What are the two possible interest rate limits for Brain Balance franchisees in California?

According to Brain Balance's 2025 Franchise Disclosure Document, any interest rate charged to a franchisee in California must adhere to the state's constitution. The interest rate cannot exceed either 10% annually, or 5% annually plus the prevailing interest rate charged to banks by the Federal Reserve Bank of San Francisco, whichever is higher. This stipulation is outlined in the California Addendum to the franchise agreement.

This means that if Brain Balance charges interest on any fees or financing provided to a California franchisee, the interest rate must not exceed the higher of these two limits. For example, if the Federal Reserve Bank of San Francisco is charging banks 3% interest, then Brain Balance could charge a maximum of 8% (5% + 3%) to its California franchisees. However, if the Federal Reserve rate is high enough that 5% plus that rate exceeds 10%, then the 5% plus Federal Reserve rate would be the applicable limit.

This provision protects California franchisees from excessively high interest rates and ensures compliance with California law. Prospective franchisees should monitor the Federal Reserve Bank of San Francisco's prevailing interest rates to understand the potential maximum interest rate Brain Balance could legally charge. Franchisees should also seek legal counsel to fully understand their rights and obligations under California law.