Hawaii Enacts Significant Changes to Small Dollar Loan Law | Ballard Spahr LLP



Hawaii recently enacted significant changes to its small dollar loan law that repeals Hawaii’s current deferred deposit law and creates a new regime for installment loans. Although HB 1192 Going into effect on July 1, the repeal of the existing deferred deposit law will take effect on January 1, 2022 as will the new license requirement for “installment lenders.”

HB 1192 states that, unless exempt, no person can act as an “installment lender” in Hawaii unless they are licensed. It also voids any loans made without a required license and states that no principal, interest, fees, or other charges can be charged in connection with the loan. The law exempts insured financial institutions (banks, savings banks, savings and loan associations, financial services loan companies and credit unions), non-depository financial services loan companies, indefinite duration credits as defined in TILA and Tax Refund Anticipation Loans.

The definition of “installment lender” in HB 1192 is broad and, in plain English, would be intended to apply to loans made using a partnership banking model despite federal preference issues. An “installment lender” means:

Any person who is engaged in offering or granting a consumer loan, who arranges 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 if the 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.

HB 1192 allows an “installment lender” to make installment loans for total amounts up to $ 1,500 and limits annual interest rates to 36% plus a monthly maintenance fee of no more than $ 35, which depends on the amount of the loan. original loan principal. The total amount of loan charges on an installment loan cannot exceed 50% of the principal loan amount.

The minimum term for an installment loan is two months if the loan amount is $ 500 or less, or four months for loans of $ 500.01 or more. The maximum term of the loan is 12 months. Installment loans must be repayable in substantially equal and consecutive installments of principal and interest. A lender can contract payments every two weeks, twice a month, or monthly.

Illinois and Maine it recently revised its small dollar loan laws to target loans made using a bank partnership model.

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