A bill to end payday loans in Hawaii and replace them with lower interest rate loans is being considered in the House and Senate as a whole for a vote after legislative negotiators are reached agreement on the measure on Tuesday afternoon.
The final version of House Bill 1192 allows consumers to take out an installment loan of up to $ 1,500 with an annual interest cap of 36%, said representative Aaron Johanson, adding that lenders can also charge a monthly fee of up to $ 35 depending on the size of the loan.
“It really is a huge change in the world of economic justice. We know there are so many people in Hawaii who are struggling to make a living from paycheck to paycheck, especially exacerbated by the pandemic, ”Johanson said after the hearing.
“This will ensure that, from a lending point of view, we will be able to help these people overcome these unforeseen financial problems,” he continued. “For me, this will be one of the biggest economic justice victories of this session.”
HB 1192 would phase out Hawaii’s statutory structure for payday loans – a short-term, high-cost loan – by the end of this year and replace the product with more regulated installment loans with lower interest rates in 2022.
“The installment loan is much better for the consumer with much less accumulated debt and interest over time,” Johanson said. “The current payday loan system is against them. “
For years, Senator Rosalyn Baker has been pushing to regulate payday loans in Hawaii, where a 2005 analysis by the state’s auditor found that a 14-day loan could result in fees so high it cost it was renewed over the course of a year, the annual interest could legally be as high as 459%.
“What Hawaii was charging was three times what the same lender was charging consumers in other states. We had a really, really dysfunctional market, ”she said.
As other states clamped down on high interest rates, Baker’s reform efforts have consistently met resistance in the House in the face of critical testimony from payday loan companies.
This year, Pennsylvania-based Dollar Financial Group, owner of Money Mart, supported the creation of installment loans while Maui Loan Inc., a local company that offers payday loans, continued to oppose the cut. payday loans.
Johanson said the version of the bill approved by the conference committee Tuesday was inspired by recent reforms in Virginia and Ohio and research conducted by the Pew Charitable Trusts.
Johanson and Baker both credited Iris Ikeda, commissioner of financial institutions at the State Department of Commerce and Consumer Affairs.
One of the concerns raised by Baker’s reform proposals in previous years was that cutting the interest rate from 459% to 36% would bankrupt payday lenders. Lawmakers have said that lenders can choose to offer installment loans instead and noted that the proceeds are important to ensure that people who do not or cannot get loans from banks still have debts. options if they need the money.
A 2019 survey by the Federal Deposit Insurance Corp. found that 3% of Hawaiian households are unbanked, up from just 0.5% in 2011.