Hawaii recently enacted significant changes to its small-dollar lending law that repeals existing Hawaii law on deferred deposits and creates a new regime for installment loans. Although H.B. 1192 took effect on July 1, the repeal of the existing law on deferred deposits is effective January 1, 2022 as is the new licensing requirement for “installment lenders.”
H.B. 1192 provides that, unless exempt, no person can act as an “installment lender” in Hawaii unless licensed. It also makes any loan made without a required license void 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 services loan companies, and credit unions), nondepository financial services loan companies, open-end credit as defined in TILA, and tax refund anticipation loans.
The definition of “installment lender” in H.B. 1192 is broad and, under its plain language, would purport to apply to loans made using a bank partnership model notwithstanding federal preemption issues. An “installment lender” means:
Any person who is the business of offering or making a consumer loan, who arranges a consumer loan for a third party, or who acts as an agent for a third party, regardless of whether the third party is exempt from licensure 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, the Internet, or any electronic means.
H.B. 1192 allows an “installment lender” to make installment loans in total amounts up to $1,500 and caps annual interest rates at 36% plus a monthly maintenance fee of no more than $35 which depends on the loan’s original principal amount. The total amount of loan charges on an installment loan cannot exceed 50% of the principal loan amount.
The minimum loan term of 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. Installments loans must be repayable in substantially equal and consecutive installments of principal and interest. A lender can contract for payments to be made every two weeks, twice a month, or monthly.