A bill to end payday loans in Hawaii and replace them with lower installment loans is on the way to a vote across the House and Senate after negotiators reached an agreement on the measure Tuesday afternoon.
The final version of House Bill 1192 enables consumers Take out an installment loan of up to $ 1,500 with an annual interest rate cap of 36%, said Rep. Aaron Johanson, adding that lenders can also charge a monthly fee of up to $ 35 depending on the size of the loan.
“This is truly a tremendous upheaval in the world of economic justice. We know there are so many people in Hawaii struggling from paycheck to paycheck, especially exacerbated by the pandemic, “Johanson said after the hearing.
“This will ensure that, from a lending perspective, we can help these people cope with these unforeseen financial problems,” he continued. “For me, this will be one of the greatest economic justice gains from this session.”
HB 1192 would phase out Hawaii’s legal payday loan structure – a short term, expensive loan – by the end of this year and replace the product with more regulated, lower-interest installment loans in 2022.
“The installment loan is much better for the consumer because they have much less accrued debt and interest over time,” said Johanson. “The current payday loan system is set up against them.”
Senator Rosalyn Baker has been pushing for years to regulate payday loans in Hawaii, where a 2005 analysis by the state chartered accountant found that a 14-day loan may incur so many fees that if renewed over the course of a year, annual interest would become legal up to 459%.
“What Hawaii charged was three times what the same lender charged consumers in other states. We had a really, really dysfunctional market, ”she said.
When other states cracked down on the high interest rates, Baker’s reform efforts met with repeated opposition in the face of critical statements from payday lending companies in the House of Representatives.
That year, Pennsylvania-based Dollar Financial Group, owned by Money Mart, helped create installment loans, while Maui Loan Inc., a local payday loan company, continued to oppose the elimination of payday loans.
Johanson said the version of the bill approved by the conference committee on Tuesday was inspired by recent reforms in Virginia and Ohio and investigations by the Pew Charitable Trusts.
Johanson and Baker both attributed to Iris Ikeda, chief financial officer for the State Department of Commerce and Consumer Affairs.
One of the concerns with Baker’s reform proposals in previous years was that lowering the interest rate from 459% to 36% would cause payday lenders to go out of business. Legislators said lenders can offer installment loans instead, noting that the product is important in ensuring that people who cannot, or cannot get, bank loans still have options when they need money.
A survey by the Federal Deposit Insurance Corp. from 2019 found that 3% of households in Hawaii do not have a bank account, up from just 0.5% in 2011.