In Los Angeles, an individual may lend to a relative, but the California Constitution caps the rate of a personal loan from a non-exempt lender at 10% a year, and the interest is taxed by both the IRS and the Franchise Tax Board.
Article XV of the California Constitution
Article XV caps interest at 10% a year on a loan for personal, family or household purposes when the lender does not belong to an exempt category. Banks follow other rules, but a neighbour in Pasadena lending money remains bound by it.
DFPI: California's financial regulator
The Department of Financial Protection and Innovation issues California Financing Law licences to professional lenders. It also publishes a list of scam alerts. Any company offering loans to Angelenos must be able to show a licence number that can be verified.
The fake notario trap in Hispanic neighbourhoods
In Boyle Heights or East LA, so-called notarios present themselves as legal experts, although a California notary public cannot give any legal advice. Our page on the fake notary scam details this scheme, common among immigrant families.
Mexican tandas and Korean gye in Koreatown
The tandas of Mexican families and the gye practised in Koreatown work like rotating savings clubs: each member pays in and receives the pot in turn. Draw up a signed list of members and the schedule, because no authority guarantees these circles.
Irregular incomes in Hollywood jobs
Screenwriters, set technicians and freelance film crew often live between two contracts. The 2023 strikes multiplied advances between colleagues. A loan tied to a future fee should set a repayment deadline that does not depend on the shoot going ahead.
After the January 2025 wildfires
The Palisades and Eaton fires pushed many victims to borrow from relatives while waiting for insurance payouts. Scammers then offered fake rebuilding loans. Check any offer with the DFPI before sending a single personal document to anyone.
California tax on interest received
California taxes interest as ordinary income under its progressive scale, on top of federal tax. An Angeleno lender therefore reports it twice, to the IRS and to the Franchise Tax Board. An enrolled agent or a CPA can confirm the exact treatment.
Los Angeles County small claims court
The county's Superior Court hears small claims up to 12,500 dollars for an individual, without a lawyer. A free advisory service helps prepare the case. Bring the promissory note, transfer records and the messages in which the borrower acknowledges the debt.
DCBA: the county's help for consumers
The Los Angeles County Department of Consumer and Business Affairs advises fraud victims for free and offers mediation. For reporting online scams, our page on how to report a private loan scam lists the useful steps.
Glendale's Armenian diaspora and family loans
In Glendale and Burbank, the Armenian community readily uses family loans to open a business. Even between cousins, a written agreement in English, possibly with an Armenian version, sets out the rate, the instalments and what happens to the debt on death.
A loan for a rental deposit in Santa Monica
High rents on the Westside often require several thousand dollars of deposit at short notice. An instant loan offer with no checks, posted on Craigslist or Instagram, usually hides a fee request. Our page on instant loans between individuals explains why.
Pointers for other American cities
California's rules are among the strictest in the country for unlicensed lenders. Our overview of private lending in the United States compares the situation in Los Angeles with New York, Texas, Illinois and Arizona, state by state.
Steps for a private loan in Los Angeles
- Check that the annual rate, fees included, does not exceed 10% if the loan funds a personal or family need.
- Draft a promissory note in English governed by California law, with a translation for a Spanish- or Korean-speaking borrower.
- Have the signatures certified by a notary public commissioned by the California Secretary of State.
- Send the money by bank transfer and keep the confirmation showing both names.
- Report the interest received to the IRS and the Franchise Tax Board.
- Contact the DFPI or the county DCBA at the slightest doubt about a lender.
Reference figures in California
| Topic | Value | Note |
|---|---|---|
| Maximum rate on a non-exempt personal loan | 10% a year (indicative) | Article XV of the California Constitution |
| Small claims limit for an individual | 12,500 dollars (indicative) | County Superior Court |
| Tax on interest | Federal scale plus California scale | Reported to the IRS and the FTB |
| Professional lender | California Financing Law licence | Issued by the DFPI |
| Fees demanded by a fake notario | Near-certain loss | Report to the DCBA |
Useful documents in Los Angeles
- California driver license, state ID card or passport
- Signed, dated promissory note governed by California law
- Repayment schedule in dollars
- Bank statements of both parties
- Proof of income, such as a production contract or payslip
- Written list of members and turns for a tanda or gye
Traps to avoid in Los Angeles County
- Setting 15% interest between friends for a car purchase, which exceeds the constitutional limit for a non-exempt lender.
- Paying an East LA notario to "validate" a loan when they have no legal authority whatsoever in California.
- Answering a post-fire rebuilding loan offer that asks for your Social Security number and processing fees.
- Joining a tanda without personally knowing the organiser or the order in which the pots are paid out.
- Lending to a film-set colleague with no deadline, tying repayment to a project that may be cancelled.
What Angelenos ask about private loans
Does the 10% limit apply to a loan to open a restaurant in Los Angeles?
For a business-purpose loan, the California Constitution sets a different formula linked to the rate of the Federal Reserve Bank of San Francisco. The exceptions are technical: have a California attorney review the contract before setting the rate.
Is a tanda legal in California?
A tanda among relatives, with no profit for the organiser, is a tolerated and common savings practice. The risk lies in a member defaulting or the organiser disappearing. No insurance covers these losses, hence the value of a signed list.
What should I do if a lender found on Instagram demands fees before paying out?
Pay nothing. A legitimate lender deducts its fees from the loan or bills them after signing. Keep screenshots, report the profile to the social network, then file a report with the FTC and the DFPI.
Can a French resident lend to their child studying at UCLA?
Yes. Draw up a contract specifying the currency, the rate and the governing law, then make a traceable transfer. Depending on the amount, the French lender may have a declaration to file in France, and the student must be able to show where the funds came from.