Hawaii recently adopted HB 1192, which amends the state’s Small Dollar Lending Act 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 “installment lender” that would include loans offered under a partnership banking model:
- “Any person whose activity consists in offering or granting 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 exercise 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 means, 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 grant small loans on the basis of the previous 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 between $ 25 and $ 35 depending on the initial principal amount of the installment loan
- Declare that any installment loan made without a required license is void
- Prohibits a consumer’s reimbursement obligations from being secured 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The amendment also repealed Hawaii’s Deferred Deposit Act, which, along with installment lender license requirements, come into effect on January 1, 2022.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 1st of July.
Put into practice : The passage of Hawaii’s new law marks, among other things, a continuing trend to curb lending using a banking partnership model (we have already discussed this latter trend in a previous Consumer blog post. 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.