (see California Probate Code Section 15200), but an intention to create a Trust is.  California Probate Code Section 15201.  A written agreement is normally prepared by an attorney and executed by the settlor and called a declaration of trust or trust agreement. Corpus is the assets of the Trust.

A “mere expectancy” cannot serve as the corpus of a Trust, but that does not invalidate the Trust. Rather, the Trust lies dormant until the expectancy ripens into a vested interest.  Many people set up a Trust thinking that they will fund it later or that it already comes funded.  Or that they will create a Trust to capture or funnel a potential inheritance.  This may create issues with whether there is a valid Trust later where there is no corpus only a “mere expectancy.”  But if you are facing a serious or terminal illness and are a present heir or devisee to a probate estate or other trust where someone has died, you should assign your inheritance or devise to your own Trust.  You would indicate the expected inheritance or devise on the Trust’s asset schedule and also execute a separate assignment or transfer of that inheritance or devise to the Trust in writing.  This does not work if you merely expect to get something on an ancestor’s eventual death.

While a Trust can exist with no corpus and with the anticipation that assets will later be distributed into the Trust.  But a Trust will be deemed revoked if it was funded and then all of the assets are later removed from the Trust.  Estate of Coleman (2005) 129 Cal.App.4th 380, 388.

A Trust’s corpus could be as little as a ten dollar bill stapled to the Trust declaration itself.  The settlor could also sign a promissory note in the amount of $100.00 in favor of himself as trustee of the Trust, without interest, and payable on demand to fund the Trust.  Generally where a Trust is executed but no corpus, then the Trust will come into existence later whenever assets are transferred to the Trust.  There is no longer any need to recite that some nominal amount was contributed to the Trust at inception or to actually contribute the nominal amount by stapling a ten dollar bill to the Trust.

In most instances, Trusts are now immediately funded at the attorney’s office with trust transfer deeds for real property and detailed instructions for other asset transfers.  An estate planning attorney will also immediately transfer or assign other assets to the Trust like business interests, promissory notes and other monetary instruments.

Here’s how to do a self-check to make sure your Trust is funded:

1.  Does your Trust have a Trust asset schedule? It is often called a Schedule A. There could be more than one schedule – a larger estate may have Schedule B and Cs for instance. Does the Trust asset schedule reflect all of your assets? Are there additional assets not listed? Caveat: there are some assets, often those retirement related, that should not be titled into a Trust without proper legal advice so be sure to confirm with your attorney.

2.  Are your real property interests such as homes, rentals, timeshares, and unimproved land in California and in other states vested in your Trust? Has a trust transfer deed been prepared, executed and duly recorded to transfer title of each of your real property interests to your Trust? Does the property tax statement show that the Trust owns that real property?…

To read more, please click here.

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CSLB Finally Allows Licensing of LLC’s

One of the first decisions a new business will make is deciding between an LLC and corporation.  One of my first questions to these business owners is “Will this entity require a license from a California state agency?”

Most California state agencies in my experience will not issue licenses to limited liability companies, but will license corporations without a problem.  LLC’s were a relatively new business entity that came into existence in California in 2000; although corporations have been an acknowledged business entity since California became a state. 

The issue of licensing an LLC comes up often with clients, but I see it the most with contractors.  Effective January 1, 2012, Senate Bill 392 authorizes the Contractors State Licensing Board (CSLB) to issue contractors licenses to LLC’s. 

Applications are now being accepted.  This is great for companies that plan to enter into a joint venture with another company and cannot elect to be taxed as an s-corporation.

It has taken a while for the various state agencies that issue licenses to catch up to the changes in business entity formation, but it appears to be slowly making adjustments to accommodate this structure. 

The requirements for LLC’s to obtain a license are similar to those required of corporations….

To read more, please click here.

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California Supreme Court Sides With Employers In Highly Anticipated Brinker Decision

The California Supreme Court issued a unanimous Opinion in Brinker v. Superior Court siding with California businesses in the battle over meal and rest periods. Most importantly, the Court held that “relieving an employee of all duty . . .transforms what follows into an off duty meal period, whether or not work continues.” Further, the Court clarified: “If work does continue, the employer will not be liable for premium pay. At most, it will be liable for straight pay, and then only when it ‘knew or reasonably should have known that the worker was working through the authorized meal period.’” This clarification of law will result in millions of dollars in savings to California employers, and counteract the explosion of wage and hour class action lawsuits that has occurred in recent years…”

Prior to the Court’s opinion in Brinker, the law in California was unsettled with regard to an employer’s duty in providing meal periods. Some courts had previously held that an employer had an affirmative obligation under California law to ensure that employees actually took their breaks, by literally forcing employees to stop work if they refused or facing legal culpability. This is significant because California is one of the few states that imposes penalties for failure to comply with the meal break requirements—employees in California are entitled to one hour of “premium pay” for each missed thirty minute meal period, and with employers that have hundreds of employees working every day, these hours can quickly add up resulting in daunting class action lawsuits with the potential for hundreds-of-thousands or even millions-of-dollars in damages. However, the California Supreme Court made it clear that there is no requirement that employers do anything beyond provide employees with the genuine opportunity to take a meal break. “Bona fide relief from duty and the relinquishing of control satisfies the employer’s obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay . . .” In holding such, the Court affirmed that employees that choose to work through their meal period, as long as they are not coerced or forced into doing so by their employer, will not result in any liability for the employer.

In addition to illuminating the law with regard to an employer’s duty to permit meal periods, the Court also gave keen insight into additional requirements involving meal and rest periods. Specifically, with regard to rest periods, the Court found that “[e]mployees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.” In addition, “[e]mployers are … subject to a duty to make a good faith effort to authorize and permit rest breaks in the middle of each work period, but may deviate from that preferred course where practical considerations render it infeasible.”

With respect to the timing of meal periods, the Court concluded: “Under the wage order, as under the statute, an employer’s obligation is to provide a first meal period after no more than five hours of work and a second meal period after no more than 10 hours of work.” These required meal breaks must occur at the start of the sixth and eleventh hours of the employee’s shift, respectively. In addition, the statute provides that the first meal period can be mutually waived if an employee’s shift is less than six hours and the second meal period can be mutually waived provided that the first was not waived and the total shift length is less than 12 hours…

To read more, please click here.

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Why You Should Be Interested in the Harsh Penalties for Charging Too Much Interest

A Note on California’s Usury Interest Laws for Consumer and Non-Consumer Loans

It’s not news that while the economy as a whole has tightened its belt, banks and other institutional lenders have become more reluctant to approve loans for individuals and small businesses.  In turn, the need to borrow money has only increased, forcing many of these individuals and small businesses to seek out loans from other individuals and companies in order to ride-out the economic downturn.

Before considering lending or borrowing money, it is important to know that California holds some of the harshest and strictest penalties on lenders of consumer loans who charge interest in excess of the maximum legal rate.  This includes treble damages, a felony charge, and jail time –even if the borrower knowingly enters into a written contract to pay interest at the higher rate and pleads with the lender to do so.

This article will give a brief overview of California’s usury interest laws and outline steps to take to avoid legal action.

What is California’s Usury Interest Law?

In California, there is a cap on the amount of interest that can be charged on a consumer loan. California’s usury law limits the interest rate on consumer loans to a maximum of 10% per year (equaling a maximum of .833% per month).  “Usury” is the charging of interest for a loan or forbearance on money in excess of the legal maximum.  “Interest” could be defined as anything of value that the lender receives directly or indirectly from the borrower, including fees, bonuses, commissions, and other miscellaneous charges.  “Forbearance” generally describes an agreement by the lender to extend the due date on an existing loan and refrain from taking legal action in return for an increased interest rate or a bonus.

California’s usury law is primarily codified in Article XV Section 1 of the California Constitution, but is further detailed in 10 different code sections which provide for a plethora of exceptions, mostly in favor of those institutions that are in the business of lending money.  Pursuant to the California Constitution, these code sections and case law, non-exempt lenders such as individuals and most small businesses can charge a maximum of 7% interest per year on a consumer loan not expressed in writing, and up to a maximum of 10% interest per year if memorialized by written contract.  A “consumer loan” is an amount of money, goods or things lent to a borrower primarily for personal, family or household purposes.  For all other loans, including those for home improvement, home purchase, business purposes, etc., a lender can charge the greater of 10% per year, or 5% plus the Federal Reserve Bank of San Francisco’s discount rate on the 25th day of the month preceding the earlier of the date of the loan is contracted for, or executed.  (The current discount rate as of March 16, 2012 was .75%.)

The compounding of interest, that is the charging of interest on interest that has already accumulated, is prohibited in California unless both parties have agreed to it in writing.  Otherwise, the interest must remain as simple interest on the outstanding balance only, over the life of the loan.  Also, for a loan to be usurious, it must be expressed in writing.  Without a sufficient written contract, the courts have held that there is no valid expression or consideration, and therefore there is no obligation on the borrower to pay the usurious interest.  If interest is collected in this manner above the maximum legal rate when there is no written contract, the interest is simply allocated to the principal.

Although “intent” by the lender to charge a usurious interest is an element of usury, intent will simply be presumed if the court deems the loan to be usurious, and the borrower need not prove actual intent or even knowledge by the lender.  The lender’s mistake of law or ignorance of the law is no defense, even if the borrower drafts the agreement and proposes the higher interest rate.

A specific exception may exist as some courts have held that the lender is not subject to the penalties in certain extreme cases of borrower misconduct during the formation of the agreement…

To read more of this article, please click here.


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