Loans to California Public Officials

There are state laws in California regulating loans made to public officials. These legal provisions are contained in Government Code Title 9, Chapter 7, Article 4.6, which contains Sections 87460 to 87462. Article 4.6 is title “Loans to Public Officials” and was added to the Government Code in 1997.

Section 87460(a) applies to an elected officer of a state or local government agency from the date of the elected officer’s election to office through the date that the elected officer vacates office. Section 87460 prohibits a state or local officer from receiving a personal loan from any officer, employee, member, or consultant of the state or local government agency in which the elected officer holds office or over which the elected officer’s agency has direction and control.

In addition, Section 87460(b) prohibits a public official who is required to file a statement of economic interest, or who is exempt from the state civil service system, from receiving a personal loan from any officer, employee, member, or consultant of the state or local government agency in which the public official holds office or over which the public official’s agency has direction and control.

This prohibition on personal loans does not apply to loans made to a public official whose duties are solely secretarial, clerical, or manual.

Section 87460(c) applies to an elected officer of a state or local government agency from the date of the elected officer’s election to office through the date that the elected officer vacates office. It prohibits such elected officers from receiving a personal loan from any person who has a contract with the state or local government agency to which that elected officer has been elected or over which that elected officer’s agency has direction and control.

This prohibition does not apply to loans made by banks or other financial institutions or to any indebtedness created as part of a retail installment or credit card transaction.

Section 87460 (d) prohibits a public official who is required to file a statement of economic interest, or who is exempt from the state civil service system, from receiving a personal loan from any person who has a contract with the state or local government agency to which that elected officer has been elected or over which that elected officer’s agency has direction and control.

This prohibition does not apply to loans made by banks or other financial institutions or to any indebtedness created as part of a retail installment or credit card transaction. It also does not apply to loans made to a public official whose duties are solely secretarial, clerical, or manual.

Section 87460(e) excludes from the above prohibitions:

• Loans made to the campaign committee of an elected officer or candidate for elective office.

• Loans made by a public official’s spouse, child, parent, grandparent, grandchild, brother, sister, parent-in-law, brother-in-law, sister-in-law, nephew, niece, aunt, uncle, or first cousin, or the spouse of any such persons, provided that the person making the loan is not acting as an agent or intermediary for any person not otherwise exempted under this section.

• Loans from a person which, in the aggregate, do not exceed $250 at any given time.

Section 87461 prohibits an elected officer of a state or local government agency from receiving a personal loan of $500 or more, except when the loan is in writing and clearly states the terms of the loan, including the parties to the loan agreement, date of the loan, amount of the loan, term of the loan, date or dates when payments shall be due on the loan and the amount of the payments, and the rate of interest paid on the loan. This section does no apply to specified types of loans.

Section 87462 provides that a personal loan becomes a gift to the debtor in the following circumstances:

• If the loan has a defined date or dates for repayment, when the statute of limitations for filing an action for default has expired.

• If the loan has no defined date or dates for repayment, when one year has elapsed from a specified occurrence.

However, Section 87462 does not apply to the following types of loans:

• A loan made to the campaign committee of an elected officer or a candidate for elective office.

• A loan that would otherwise not be a gift.

• A loan that would otherwise be a gift, but on which the creditor has taken reasonable action to collect the balance due.

• A loan that would otherwise be a gift, but on which the creditor, based on reasonable business considerations, has not undertaken collection action.

• A loan made to a debtor who has filed for bankruptcy and the loan is ultimately discharged in bankruptcy.