Hawaii recently enacted HB 1192, which changes the state’s small dollar loan act with a new licensing requirement for “installment lenders” and sets various consumer protection requirements. The changes, which affect consumer credit up to $ 1,500, include a broad definition of “installment lender” that would cover loans offered under a banking partnership model:
- “Any person who offers or grants a consumer loan, arranges a consumer loan for a third party or acts as an intermediary for a third party, regardless of whether the third party is exempt from approval under this chapter or whether approval, acceptance or ratification by a third party is required to establish a legal obligation on the third party by any means, including mail, telephone, internet or electronic means. “
However, the new law exempts banks and various other financial institutions, including companies licensed under Hawaii’s Financial Services Loan Company Act, but would affect the exempted companies’ ability to contract with brokers or agents to provide small dollar loans based on the language above. The bill contains, among other things:
- Limits the annual interest rate on installment loans to 36 percent
- Provided that the contractually agreed maximum term of an installment loan is 12 months
- Specifies that the minimum repayment period is two months for installment loans of $ 500 or less, or four months for loans of $ 500.01 or more
- Limits monthly maintenance fees to $ 25 to $ 35, depending on the initial principal amount of the installment loan
- Indicates that an installment loan granted without a required license is void
- Prohibits a consumer’s repayment obligations from being secured by a lien on real estate or personal property
The change also repealed Hawaii’s Deferred Deposit Act, which will go into effect January 1, 2022 along with the licensing requirements for installment lenders. The remaining provisions of HB 1192 came into effect on July 1st.
Put into practice: The passage of Hawaii’s new law marks, among other things, an ongoing trend of restricting loans granted through a banking partnership model (we discussed this latest trend earlier in a previous Consumer Finance & FinTech blog post here). These “anti-evasion” laws effectively limit the interest rates that can be charged even if the loans are made by a bank that may not otherwise be subject to interest rate caps.