After nearly 20 years, legislature rethinks payday loans
There are now more payday loan stores in Hawaii than there are 7-11. The state’s growing demand for payday loans is no surprise given the high cost of living on the islands. But with interest rates as high as 459%, lawmakers are demanding more regulation. HPR’s Kuşuwehi Hiraishi has this story.
Walk into one of the island chain’s 91 payday loan stores, and all you need is a few recent pay stubs, a bank statement, and a blank check, and you can walk away with up to $500 in cash. Welcome to the world of payday loans.
“It’s taking advantage of people who don’t have access to the traditional financial system,” explains Jeff Gilbreath.
Gilbreath is the executive director of Hawaiian Community Assets and Hawaii Community Lending. The non-profit organization provides financial services to underserved communities. For the past three years, his organization has collected data on Hawaii’s payday loan industry.
When a person borrows $600 from a payday lender today, they pay $105 in interest, and that goes to payday lenders who are often not located in Hawaii? the backs of mostly very low-income, low-income workers and families who have no choice but to be removed from our local economy.
“Local mom and pop lender Richard Dan has been in the small loan business on Maui for 42 years. He says interest is not the issue. He is charging $15 interest on a $100 loan.
“Payday loans are for people in need and they’re designed to happen once in a blue moon,” Dan says. “The problem with payday loans, in my opinion, is that people get caught up in the cycle.”
Dan has been a vocal opponent of efforts by the Legislative Assembly to further regulate the industry. An effort led by fellow Maui-an, Senator Roz Baker.
“The unregulated market we have lacks consumer protection, interest rates can be exorbitant and many of our families find themselves trapped in a lot of debt and unable to pay other necessary living expenses,” says the Senator Baker.
This session, Senator Baker introduced Senate Bill 3008, which, among other things, caps interest rates at 36% and authorizes the State Financial Institutions Division to create a regulatory structure for the industry. .
“And it really does provide some protection for consumers to help them, to help consumers access a loan that’s within their means and their ability to pay and that doesn’t wear them out,” said Senator Baker.
Current usury laws allow interest rates of 12 or 24% depending on the lender. In 1999, the legislature created a loophole that allowed higher interest rates for “deferred deposits”. Essentially legalizing payday loans in Hawaii.
Dan says the proposed settlement favors out-of-state and internet lenders over local lenders.
“The problems don’t lie with the small businesses here in Hawaii charging 15%, charging principal and interest. There are no complaints about it,” Dan says, “if it ain’t broke, don’t fix it.
Senator Baker’s bill stalled after a crossover in the House, as it has in the past. She was able to gut and replace House Bill 2471 and keep her efforts alive.
“So hopefully when we get to the conference we can persuade them that we’re really not trying to kick anybody out of the company,” says Senator Baker, “But we just think we want to have regulatory, honest consumer protections so that you know that people who need these payday loans can access them in a fair and reasonable way.