HONOLULU–Hawaii has just enacted significant legislation to reform the state’s small-dollar loan market and prohibit balloon-payment payday loans.
House Bill 1192 passed with unanimous support in the state legislature and Gov. David Ige (D) has signed it into law. It will go into effect on Jan. 1, 2022.
According to proponents, the measure will save borrowers in Hawaii millions of dollars each year by making credit more affordable, with the cost of small, individual installment loans to decrease by hundreds of dollars (see table, below). According to a Pew Research analysis, before these reforms Hawaii law permitted unaffordable balloon-payment loans that were typically due back in one lump sum on the borrower’s next payday. The loans carried annual percentage rates of up to 460%, meaning that to borrow $500 over four months would require a customer would pay $700 in finance charges, and the lump-sum payment often would consume one-third or more of the borrower’s next paycheck, Pew said.
“Such large payments meant many borrowers needed to quickly take another loan to meet other financial obligations,” the analysis pointed out.
H.B. 1192 will replace the single-payment loans with installment loans for amounts up to $1,500 that are repayable in two to 12 months. The loans can have annual interest rates of up to 36% plus a monthly fee up to $35, depending on loan size, but the law caps total loan charges at half of the amount borrowed. It also allows borrowers to repay early without penalty, and deems loans made by lenders without a state license void and uncollectable to prevent efforts to circumvent the law’s consumer protections, Pew said.
The Changes
Pew provided the chart below to show how consumer savings under H.B. 1192 compared with the payday loan status quo:
| Cost to borrow… | Finance charges before the law | Finance charges after the law | Savings |
| $300 repaid in 2 months | $210 | $74 | $136 |
| $400 repaid in 3 months | $420 | $114 | $306 |
| $500 repaid in 4 months | $700 | $158 | $542 |
Source: Pew analysis of market data and Hawaii House Bill 1192 (2021)
Other States
Pew also created the chart below to show how Hawaii’s approach compares to other states:
| Colorado law (enacted in 2010)* | Ohio law (enacted in 2018) | Virginia law (enacted in 2020) | Hawaii’s recent legislation (H.B. 1192, CD1†, 2021) | |
| Pricing structure | Up to 45% annual interest and $30 maximum monthly fee |
Up to 28% annual interest and $30 maximum monthly fee Up to 2% origination fee for loans greater than $500 |
Up to 36% annual interest and $25 maximum monthly fee | Up to 36% annual interest and $35 maximum monthly fee |
| Access to credit widely available | Yes | Yes | Yes | Yes |
| Minimum loan term | 6 months | 3 months, or shorter if payments are limited to 6% of borrower’s gross monthly income | 4 months, or shorter if payments are limited to 5% of borrower’s gross monthly income | 4 months, or 2 months if loan amount is $500 or less |
| Maximum loan size | $500 | $1,000 | $2,500 | $1,500 |
*The comparison with the Colorado law does not include an amendment that took effect in 2019.