Hawaii Governor David Ayge signed the bill on Tuesday this will cap interest rates on payday loans at 36% statewide.
But this new lawwhich will take effect on January 1, 2022, goes beyond a simple cap on the maximum allowable interest rate. It will also force the licensed payday paycheck industry to offer installment loans instead of traditional payday loans with a lump sum two weeks after borrowing the amount.
“We are confident that this measure will be better for consumers as well as payday lenders across the state of Hawaii,” Ige said at a news conference on Tuesday. “Consumers will have the opportunity to pay off small consumer loans in installments they can afford, while payday lenders will see the industry clean up as these good businesses in our community can operate more fairly and appropriately. “
These small consumer loans, which could be up to $ 1,500 under the new law, will be repaid in two to 12 months, depending on the size of the loan, as opposed to the traditional two weeks.
The annual interest rate is capped at 36% under the new Hawaii law, but lenders can charge a monthly fee of up to $ 35 depending on the size of the loan. However, the total amount of the commission cannot exceed more than half of the original loan amount. according to Pew Charitable Trust analysis…
“Under the new law, installment loans will cost consumers hundreds of dollars less.” by Nick Burke, Pew Director of Consumer Finance. “It will make these small loans available with adequate protection and include proven policies that have received bipartisan support in other states.”
Prior to the new legislation, payday lenders in Hawaii charged annual interest rates of up to 460%… This means that if you borrow $ 500 for four months, the client will pay $ 700 in finance costs. Pew estimates that customers will now pay $ 158 in finance costs.
As the bill passed through the Hawaii State Legislature, creditors were divided according to the criteria: according to Hawaiian news agency Honolulu Civil Beat… The parent company of local network PayPal Money Mart has favored installment loans, but Maui Loan Inc. opposed this measure.
With its new law, Hawaii joins Illinois as well as Nebraska as states that have recently taken measures to reform payday loans. About 20 states, as well as Washington, DC, impose a 36% cap on interest rates and fees on payday loans.
Federal legislators have introduced a similar law through Veterans and Consumer Fair Credit Act in November 2019, the interest rate will be capped at 36% for all consumers across the country. The legislation – the latest attempt to restrict payday loans at the federal level – was built outside the law. Military Credit Act 2006which limited loans to 36% for military personnel.
Despite being co-sponsored by both Democrats and Republicans at the time of its introduction, the bill remains deadlocked, forcing states to push forward local legislation.