Hawaii recently enacted significant changes to its Low Dollar Loans Act that repeals the existing Hawaiian law on deferred deposits and creates a new regime for installment loans. Although HB 1192 entered into force on July 1, the repeal of the existing law on deferred deposits takes effect on January 1, 2022, as does the new licensing requirement for “installment lenders”.
HB 1192 provides that, unless exempted, no one can act as an “installment lender” in Hawaii without a license. It also cancels any loan granted without a license required and provides that no principal, interest, fees or other charges can be collected in connection with the loan. The law exempts insured financial institutions (banks, savings banks, savings and loan associations, financial service loan companies and credit unions), non-depository financial services loan companies, open-ended credit as defined in TILA and Advance Tax Refund Loans.
The definition of “installment lender” in HB 1192 is broad and, in its plain language, would be intended to apply to loans made using a banking partnership model notwithstanding federal preemption issues. An “installment lender” means:
Anyone whose activity is to offer or grant a consumer loan, who takes out a consumer loan for a third party or who acts as an agent of a third party, that this third party be exempted from the authorization of exercise under this Chapter or that approval, acceptance or ratification by a third party is necessary to create a legal obligation for the third party, by any method, including mail, telephone, Internet or any other electronic means.
HB 1192 allows an “installment lender” to make installment loans totaling up to $ 1,500 and caps annual interest rates at 36% plus a monthly maintenance fee of up to $ 35. $, which depend on the original principal amount of the loan. The total amount of borrowing costs on an installment loan cannot exceed 50% of the principal amount of the loan.
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 loan term is 12 months. Installment loans must be repayable in substantially equal and consecutive installments of principal and interest. A lender can contract payments to be made every two weeks, twice a month, or monthly.
Illinois and Maine recently revised their low-cost lending laws to target lending under a partnership banking model.