Legislative negotiators agree to end payday loans in Hawaii by 2022
A bill to end payday loans in Hawaii and replace them with low-interest installment loans is under consideration in the Plenary House and Senate for a vote after legislative negotiators reached agreement on the measure on Tuesday afternoon.
The final version of House Bill 1192 allows consumers to take out an installment loan as high as $ 1,500 with an annual interest cap of 36%, said representative Aaron Johansen, adding that lenders can also charge a monthly fee of up to $ 35 depending on the loan size.
“It really is a huge change in the world of economic justice. We know there are so many struggling people in Hawaii who live paycheck to paycheck, especially exacerbated by the pandemic, ”Johansen told Civil Beat 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 is going to be one of the biggest economic justice victories of this session.”
HB 1192 would phase out Hawaii’s statutory structure for payday loans – short-term, high-cost loans – 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 debt and interest accruing over time,” Johansen said. “The current payday loan system is being set up against them.”
Senator Rosalyn Baker has lobbied for years to regulate payday loans in Hawaii, where a 2005 analysis by the state auditor found that a 14-day loan could have so many fees that if it was renewed in 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 to critical testimony from payday loan companies.
This year, the Pennsylvania-based Dollar Financial Group, which owns Money Mart, supported the creation of installment loans while Maui Loan Inc., a local company that offers payday loans, continued to oppose the elimination of payday loans.
Johansen said the version of the bill approved by the conference committee on Tuesday was inspired by recent reforms in Virginia and Ohio and research from the Pew Charitable Trusts.
Johansen and Baker both credited Iris Ikeda, commissioner of financial institutions at the State Department of Commerce and Consumer Affairs.
One of the concerns of 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 it’s important to note that the product is important to ensure that people who don’t get or can’t get loans and banks always have options if they need the money.
A 2019 survey by the Federal Deposit Insurance Corporation found that 3% of Hawaiian households are unbanked, up from just 0.5% in 2011.