Earlier this year, the governor of Hawaii signed HB 1192, which changes certain provisions relating to small dollar loan requirements. Specifically, the bill sets out a new licensing requirement for “installment lenders” and specifies various consumer protection requirements. The bill defines an installment lender in the broad sense as “any person whose activity consists of offering or granting a consumer loan, who arranges a consumer loan for a third party or who acts as an agent. for a third party, whether or not the third party is exempt from license under this Chapter or if approval, acceptance or ratification by a third party is necessary to create a legal obligation for the third party, by any means whatsoever , including mail, telephone, Internet or any other electronic means. This language seems to encompass loans offered under a banking partnership model under the new law.
In addition, the bill: (i) caps the amounts of installment loans at $ 1,500 and limits the total amount of modifications to a maximum of 50% of the principal amount of the loan; (ii) limit the monthly maintenance fee to between $ 25 and $ 35 depending on the original principal amount of the installment loan; (iii) stipulate 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; (iv) states that lenders must “accept prepayment in whole or in part from a consumer before the loan maturity date and will not charge any fees or penalties to the consumer if he chooses to repay the loan by anticipation; provided that in order to make an early payment, all accrued interest and charges must be paid first; (v) prohibits a consumer’s repayment obligations from being secured by a lien on real or personal property; (vi) prohibits lenders from requiring consumers to purchase complementary products such as credit insurance; (vii) provides that the maximum repayment period contracted for an installment loan is 12 months; (viii) cap the annual interest rate on installment loans at 36%; and (ix) state that any installment loan made without a required license is void (the collection, receipt or withholding of any principal, interest, fees or other charges associated with a canceled loan is prohibited).
The bill exempts certain financial institutions (for example, banks, savings banks, savings and credit associations, depositary and non-depository financial services loan companies, credit unions) installment lender license requirements.
The bill also repeals existing state law on deferred deposits. While HB 1192 entered into force on July 1, the provisions for the repeal of the existing law on deferred deposits and licensing requirements for installment lenders come into effect on January 1, 2022. The applications license will be available through the national multi-state licensing system.