HB 1048: RELATING TO INSTALLMENT LOANS.

A BILL FOR AN ACT

RELATING TO INSTALLMENT LOANS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  Section 480J-1, Hawaii Revised Statutes, is amended by amending the definition of "installment lender" or "lender" to read as follows:

     ""Installment lender" or "lender" means any person not exempt under section 480J-32 who is in the business of offering or making [a consumer] an installment loan, who arranges [a consumer] an installment loan for a third party[,] required by this chapter to be licensed, or who acts as an agent for a third party[,regardless of whether the third party is exempt from licensure under this chapter or whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party,] required by this chapter to be licensed with respect to the third party's offering, making, or arranging of installment loans, through any method including mail, telephone, the Internet, or any electronic means."

     SECTION 2.  Section 480J-2, Hawaii Revised Statutes, is amended as follows:

     1.  By amending subsection (a) to read:

     "(a)  Each installment loan transaction and renewal shall meet the following requirements:

     (1)  Any transaction and renewal shall be documented in a written agreement pursuant to section 480J-3;

     (2)  The total amount of the installment loan shall not be greater than $1,500 pursuant to section 480J-5(a);

     (3)  The total amount of loan charges an installment lender may charge, collect, or receive in connection with an installment loan shall not exceed fifty per cent of the principal loan amount;

     (4)  Subject to paragraph (3), a monthly maintenance fee may be charged by the lender[, not to exceed the following:]; provided that thirty days shall equal to one month and for any fraction of a month the fee shall be prorated on a daily basis not to exceed the following:

          (A)  $25 monthly fee on a loan of an original principal loan amount up to $299.99; provided that a fraction of a month shall use a daily factor of 83 cents per day;

          (B)  $30 monthly fee on a loan of an original principal loan amount of at least $300 and up to $699.99; provided that a fraction of a month shall use a daily factor of $1 per day; and

          (C)  $35 monthly fee on a loan of an original principal loan amount of at least $700 and greater; provided that a fraction of a month shall use a daily factor of $1.17 per day;

          provided that the monthly maintenance fee shall not be added to the loan balance upon which the interest is charged; provided further that an installment lender shall not charge, collect, or receive a monthly maintenance fee if the borrower is a person on active duty in the armed forces of the United States or a dependent of that person;

     (5)  The minimum contracted repayment term of the installment loan shall be two months if the contracted loan amount is $500 or less, or four months if the contracted loan amount is $500.01 or more; provided that, for purposes of meeting the required minimum contracted repayment term, an installment lender may calculate one month as twenty-eight days or longer;

     (6)  All repayment schedule due dates shall be dates upon which an installment lender is open for business to the public at the place of business where the installment loan was made;

     (7)  An installment lender shall accept prepayment in full or in part from a consumer prior to the loan due date and shall not charge the consumer a fee or penalty if the consumer opts to prepay the loan; provided that to make a prepayment, all past due interest and fees shall be paid first;

     (8)  The loan amount shall be fully amortized over the term of the loan, and maintenance fees shall be applied in arrears on a monthly basis;

     (9)  A consumer's repayment obligations shall not be secured by a lien on any real or personal property;

    (10)  An installment lender may offer to a consumer the option to make a payment through the consumer's debit card and may charge up to a $5 convenience fee; provided that the installment lender shall be prohibited from requiring this form of payment.  The form of payment decision shall rest with a consumer. The installment lender shall not charge the consumer a non-sufficient funds fee for rejected payments through the use of a consumer's debit card;

   [(10)] (11)  An installment lender shall not charge a consumer any loan charges for an installment loan, other than the fees permitted by this chapter;

   [(11)] (12)  The written agreement required under section 480J‑3 shall not require a consumer to purchase add-on products, such as credit insurance; and

   [(12)] (13)  The maximum contracted repayment term of the installment loan shall be twelve months."

     2.  By amending subsection (c) to read:

     "(c)  For each cash or in-person payment made by a consumer, a lender shall give the consumer a written receipt with the lender's name and address, payment date, amount paid, [consumer's name,] and sufficient information to identify the account to which the payment is applied."

     SECTION 3.  Section 480J-5, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§480J-5[]]  Maximum loan amount; prohibition against multiple loans.  (a)  A lender shall not lend an amount greater than $1,500 nor shall the amount financed exceed $1,500 by any one lender at any time to a consumer.

     (b)  Except as otherwise provided in section 480J-8, an installment lender shall take reasonable measures to ensure that no consumer has more than one installment loan outstanding at a time from any of the following:

     (1)  The installment lender;

     (2)  A person related to the installment lender by common ownership or control;

     (3)  A person in whom the installment lender has any financial interest of ten per cent or more; or

     (4)  Any employee or agent of the installment lender.

     (c)  An installment lender that receives written or electronic confirmation from each consumer that the consumer does not have any outstanding installment loans from the entities listed in subsection (b) as of the date the consumer enters into an installment loan with the installment lender shall be deemed to have met the requirements of this section.

     (d)  If a consumer's spouse obtains an installment loan voluntarily and separately from the consumer, and subsequently the consumer obtains an installment loan voluntarily and separately from the consumer's spouse, where neither the consumer nor the consumer's spouse are coborrowers with each other on either loan, and the consumer's action is documented in writing, either in the written agreement required under section 480J-3 or in a subsequent agreement, signed by the consumer, and retained by the lender, the secondary transaction shall not be considered a violation of this section.

     [(e)  Upon a consumer's payment in full of any installment loan, an installment lender shall wait a period of three days before the lender may make another installment loan to the same consumer.]"

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 3000; provided that this Act shall be repealed on June 30, 2028, and sections 480J-2 and 480J-5, Hawaii Revised Statutes, and the definition of "installment lender" or "lender" in section 480J-1, Hawaii Revised Statutes, shall be reenacted in the form in which they read on the day prior to the effective date of this Act.

Report Title:

Department of Commerce and Consumer Affairs; Division of Financial Institutions; Installment Lender; Lender

Description:

Replaces the term "consumer loan" with the defined term "installment loan" for consistency throughout the installment loan chapter.  Clarifies who is subject to the installment loan chapter.  Requires loan maintenance fees to be prorated daily.  Allows lenders to charge a convenience fee of up to $5 for debit card payments.  Requires paper receipts only for in-person or cash payments and removes consumer names from receipts.  Repeals the requirement for lenders to wait three days after a consumer fully repays a loan before issuing a new installment loan.  Sunsets 6/30/2028.  Effective 7/1/3000.  (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

RELATING TO INSTALLMENT LOANS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  Section 480J-1, Hawaii Revised Statutes, is amended by amending the definition of "installment lender or lender" to read as follows:

     ""Installment lender" or "lender" means any person not exempt under section 480J-32 who is in the business of offering or making [a consumer] an installment loan, who arranges [a consumer] an installment loan for a third party[,] required by this chapter to be licensed, or who acts as an agent for a third party [,regardless of whether the third party is exempt from licensure under this chapter or whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party,] required by this chapter to be licensed with respect to the third party's offering, making, or arranging of installment loans, through any method including mail, telephone, the Internet, or any electronic means."

     SECTION 2.  Section 480J-2, Hawaii Revised Statutes, is amended as follows:

     1.  By amending subsection (a) to read:

     "(a)  Each installment loan transaction and renewal shall meet the following requirements:

     (1)  Any transaction and renewal shall be documented in a written agreement pursuant to section 480J-3;

     (2)  The total amount of the installment loan shall not be greater than $1,500 pursuant to section 480J-5(a);

     (3)  The total amount of loan charges an installment lender may charge, collect, or receive in connection with an installment loan shall not exceed fifty per cent of the principal loan amount;

     (4)  Subject to paragraph (3), a monthly maintenance fee may be charged by the lender [, not to exceed the following:]; provided that thirty days shall equal to one month and for any fraction of a month the fee shall be prorated on a daily basis not to exceed the following:

          (A)  $25 monthly fee on a loan of an original principal loan amount up to $299.99; provided that a fraction of a month shall use a daily factor of .83 cents per day;

          (B)  $30 monthly fee on a loan of an original principal loan amount of at least $300.00 and up to $699.99; provided that a fraction of a month shall use a daily factor of $1.00 per day; and

          (C)  $35 monthly fee on a loan of an original principal loan amount of at least $700.00 and greater; provided that a fraction of a month shall use a daily factor of $1.17 per day;

          provided that the monthly maintenance fee shall not be added to the loan balance upon which the interest is charged; provided further that an installment lender shall not charge, collect, or receive a monthly maintenance fee if the borrower is a person on active duty in the armed forces of the United States or a dependent of that person;

     (5)  The minimum contracted repayment term of the installment loan shall be two months if the contracted loan amount is $500 or less, or four months if the contracted loan amount is $500.01 or more; provided that, for purposes of meeting the required minimum contracted repayment term, an installment lender may calculate one month as twenty-eight days or longer;

     (6)  All repayment schedule due dates shall be dates upon which an installment lender is open for business to the public at the place of business where the installment loan was made;

     (7)  An installment lender shall accept prepayment in full or in part from a consumer prior to the loan due date and shall not charge the consumer a fee or penalty if the consumer opts to prepay the loan; provided that to make a prepayment, all past due interest and fees shall be paid first;

     (8)  The loan amount shall be fully amortized over the term of the loan, and maintenance fees shall be applied in arrears on a monthly basis;

     (9)  A consumer's repayment obligations shall not be secured by a lien on any real or personal property;

    (10)  An installment lender may offer to a consumer the option to make a payment through the consumer's debit card and may charge up to a five-dollar convenience fee; provided that the installment lender shall be prohibited from requiring this form of payment.  The form of payment decision shall rest with a consumer. The installment lender shall not charge the consumer a non-sufficient funds fee for rejected payments through the use of a consumer's debit card.

   [(10)] (11)  An installment lender shall not charge a consumer any loan charges for an installment loan, other than the fees permitted by this chapter;

   [(11)] (12)  The written agreement required under section 480J‑3 shall not require a consumer to purchase add-on products, such as credit insurance; and

   [(12)] (13)  The maximum contracted repayment term of the installment loan shall be twelve months."

     2.  By amending subsection (c) to read:

     "(c)  For each cash or in-person payment made by a consumer, a lender shall give the consumer a written receipt with the lender's name and address, payment date, amount paid, [consumer's name,] and sufficient information to identify the account to which the payment is applied."

     SECTION 3.  Section 480J-5, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§480J-5[]]  Maximum loan amount; prohibition against multiple loans.  (a)  A lender shall not lend an amount greater than $1,500 nor shall the amount financed exceed $1,500 by any one lender at any time to a consumer.

     (b)  Except as otherwise provided in section 480J-8, an installment lender shall take reasonable measures to ensure that no consumer has more than one installment loan outstanding at a time from any of the following:

     (1)  The installment lender;

     (2)  A person related to the installment lender by common ownership or control;

     (3)  A person in whom the installment lender has any financial interest of ten per cent or more; or

     (4)  Any employee or agent of the installment lender.

     (c)  An installment lender that receives written or electronic confirmation from each consumer that the consumer does not have any outstanding installment loans from the entities listed in subsection (b) as of the date the consumer enters into an installment loan with the installment lender shall be deemed to have met the requirements of this section.

     (d)  If a consumer's spouse obtains an installment loan voluntarily and separately from the consumer, and subsequently the consumer obtains an installment loan voluntarily and separately from the consumer's spouse, where neither the consumer nor the consumer's spouse are coborrowers with each other on either loan, and the consumer's action is documented in writing, either in the written agreement required under section 480J-3 or in a subsequent agreement, signed by the consumer, and retained by the lender, the secondary transaction shall not be considered a violation of this section.

     [(e)  Upon a consumer's payment in full of any installment loan, an installment lender shall wait a period of three days before the lender may make another installment loan to the same consumer.]"

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act, upon its approval, shall take effect on July 1, 2025.

Report Title:

Department of Commerce and Consumer Affairs; Division of Financial Institutions; Installment Lender; Lender

Description:

Clarifies the intended scope of chapter 480J, HRS, which is the regulation of installment lenders, and that the law does not intend to eliminate the ability of lenders to make low-interest rate loans under existing interest and usury laws.  Replaces the term "consumer loan" with the defined term "installment loan" for consistency throughout the statutes.  Requires loan maintenance fees to be prorated daily to prevent consumers from incurring fees once the loan is paid off.  Allows lenders to charge a convenience fee of up to five dollars for debit card payments, providing consumer more options for repayment.  Streamlines the loan repayment process by requiring paper receipts only for in-person or cash payments and increases consumer privacy by removing consumer names from receipts.  Repeals the requirement for lenders to wait three days after a consumer fully repays a loan before issuing a new installment loan.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO.  426

Honolulu, Hawaii

                , 2025

RE:   H.B. No. 1048

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committee on Consumer Protection & Commerce, to which was referred H.B. No. 1048 entitled:

"A BILL FOR AN ACT RELATING TO INSTALLMENT LOANS,"

begs leave to report as follows:

     The purpose of this measure is to make clarifying amendments to the installment loans law, including:

     (1)  Using defined terms consistently;

     (2)  Requiring lenders to prorate fees on a daily basis;

     (3)  Allowing lenders to charge a convenience fee for debit card payments;

     (4)  Requiring paper receipts only for in-person or cash payments and removing the requirement that receipts not contain the consumer's name; and

     (5)  Repealing the cool down period between loans.

     Your Committee received testimony in support of this measure from the Department of Commerce and Consumer Affairs.  Your Committee received testimony in opposition to this measure from the American Fintech Council.

     Your Committee finds that the existing installment loan law allows lenders writing loan contracts to fully capture the maximum monthly maintenance fees even if the lender provides service for only a portion of the month.  This measure will require lenders to prorate the monthly fees daily.

     Your Committee further finds that the existing installment loan law requires a three-day waiting period between loans.  The original intent for the three-day waiting period was so that borrowers would not be in a continuous cycle of debt by repaying the loan and borrowing again on the same day.  However, unlike payday loans, which the installment loan law replaced, installment loans are gradually paid down through a series of payments.  The repeal of the waiting period will allow consumers on the neighbor islands, which only have access to one or two lenders, to have more access to financial services.

     Your Committee has amended this measure by:

     (1)  Changing the effective date to July 1, 3000, to encourage further discussion;

     (2)  Inserting a three-year sunset date of June 30, 2028; and

     (3)  Making technical, nonsubstantive amendments for the purposes of clarity, consistency, and style.

     As affirmed by the record of votes of the members of your Committee on Consumer Protection & Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1048, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1048, H.D. 1, and be referred to your Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Consumer Protection & Commerce,