California and New York are the two largest private-lending markets in the country, and if your portfolio spans both states, you face two distinct usury frameworks. Whether you qualify for a rate exemption depends on where the collateral sits, how you are licensed, and who your borrower is — not just the rate you charge.

• California ceiling: Constitution Art. XV §1 — ten percent for consumer loans.
• California exemption: Civ. Code §1916.1 — DRE-broker-arranged loans secured by real property.
• New York civil cap: sixteen percent under Gen. Oblig. Law §5-501; voids the interest provision.
• New York criminal cap: 25% under Penal Law §190.40; voids the entire loan.
• New York exemptions: entity borrower at $250,000 (civil) or $2.5M (criminal).

How the ceilings are structured

California sets a single statutory ceiling at the higher of ten percent annually or five percentage points above the San Francisco Federal Reserve discount rate on the 25th day of the month preceding the contract or execution date (Cal. Const. art. XV §1; Civ. Code §1916.12). New York runs two ceilings in parallel: the civil cap at sixteen percent under Gen. Oblig. Law §5-501 and the criminal cap at 25% under Penal Law §190.40. Crossing the civil cap voids the interest provision. Crossing the criminal cap voids the loan in its entirety and creates felony exposure for officers who authorized the rate.

How the exemptions work

California exempts by broker overlay. Civ. Code §1916.1 lifts the ceiling for any loan arranged by a California DRE-licensed real-estate broker and secured by real property. The exemption is procedural: the broker must be on the file in substance, not just in name. New York exempts by entity status and loan size. Loans of $250,000 or more to corporations sit outside the civil cap. Loans of $2.5M or more sit outside both caps. The exemption depends on the corporation being a real operating entity — see Barker v. Rokosz (E.D.N.Y. 2024) for the substance-over-form analysis.

How the servicer-licensing overlay differs

California treats servicing as a broker-regulated activity. A DRE-licensed broker who arranges a loan can service it within that broker license, subject to the Commissioner’s Regulations 2830–2835 trust-fund and reporting requirements. New York treats servicing as a separate licensed activity. NY Banking Law Part 419 requires mortgage loan servicer registration with the Department of Financial Services for any person engaged in servicing residential mortgage loans in New York — and the regulatory definition does not exempt business-purpose loans on residential property.

How enforcement priorities differ

California enforces primarily through the DRE’s broker-discipline track. Audit findings — trust-fund commingling, missing three-way reconciliations, incomplete columnar records — feed license suspension and revocation actions. New York enforces primarily through the Department of Financial Services, with parallel attention from the Attorney General on consumer-protection grounds. The Department’s 2024 enforcement priorities included servicer registration compliance and consumer-credit pierces in business-purpose lending.

How private lenders structure cross-state deals

A California broker who originates a loan secured by California real property under §1916.1 holds the exemption inside California. The same broker arranging a loan secured by New York property runs two separate analyses: California usury (the §1916.1 exemption does not travel with the broker because it is tied to California collateral, not to the broker’s license) and New York usury (the entity-borrower or loan-size exemption applies if the file supports it). A self-servicing California lender holding a New York note also faces NY Part 419 registration requirements before the first payment posts. Seven compliance mistakes private lenders make covers the most common multi-state licensing oversights in detail.

Expert Take

The collision point in cross-state private lending is almost always the servicer-licensing overlay, not the usury ceiling itself. A lender can clear California’s ceiling through the DRE-broker exemption and clear New York’s usury analysis through the entity-borrower threshold — and still be holding a licensing violation if they service the New York note without NY Part 419 registration. The ceiling and the servicing authority are independent questions. Both need answers before the first payment posts, not after an audit surfaces the gap.

Quick reference

• California consumer cap: ten percent (Const. art. XV §1).
• California non-consumer cap: higher of ten percent or five points above SF Fed discount rate.
• California exemption: DRE-broker-arranged, secured by real property (§1916.1).
• New York civil cap: sixteen percent (Gen. Oblig. Law §5-501); voids interest.
• New York criminal cap: 25% (Penal Law §190.40); voids the loan and triggers felony exposure.
• New York exemption (civil): entity borrower, $250,000 or more.
• New York exemption (criminal): entity borrower, $2.5M or more.
• California servicer overlay: DRE broker authority, Regulations 2830–2835.
• New York servicer overlay: DFS Part 419 registration required.

Reference content only. The interaction of state usury, federal Reg Z, and servicer licensing is fact-intensive — consult qualified legal counsel before applying this framework to a specific cross-state structure.

Related Topics

• AB 130: New California Law That Could Affect Your Second Mortgages
• Seven Compliance Mistakes Private Lenders Make
• Seven Mandatory Disclosures for Private Mortgage Lenders
• Five Compliance Traps New Private Lenders Must Avoid
• SAFE Act Compliance: A Private Lender’s Story