Earlier this year, the Governor of Hawaii signed HB 1192, which changes certain provisions regarding small dollar lending requirements. Specifically, the draft law provides for a new authorization requirement for “installment lenders” and specifies various consumer protection requirements. The bill generally defines installment loans as “any person who offers or grants a consumer loan, who arranges a consumer loan for a third party or acts as an intermediary for a third party, regardless of whether the third party is exempt from licensing under this chapter or whether approval, acceptance or ratification by a third party is required to create a legal obligation on the third party by any means including mail, telephone, internet or electronic means Banking partnership model within the scope of the new law.
In addition: (i) the bill limits the installment loan amounts to $ 1,500 and limits the total amount of changes to no more than 50 percent of the principal loan amount; (ii) limits monthly maintenance fees to $ 25 to $ 35, depending on the initial principal amount of the installment loan; (iii) stipulates that the minimum repayment period is two months for installment loans of US $ 500 or less, or four months for loans of US $ 500.01 or more; (iv) states that lenders “must accept all or part of a consumer’s prepayment before the loan is due and not charge the consumer a fee or penalty if the consumer chooses to prepay the loan; provided that if a prepayment is made, any overdue interest and fees are paid first; (v) prohibits a consumer’s repayment obligations from being secured by a lien on real estate or personal property; (vi) prohibits lenders from requiring consumers to purchase ancillary products such as credit insurance; (vii) provides that the contractually agreed maximum term of an installment loan is 12 months; (viii) limits the annual interest rate on installment loans to 36 percent; and (ix) declares that an installment loan granted without a required license is void (the withdrawal, receipt or withholding of principal, interest, fees or other charges in connection with a canceled loan is prohibited).
The bill exempts certain financial institutions (e.g., Banks, savings banks, savings and credit cooperatives, custodian and non-custodian financial service credit companies, credit unions) from the admission requirements for installment lenders.
The bill also repeals the existing state deferred deposit law. While HB 1192 went into effect on July 1, provisions to repeal the existing Deferred Deposit Act and Licensing Requirements for Installment Lenders will come into effect on January 1, 2022. License applications will be available through the nationwide multistate licensing system.