WASHINGTON—The Pew Charitable Trusts today commended Hawaii Governor David Ige (D) for enacting carefully balanced consumer finance reform by signing H.B. 1192. The new law, which was championed by state Representative Aaron Ling Johanson (D), state Senator Rosalyn Baker (D), and Commissioner of Financial Institutions Iris Ikeda, will eliminate balloon payment payday loans and enable widespread access to affordable installment credit from licensed lenders.
Before the reform, borrowers in Hawaii were subject to loans with extreme prices and unaffordable payments: Payday loans in the Aloha State had typical annual percentage rates of 460% and came due in one lump sum on the borrower’s next payday, consuming more than a third of the average borrower’s paycheck. These unaffordable payments resulted in consumers repeatedly using loans, often paying more in fees than they originally borrowed. For instance, a $500 loan repaid over four months could end up costing a consumer $700 in fees, for a total of $1,200.
The bill, sponsored by Rep. Johanson and passed unanimously by both the House and Senate on April 27, allows existing and new lenders with state licenses to offer loans up to $1,500 and caps annual interest rates at 36% plus a monthly fee of no more than $35, depending on the amount borrowed. Total finance charges are limited to half of the loan amount. With these changes, a $500 loan repaid over four months will now cost no more than $158, saving the typical Hawaii borrower hundreds of dollars a year. And loans will no longer be due in full in just two weeks; borrowers will instead have at least four months to repay, or two months for a loan of $500 or less.
The legislation is modeled after reforms in Colorado (2010), Ohio (2018), and Virginia (2020)— which all had bipartisan support and provided strong safeguards for borrowers while maintaining a viable market for lenders. The new law achieves three key markers of safe small-dollar installment lending: fair prices, affordable payments, and a reasonable time to repay loans.
Gabe Kravitz, an officer with Pew’s consumer finance project, issued the following statement:
“The passage of H.B. 1192 will save Hawaiians millions of dollars each year, all while enabling access to affordable credit from licensed lenders.
“The Legislature, the commissioner of financial institutions, and the governor took great care to balance the needs of borrowers and responsible lenders and, in doing so, delivered a major win for consumers, who no longer will be exposed to dangerous balloon-payment payday loans.
“Hawaii now joins Virginia, Ohio, and Colorado in demonstrating that state laws can be responsive to the needs of borrowers who want more time to repay, affordable payments, and fair prices.
“Hawaii’s example sends a strong message to policymakers across the country, including federal regulators at the Consumer Financial Protection Bureau: There is overwhelming support for reining in the harms of balloon-payment loans.”
More information on small-dollar loans is available at www.pewtrusts.org/small-loans.
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