Regulation U, 12 CFR § 221.1 – 221.125, imposes certain requirements for lenders, other than securities brokers and dealers, who extend credit secured by margin stock. Regulation U defines “purpose credit” as “any credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock”. 12 CFR § 221.2.
California Assembly Member Brian Maienschein recently introduced a bill that takes aim at another type of “purpose credit”. His bill, AB 2380, would prohibit a licensee under the California Financing Law from making “a consumer loan to a borrower if that loan is to purchase a dog or cat”. The Assembly Member’s press release describes the bill as barring “predatory consumer loans from being offered for the purchase of a dog or cat”. As introduced, however, the bill would ban all consumer loans for this purpose, not simply “predatory consumer loans”, a term not defined or otherwise used in the California Financing Law. (“Consumer loan” is defined in Financial Code Section 22203).
“Every dog has like me the impulse to question, and I have like every dog the impulse not to answer.”1
For me, the Assembly Member’s bill does raise a few questions. Why, for example, will commercial loans for the purchase of canines and felines be permissible, but not consumer loans? Why will it be okay to borrow money from a CFL licensee to acquire a parakeet or horse for your family but not a Jellicle cat? Why will consumers be allowed to purchase a dog or cat with a credit card but not on credit from a CFL licensee? Why will sellers be permitted to enter into conditional sales contracts for the purchase of dogs and cats while forbidding borrowing from CFL licensees?
1Franz Kafka, Investigations of a Dog.