What is California's usury limit?

Under Article XV, §1 of the California Constitution, the interest ceiling for a personal, family, or household loan is 10% per year. For most other loans, including real-property loans, the limit is the greater of 10% per year or 5% plus the Federal Reserve Bank of San Francisco discount rate. These ceilings apply only when no exemption applies, and California's usury law has many exemptions.

What does it mean to "arrange" a loan?

To arrange a loan under §1916.1, a broker must actively participate in putting the transaction together — soliciting or negotiating its terms — not merely perform escrow-style or clerical tasks on a deal the parties already negotiated. In Gibbo v. Berger (2004), a broker who only complied with escrow instructions, prepared documents on preprinted forms, and obtained title insurance was held not to have arranged the loan, so the exemption did not apply.

Does the exemption apply if the broker is the borrower?

No. The exemption covers a broker who makes or arranges a loan as principal lender or as agent for others, whether or not the broker is acting within the scope of the license. But it does not apply when the licensed broker is only the borrower. The exemption attaches to the broker's role in making or arranging the financing, not to the borrower's license status.

Can a real-property loan charge more than 10% interest?

Yes, if a licensed real estate broker made or arranged it and it is secured by a lien on real property, because §1916.1 removes the usury ceiling entirely for such loans. Without a qualifying broker in that role, a non-exempt lender is bound by the constitutional ceiling — the greater of 10% or 5% plus the SF Federal Reserve discount rate — and a higher rate may be usurious.

Does the exemption cover loan extensions?

Yes. Civil Code §1916.1 exempts any loan "or forbearance" made or arranged by a licensed broker and secured by real property. A forbearance is an agreement to refrain from enforcing a debt, such as extending a loan's due date. So a qualifying broker-arranged extension of an existing real-property loan is also outside the usury ceiling.

California Usury Law & the Broker Exemption (Civ 1916.1)

TL;DR

California limits the interest rate a lender may charge through its usury law, but a broad exemption removes most real-estate lending from those limits. The rate ceiling comes from the California Constitution, Article XV, §1: for most non-exempt loans, interest may not exceed the greater of 10% per year or 5% plus the Federal Reserve Bank of San Francisco discount rate. That ceiling applies mainly to private lenders who are not in the regular business of lending. The key exemption for real estate is in Civil Code §1916.1: the constitutional rate limit does not apply to any loan or forbearance made or arranged by a person licensed as a California real estate broker and secured, in whole or in part, by a lien on real property. A loan that qualifies for this broker exemption may carry any interest rate the borrower and lender agree to. To "arrange" a loan within the meaning of §1916.1, the broker must actively participate in putting the transaction together — not merely act as an escrow-style intermediary on a deal the parties already negotiated, as the courts made clear in Gibbo v. Berger. The exemption covers the broker acting as principal or as agent for others, but it does not apply when the broker is only the borrower. This is one of the most heavily tested points in California finance questions, because it explains how hard-money and private real-estate loans lawfully carry rates well above 10%.

The usury rate ceiling

Usury is the charging of interest above a legal maximum. In California, that maximum is set by the Constitution, Article XV, §1. For a loan used primarily for personal, family, or household purposes, the limit is 10% per year. For other loans — including most loans used to buy, improve, or refinance real property — the limit is the greater of 10% per year or 5% plus the discount rate charged by the Federal Reserve Bank of San Francisco on the 25th day of the month before the loan.

These ceilings, however, only bite when no exemption applies. California's usury law is structured as a general prohibition riddled with exemptions, and the practical reality is that most institutional and professionally arranged lending falls into one exemption or another. Banks, credit unions, and licensed finance lenders are exempt, and — most important for real estate — so are qualifying broker-arranged loans.

The broker exemption in Civil Code §1916.1

The exemption that matters most in real estate practice is codified in Civil Code §1916.1. It provides that the interest-rate restrictions of Article XV, §1 do not apply to any loan or forbearance made or arranged by a person licensed as a California real estate broker, when the loan is secured directly or collaterally, in whole or in part, by a lien on real property.

The effect is significant: a loan that fits this exemption may bear any rate of interest the borrower and lender agree to, with no usury ceiling at all. This is the legal foundation of the hard-money and private-mortgage market in California, where a licensed broker arranges a loan secured by real property at a rate the constitutional limit would otherwise forbid. The exemption also reaches a "forbearance" — an agreement to delay enforcing a debt, such as extending a due date — not just the original loan. For how brokers who arrange these loans must document terms to borrowers, see our guide to the Mortgage Loan Disclosure Statement.

What "made or arranged" means

The exemption turns on the phrase "made or arranged," and the word "arranged" has been the subject of repeated litigation. Merely holding a broker's license is not enough; the broker must actually do the work of arranging the loan for the exemption to attach.

In Gibbo v. Berger (2004), the California Court of Appeal held that a broker who only performed escrow-style tasks — complying with escrow instructions, preparing documents on preprinted forms, obtaining title insurance — on a loan the parties had already negotiated between themselves had not "arranged" the loan, so the exemption did not apply. To arrange a loan, the broker must actively participate in putting the transaction together, such as by soliciting or negotiating its terms. The level of participation the courts require is not extraordinarily high, but it must be more than clerical.

Question	Answer under §1916.1
Rate ceiling for a non-exempt real-property loan	Greater of 10% or 5% + SF Fed discount rate
Rate ceiling for a qualifying broker-arranged loan	No ceiling — any agreed rate
Broker acts as principal or as agent for others	Exemption applies
Broker is only the borrower	Exemption does not apply
Broker only did escrow-style tasks (Gibbo v. Berger)	Not "arranged" — exemption denied

Who the exemption covers, and who it does not

Civil Code §1916.1 provides that a loan is "made or arranged" by a licensed broker whether the broker acts as the principal lender or as an agent arranging the loan for others, and whether or not the broker is acting within the course and scope of the license. That is a broad reach — it protects the ordinary hard-money lender who is also a broker just as much as the broker arranging a loan between two other parties.

There is a clear outer boundary, though. The exemption does not apply when the licensed broker is only the borrower on the loan; a broker cannot invoke the exemption simply because the borrower happens to hold a license. The exemption is tied to the broker's role in making or arranging the financing, not to the borrower's license status. For how a real-property lien of this kind is enforced if the loan defaults, see our guide to nonjudicial foreclosure and the trustee's sale.

Why this matters on the exam

The broker usury exemption is tested heavily because it ties together licensing, finance, and the difference between "making" and "arranging" a loan. A common exam scenario presents a private loan secured by a deed of trust at an interest rate above 10% and asks whether it is usurious. The answer depends entirely on whether a licensed broker made or arranged it: if yes, and the loan is secured by real property, there is no usury violation regardless of the rate; if no broker was involved in that role, the constitutional ceiling applies and the loan may be usurious.

The distinction the questions probe is almost always the "arranged" element — testing whether the broker did enough to qualify, or merely stood near a transaction the parties arranged themselves. Understanding that the exemption rewards genuine arranging activity, and that it never attaches merely because a licensee is the borrower, is what these questions reward. For the broader licensing framework that defines who counts as a broker in the first place, see our guide to the broker versus salesperson license distinction.

Frequently Asked Questions

What is California's usury limit?: Under Article XV, §1 of the California Constitution, the interest ceiling for a personal, family, or household loan is 10% per year. For most other loans, including real-property loans, the limit is the greater of 10% per year or 5% plus the Federal Reserve Bank of San Francisco discount rate. These ceilings apply only when no exemption applies, and California's usury law has many exemptions.
How does the real estate broker usury exemption work?: Civil Code §1916.1 provides that the constitutional interest-rate limits do not apply to any loan or forbearance made or arranged by a licensed California real estate broker and secured, in whole or in part, by a lien on real property. A loan that qualifies may carry any interest rate the parties agree to, with no usury ceiling. This is the legal basis for hard-money and private real-property loans that carry rates above 10%.
What does it mean to "arrange" a loan?: To arrange a loan under §1916.1, a broker must actively participate in putting the transaction together — soliciting or negotiating its terms — not merely perform escrow-style or clerical tasks on a deal the parties already negotiated. In Gibbo v. Berger (2004), a broker who only complied with escrow instructions, prepared documents on preprinted forms, and obtained title insurance was held not to have arranged the loan, so the exemption did not apply.
Does the exemption apply if the broker is the borrower?: No. The exemption covers a broker who makes or arranges a loan as principal lender or as agent for others, whether or not the broker is acting within the scope of the license. But it does not apply when the licensed broker is only the borrower. The exemption attaches to the broker's role in making or arranging the financing, not to the borrower's license status.
Can a real-property loan charge more than 10% interest?: Yes, if a licensed real estate broker made or arranged it and it is secured by a lien on real property, because §1916.1 removes the usury ceiling entirely for such loans. Without a qualifying broker in that role, a non-exempt lender is bound by the constitutional ceiling — the greater of 10% or 5% plus the SF Federal Reserve discount rate — and a higher rate may be usurious.
Does the exemption cover loan extensions?: Yes. Civil Code §1916.1 exempts any loan "or forbearance" made or arranged by a licensed broker and secured by real property. A forbearance is an agreement to refrain from enforcing a debt, such as extending a loan's due date. So a qualifying broker-arranged extension of an existing real-property loan is also outside the usury ceiling.

Bottom Line

California's usury ceiling comes from Article XV, §1 of the Constitution: for most non-exempt real-property loans, the greater of 10% per year or 5% plus the San Francisco Federal Reserve discount rate. But Civil Code §1916.1 exempts any loan or forbearance made or arranged by a licensed California real estate broker and secured by a lien on real property, and a qualifying loan may carry any agreed rate with no ceiling. The exemption turns on the broker genuinely arranging the loan — actively participating in the transaction, not just handling escrow-style tasks, as Gibbo v. Berger established. It covers the broker as principal or as agent for others but never applies when the broker is only the borrower, and it reaches forbearances such as loan extensions, not just new loans. This is the legal foundation of California's hard-money market and a heavily tested exam point, because it explains how real-property loans lawfully exceed 10%. For related California topics, see our guides to the Mortgage Loan Disclosure Statement, nonjudicial foreclosure, and the broker versus salesperson license distinction.

Source: California Civil Code §1916.1 (official text) · Cal. Civ. Code §1916.1 (FindLaw) · California DRE Reference Book — real estate finance