Under California Civil Code 2948.5, a lender making a loan secured by one-to-four-unit residential property cannot charge you per diem interest on a mortgage in California for any period more than one day before your loan proceeds are actually disbursed. There is one narrow exception: if you ask for the money to come out on a Monday or the day after a bank holiday, the lender may begin interest the prior business day, but only after giving you a specific written disclosure you sign before funds go into escrow. If a lender charged you for days before disbursement without meeting that exception, you were overcharged and are owed a refund.1California Legislative Information. California Code CIV 2948.5
The One-Day Rule
Civil Code 2948.5 is a prohibition first and a disclosure rule second. When a loan is secured by residential property improved with one to four dwelling units, interest cannot be collected for any period more than one day before the loan proceeds leave escrow. If there is no escrow but a mortgage or deed of trust is being recorded, the same one-day limit runs against the date funds are disbursed to you, to a third party on your behalf, or to the lender to pay off an existing loan. Where there is neither escrow nor a recording, interest cannot start before the actual disbursement date.1California Legislative Information. California Code CIV 2948.5
The reason the rule exists is that closings rarely line up neatly. You sign documents one day, the lender wires funds another, escrow releases money a third. Without this limit, a lender could clock interest across that whole gap. At a 6.5% rate on a $500,000 loan, each extra day runs roughly $89, so a three-day misalignment is real money.
California Financial Code 50204(o) backs the statute up by treating any violation of the per diem rule as a prohibited act for licensed residential mortgage lenders. The Department of Financial Protection and Innovation lets a lender show compliance through a written certification or other loan-file documentation the Commissioner finds acceptable.2Department of Financial Protection and Innovation. Release No. 58-FS – Per Diem Interest
The Monday and Post-Holiday Exception
There is exactly one situation where a California lender may lawfully charge you interest for more than one day before disbursement. If you request that your loan proceeds be disbursed on a Monday or on the day immediately following a bank holiday, interest may start accruing on the business day before disbursement. For that to be valid, the lender must give you a written disclosure stating two specific things: the dollar amount of the additional per diem interest you will pay because of the Monday or post-holiday timing, and the fact that you could avoid the extra charge by selecting a disbursement date that falls on a day immediately following a business day.1California Legislative Information. California Code CIV 2948.5
You have to sign the disclosure before the lender places funds in escrow. If the lender skips the disclosure, hands it to you late, or omits either required piece of information, the extra per diem charge is not valid. DFPI examiners have cited lenders on exactly this point. In the examination of Real Estate Mortgage Network, auditors found per diem disclosures in loan files that were not prepared in accordance with Section 2948.5(b), so they did not count toward compliance.3Department of Financial Protection and Innovation. Statement of Facts – Real Estate Mortgage Network
Which Loans Are Covered
The protection applies to loans secured by a mortgage or deed of trust on residential property improved with one to four dwelling units: single-family homes, duplexes, triplexes, and fourplexes.1California Legislative Information. California Code CIV 2948.5 A few categories sit outside it.
Loans secured by five-or-more-unit properties or by commercial real estate are not covered. Under federal Regulation Z, credit extended to acquire or improve non-owner-occupied rental property is generally treated as a business-purpose loan and is exempt from consumer disclosure requirements.4Consumer Financial Protection Bureau. 12 CFR 1026.3 – Exempt Transactions
The statute also carves out loans subject to subdivision (c) of Section 10242 of the Business and Professions Code, which covers certain mortgage loans arranged by real estate brokers. If your loan falls under that section, 2948.5’s per diem limit does not apply.1California Legislative Information. California Code CIV 2948.5
Open-end credit, including home equity lines of credit, works differently. Interest on a HELOC accrues on a fluctuating balance rather than on a single disbursement, so the one-day rule built around a disbursement event does not fit, and these products are governed by Regulation Z’s open-end credit rules instead.
How To Check Your Closing for an Overcharge
Most per diem violations are not deliberate. They come from the closing team starting the interest clock on the wrong day: the signing date, or the day the lender internally funds the loan, rather than the day escrow actually disburses to you or on your behalf. In the DFPI’s NFM case, individual overcharges ran from one to four extra days per loan, with dollar amounts between roughly $31 and $212.5Department of Financial Protection and Innovation. Accusation – NFM Inc.
You can catch this yourself. Pull your Closing Disclosure and find the prepaid interest line; it shows the per diem rate and the number of days the lender charged. The form reads something like “Prepaid Interest ($68.49 per day for 15 days @ 5.000%).”6eCFR. 12 CFR 1026.37 – Content of Disclosures for Certain Mortgage Transactions Then pull your final settlement statement and locate the actual disbursement date. Count forward from one day before disbursement to the end of the month. If the lender charged you more days than that count, and no signed Monday or post-holiday disclosure sits in your file to justify the extra, you were overcharged.
Timing of the closing itself is a separate planning point. Because mortgage interest is paid in arrears, closing early in the month means you prepay a longer stretch of per diem interest at the table. Close near month-end and you prepay just a few days. The total interest you pay over the life of the loan does not change; only the cash due at closing does.
What To Do If You Were Overcharged
Start with the lender. Send a written request pointing to the Closing Disclosure line, the actual disbursement date from your settlement statement, and the day count you believe is correct. Ask for a refund of the extra days of interest. The DFPI, when it finds overcharges during an examination, routinely requires licensed lenders to refund affected borrowers with interest; in the NFM case, 653 borrowers were refunded a total of $85,514.38, which included 10% interest on the overcharged amounts.5Department of Financial Protection and Innovation. Accusation – NFM Inc.
If the lender does not resolve it, file a complaint with the Department of Financial Protection and Innovation, which accepts complaints against licensed residential mortgage lenders through its website. The Commissioner can issue a written order directing a lender to stop a violation when there are reasonable grounds to believe the law was broken.7California Legislative Information. California Financial Code FIN 50321
A private claim is also available. California’s Unfair Competition Law, Business and Professions Code section 17200, reaches unlawful business practices, and charging per diem interest in violation of Civil Code 2948.5 qualifies as unlawful. A successful UCL claim can produce restitution and injunctive relief. For a single overcharge of a few hundred dollars, the DFPI route is usually the faster path; for a pattern that affected many borrowers, UCL litigation has historically been the mechanism that scales.