Hawaii Takes a Bite Out of Payday Loan Sharks

The Pew Charitable Trusts is touting a big legislative victory in the fight against legalized loan sharks with the passage and signing of a bill that creates a rate cap on payday loans and facilitates access to affordable credit.

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.

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.

460% Interest Rates

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…