USA: Hawaii modifies small dollar loan law
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Hawaii recently enacted HB 1192, which amends the state’s small dollar loan law by establishing a new license requirement for “installment lenders” and specifying various consumer protection requirements. The amendments, which affect consumer loans of $ 1,500 or less, include a broad definition of “installment lender” that would capture loans offered under a partnership banking model:
- “Any person who is engaged in offering or granting a consumer loan, who manages a consumer loan for a third party or who acts as agent for a third party, regardless of whether the third party is exempt from the license under this chapter or whether approval, acceptance or ratification by a third party is necessary to create a legal obligation for the third party, through any method, including mail, telephone, Internet or any electronic means “.
The new law exempts banks and various other financial institutions, including entities authorized 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 dollar loans based on the above language. Among other provisions, the bill:
- Limit the annual interest rate on installment loans to 36 percent
- It establishes that the maximum repayment term contracted for an installment loan is 12 months.
- It stipulates that the minimum repayment term is two months for installment loans of $ 500 or less, or four months for loans of $ 500.01 or more.
- Limit monthly maintenance fees to between $ 25 and $ 35 depending on the original principal amount of the installment loan
- Declares that any installment loan made without a required license is void
- Prohibits a consumer’s payment obligations from being secured by a lien on movable or immovable property
The amendment also repealed Hawaii’s law on deferred deposits, which along with the installment lender license requirements take effect on January 1, 2022. The remaining provisions of HB 1192 went into effect on July 1.
Putting it into practice: The passage of the new Hawaii law marks, among other things, an ongoing trend to curb loans made using a banking partnership model (we discussed this latest trend earlier in a previous Consumer Finance & FinTech Blog post. here). These “anti-avoidance” laws effectively limit the interest rates that can be charged, even if the loans are originated by a bank that would not otherwise be subject to interest rate limitations.
The content of this article is intended to provide general guidance on the subject. The advice of specialists should be sought according to your specific circumstances.
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