United States: Hawaii changes small dollar loan law
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Hawaii recently enacted HB 1192, which amends the state’s small dollar loan law by setting out a new licensing requirement for “installment lenders” and specifying various consumer protection requirements. The changes, which affect consumer loans of $ 1,500 or less, include a broad definition of âinstallment lenderâ that would include loans offered under a partnership banking model:
- “Any person whose activity is to offer or grant a consumer loan, who arranges a consumer loan for a third party or who acts as an agent for a third party, that the third party be exempted from the” authorization to practice under this Chapter or if approval, acceptance or ratification by a third party is necessary to create a legal obligation for the third party, by any method, including mail, telephone, Internet or any other electronic means.
The new law exempts banks and various other financial institutions, including entities licensed under the Hawaii Financial Services Loan Companies Act, but would nonetheless affect the ability of exempt entities to contract with brokers. or agents to make small loans on the basis of the foregoing language. Among other provisions, the bill:
- Annual interest rate cap on installment loans at 36%
- Provides that the maximum repayment period contracted for an installment loan is 12 months
- Provides for minimum repayment term of two months for installment loans of $ 500 or less, or four months for loans of $ 500.01 or more
- Limits monthly maintenance fees to between $ 25 and $ 35 depending on the original installment loan principal amount
- Declare that any installment loan made without a required license is void
- Prohibits a consumer’s reimbursement obligations from being guaranteed by a lien on real or personal property
The amendment also repealed Hawaii’s Deferred Deposit Act, which, along with installment lender license requirements, come into effect on January 1, 2022. The remaining provisions of HB 1192 came into effect on July, 1st.
Put into practice : The passage of Hawaii’s new law, among other things, marks a continuing trend to curb lending using a banking partnership model (we already discussed this latter trend in a previous blog post. Consumer Finance & FinTech here). These “anti-avoidance” laws effectively limit the interest rates that can be charged, even if the loans are issued by a bank that might otherwise not be subject to interest rate limitations.
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