Maui Senator Tries to Reform High Interest Payday Loans Again

There are more payday lenders than 7-Eleven stores in Hawaii, according to one local non-profit financial services. Their loans are in great demand in Aloha State, where the cost of living is exorbitant and residents have the second consumer debt in the nation.

But small, short-term loans – which are supposed to last only two weeks and not exceed $ 600 – are risky, and national studies show that they trap low-income people in debt cycles.

This could change under a bill to the Hawaii Legislature that would cap interest rates and restructure the way the industry operates.

Maui Sen. Rosalyn Baker, a Democrat, has long been a strong supporter of limiting annual interest rates to 36%. Hawaii currently allows payday lenders to offer annual interest loans rates as high as 459 percent.

The leader of the Senate Committee on Consumer Affairs spoke tried for years limit interest rates, but his proposals frequently die in the closing days of the legislative session. The companies argued that its proposed tariff cap would bankrupt them.

Senator Roz Baker supports limiting interest rates on payday loans. Cory Lum / Civil Beat

This year Baker thinks it will be different. The Maui senator has come up with a proposal that would completely overhaul payday loan regulations rather than simply lowering the interest rate. Lenders could provide loans of up to $ 1,000 at an annual interest rate of up to 36%. Repayments would be capped at 6% of borrowers’ gross income or 5% of their monthly net income.

Baker says she’s worked hard to find a compromise that will satisfy consumer advocates without putting payday lenders out of business.

“We want to make sure that low dollar lenders can continue to operate, but with the kind of consumer protection that keeps people from getting trapped in a cycle of debt with no way out of it,” he said. she declared.

Many states have capped payday loan interest rates at 36%, and the Department of Defense has long since imposed the same limit on loans granted to active members. But Baker’s effort comes as the Trump administration has weakened federal regulations on short-term lending.

The latest budget proposed by Trump cut funding for the Consumer Financial Protection Bureau, the federal body for financial supervision of consumers. The agency recently dropped a lawsuit against payday lenders online and reconsider a to reign which requires payday lenders to ensure that consumers can repay their loans.

Mixed reactions

In addition to lowering interest rates, Senate Bill 3008 would require payday lenders to obtain a state license and allow them to charge a monthly maintenance fee of $ 25. Borrowers would only be allowed to take out one business loan at a time, and the state consumer agency would adjust the loan amount and maintenance fees each year based on inflation.

Lenders should be sure to disclose all charges to borrowers and would not be able to secure loans with personal real estate. The latest version of the bill says the changes would take effect next year.

So far, Baker’s proposal has received mixed responses. Jeff Gilbreath, who heads the nonprofit Hawaiian Community Assets, supports Baker’s efforts on payday loan reform. But his testimony on the first draft of the measure called for even greater protections for consumers, such as requiring lenders to offer borrowers loan adjustments in the event of financial difficulties.

Advance to the Nuuanu Avenue payday loan store.
Payday lenders can offer loans with an annual interest rate of up to 459% in Hawaii. Cory Lum / Civil Beat

On the other side of the debate, local payday lenders have criticized Baker’s reliance on outside data showing payday loans to be predatory.

Richard Dan of Maui Loan Inc. wrote that the protections existing in Hawaii law mean that “there is no way for a payday lender in Hawaii to force a borrower into debt.”

Craig Schafer, director of Hawaii’s Money Service Centers, suggested that a local study should be done to determine if payday loans are really bad. In testimony Evaluating the first draft of the Baker Bill, he wrote that the measure would create “an unproven installment loan program that is costly for the state to administer and enforce.”

Dollar Financial, a Philadelphia-based company that operates eight Money Mart payday loan stores in Hawaii, has asked Baker to allow them to provide loans of up to $ 2,500. The company also asked the senator to allow them to continue giving small loans at a higher interest rate – in addition to larger loans of $ 1,000 – and to assess later whether the new rate structure is working. .

Dubious outlook

To get his bill passed, Baker will face lobbying not only from payday lenders, but also convincing his colleagues in the House, who have historically been less inclined to regulate small loans.

Last year, Dollar Financial spent nearly $ 15,000 on lobbying, according to reports filed with the state’s Ethics Commission.

In the Chamber, a measure identical to SB 3008 did not have a hearing. The bill has also been referred to three committees – a frequent sign that it is not favored by House leaders, as more referrals mean the measure must clear more hurdles.

Former President Joe Souki has always opposed payday loan legislation. He was replaced as speaker by Scott Saiki, and Saiki’s position on this issue is unclear. He did not respond to a request for comment Thursday on the bill.

Baker says she understands if the House is waiting for her bill to pass through the Senate before considering the matter. She is confident the proposal will come out of both chambers and be on the negotiating table in April.

“I am optimistic that this will be heard in the House and that we will meet at the conference to consider some of the finer points,” she said.

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