The California Financing Law provides that “[n]o person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner.” Cal. Fin. Code § 22100(a). The CFL further provides that if any provision of the CFL is "willfully violated in the making or collection of a loan, whether by a licensee or by an unlicensed person subject to this division [i.e., the CFL], the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction". That is is a very draconian result. However, it is important to note that the legislature placed this statute in Article 2, Chapter 4 of the CFL which concerns consumer loan penalties. Commercial loans, as defined in Section 22502, are not subject to Article 2, Chapter 4. Cal. Fin. Code § 22001(c).
Nonetheless, commercial borrowers will from time to time attempt to claim that their loans are illegal contracts based on the unlicensed status of their lenders. See Court Of Appeal Finds No Private Right Of Action Against Unlicensed Lender. In a recent ruling, U.S. District Court Judge William H. Orrick has also rejected the argument that a commercial loan from an unlicensed lender is an unenforceable, illegal contract:
The context in which the defendants' argument is offered is of no consequence; its defect is that the defendants have not shown that the California Financial Code provides for the voiding of unlicensed commercial loans in the manner that the defendants describe. That Side failed to register as a licensed lender in California does not render the Restated Agreements illegal.
Side, Inc. v. Off. Partners New York, LLC, 2025 WL 81576 (N.D. Cal. Jan. 13, 2025). In support of this ruling, Judge Orrick cites two earlier federal court decisions: Cent. Valley Ranch, LLC v. World Wide Invs., LLC II, 2012 WL 217685, report and recommendation adopted, 2012 WL 487046 (E.D. Cal. Feb. 14, 2012) and WF Capital, Inc. v. Barkett, 2010 WL 3064413 (W.D. Wash. Aug. 2, 2010).
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