The Hawaii Subprime Marketplace: Title and Payday Loans in Hawaii
Hawaii is known the world over as the land of chilling out, eternal sunshine, and tourists in tropical button up shirts, so it should come as no surprise that residents of the Aloha State are doing pretty well for themselves, at least compared to the rest of the United States. In 2016, just 9.3% of Hawaiians lived at or below the federal poverty line, which was 1.3% less than the previous year. That means that fewer than 18,000 Hawaiians are currently living in poverty, and makes Hawaii the state with the 2nd lowest poverty rate in the nation.
While Hawaii’s low poverty rate is wonderful, it’s not perfect. 18,000 people might seem like a drop in the hat when compared to the population of the state, but that’s still 18,000 people currently living paycheck to paycheck, wondering where their next meal is coming from, or how they’re going to pay their rent this month.
Unfortunately, Hawaiians dealing with these kinds of serious financial issues may be tempted to take out a payday or title loan in order to make ends meet. But in a state where payday loans offer APRs of up to 459%, amongst the highest in the nation, that might not be such a good idea. Additionally, title lending in the state of Hawaii is illegal, which means that Hawaii prohibits car-title lending under existing credit laws and does not permit auto title lenders to operate within the state. Payday loans in Hawaii, however, are legal and can be a very expensive choice that can push borrowers into a seemingly endless cycle of debt. If you’re considering taking out a payday or title loan in Hawaii, check out this guide to making the right choices in your time of need.
Hawaii’s household debt per capita ($68,500) was the highest among the 50 states in 2016.
Payday Loans in Hawaii
A payday loan is a type of short-term, unsecured loan, usually for $500 or less. If you have bad credit, or no credit, and cannot access more traditional forms of financing like credit cards or traditional bank loans, a payday loan can help you get through a rough patch if you need cash fast. But there’s a catch: often, the interest and fees on payday loans are sky high, and you can end up paying significantly more than the amount you took out when all is said and done. Additionally, payday lenders can pull money directly from your bank account, which can subject you to overdraft fees. If you’re not careful, you could end up trapped in an endless cycle of debt.
In order to get a payday loan, a borrower must write out a personal check to the lender for the amount they want to borrow, plus a finance charge. The lender gives them the cash, with the understanding that the borrower must either pay back the loan before the loan term ends, or the lender will deposit the check on their next payday.
Payday loans are legal in Hawaii, but there are many restrictions on these kinds of short-term, high interest loans in the Aloha State. For example, the average loan term for a payday loan in Hawaii is about 2 weeks, but unlike some other states, Hawaii does not allow a rollover period. This means that Hawaiians who take out payday loans and can’t pay them back within the loan term do not have the option of taking out an additional loan to give themselves more time. That’s generally a good thing for Hawaiian consumers, who would otherwise be paying a new fee every time they rolled their loan over.
Additionally, Hawaii law only allows payday loans of up to $600, and loan terms are a maximum of 32 days. Under state law, lenders cannot charge more than a 15% interest rate on loans, and the only requirements to get a payday loan is to have a bank account in good standing, a steady income source, and identification.
The only payday lending businesses that are allowed to operate in the state of Hawaii are check-cashing businesses. The rest are illegal.
Payday lending is not heavily regulated in Hawaii, but there are still fewer payday lenders per capita than you’d find in other states. While Hawaii does have fewer payday lenders than some other states, their regulations tell another story completely.
Total Number of Payday Lenders: 15
Average APR: 459%
Total Number of Payday Lenders: 34
Average APR: 520%
The History of Payday Loans in Hawaii
Payday lending laws were codified in Hawaii in 1999, when the Hawaiian State Legislature passed a law that exempted payday loans from the state’s overall usury law, which capped interest rates for loans at 24% per year. The new bill enabled “deferred deposits,” which effectively allowed payday lending in Hawaii. In 2006, the United States Congress passed a law that limited loans to active military service members and their families to a maximum of 36% APR, which was very successful in curbing abusive lending practices. While this law is good for military families, it fails to protect everyday citizens from falling into the clutches of predatory lending.
Payday loans in Hawaii have some of the highest APR rate caps in the country. Although only 1.4% of Hawaiian households use payday loans (compared with the national average of 2%) Hawaii’s rate of payday loan usage has been growing faster than the national growth rate. The percentage of Native Hawaiian and Pacific Islander households taking out payday loans has actually tripled since 2011 – from 0.8% to 2.4%— a statistic that shows how the high cost of living in the state disproportionately affects minority households. Additionally, Hawaii’s APR rate is 100 times higher than most mortgage rates, so it’s easy to see how people desperate for cash can be trapped in a debt cycle.
The current national regulations on payday lending are in place thanks to the Dodd-Frank Act, which was enacted by Congress after the 2008 financial crisis. The Dodd-Frank Act serves to, among other things, restrict payday and car title lenders through federal oversight. However, recent regulation has been introduced in the United States Congress in the form of the Financial Choice Act, which aims to repeal these regulations and instead increase protections for payday lenders. This bill could also have a worsening effect on Hawaii’s payday lending regulations in the future, leaving consumers at the mercy of predatory lending practices.
Hawaii Payday Loan Rules and Regulations
According to the state law, lenders can charge a maximum of 15% interest rate on loans, and finance charges for a 2-week, $100 loan cannot exceed $17.65. Rollovers are not allowed, and a person can only get one loan of up to $600 dollars for a 32-day period.
Taking out a payday loan in the state of Hawaii can be a very dangerous game. Families in need are often targeted by aggressive payday loan marketing, which can trap them into a cycle of debt that is difficult, or even downright impossible, to emerge from unscathed. In an effort to combat this issue, payday lending has been banned in 12 states, but it remains a problem in many places. Take the story of a Hawaii man who wanted to move from Kalihi to West Oahu. In order to pay for this move, he decided to take out two small payday loans, and 6 months later, he was stuck in a cycle of debt that had him paying in fees twice the amount he’d paid for the loans in the first place. Although he was later helped financially for one of his loans through a non-profit organization, most victims of predatory lending do not get happy endings of this sort.
- Maximum Loan Amount:$600
- Loan Term:Max 32 days
- Rollovers Permitted?:None
- Fees and Finance Charges:15% of check
- Finance Charge on a 14-Day $100 Loan:$17.65
- APR on a 14-Day $100 Loan:459%
- Maximum Number of Outstanding Loans at a Time:1
- Collection Fees:$20 NSF fee; Check Casher that accepts check passed on insufficient funds not entitled to recover damages
Title Loans in Hawaii
Unlike payday loans, which are granted using your upcoming paycheck as collateral, title loans involve signing over the title of your paid-for car as security. Title loans are a kind of no-credit check loan, and there is rarely any form of income verification before a borrower is approved. Unlike payday loans, which allow the lender to make withdrawals directly from your checking account, title lenders can just repossess your car should you fail to make a payment! Around 1.7 million people in the U.S. take out a car title loan each year, and 17% of them end up losing their vehicle.
Title loans in Hawaii are illegal – banned under Sections 480-2 and 480-13 (specifically 480F-3) of the Consumer Protections Act.
Regulating Payday Loan and Title Loans in Hawaii
Twelve million Americans take out payday loans each year, and end up spending $9 billion on loan fees as a result. While predatory title lenders have been banned in the state, Hawaii’s laws still do not regulate payday lenders to the fullest extent of the law. If future U.S. legislation is to be enacted, Hawaii must produce counter-measures to better regulate predatory payday lending practices within the state, and help keep its citizens from the financial ruin these kinds of loans can bring.
How to Report a Predatory Lender in Hawaii
If you are thinking about taking out a payday loan in Hawaii, consider alternative options first, such as asking friends or family for help or getting a safe, online installment loan. If you’ve already taken out a payday loan and feel you have been unfairly victimized, we’ve listed some resources below that can assist you. By familiarizing yourself with the limitations and regulations of payday loans in Hawaii, you can further protect yourself from scams and predatory lenders.
If you need to file a complaint against a payday lender or alert the state to other predatory lending practices, visit the Department of Commerce and Consumer Affairs website to file a complaint.
Regulator: Hawaii Department of Commerce and Consumer Affairs
- Address: Consumer Resource Center, 235 S. Beretania Street, Rm 801 Honolulu HI 96813
- Phone: (808) 587-3222
- Fax: (808) 586-2640
- Website: http://cca.hawaii.gov/
Consumer Protection in Hawaii
Many issues have arisen for Hawaiians due to the state’s lack of effective payday lending regulation, and legislative reform efforts in Hawaii have failed time and time again. Many bills, such as SB598 SD2 (2013) and SB737 SD1 HD2 (2015) had been introduced into the Hawaiian Legislature in an effort to cut back Hawaii’s APR rate to 36%, same as the military bill of 2009. However, neither ever made it into law.
Outside Help for Payday Loans in Hawaii
Some governmental and non-profit programs can help with issues that might arise with debt. The Low Income Home Energy Assistance Program (LIHEAP) aims to help those with low incomes, disabilities, and the elderly with heating and cooling through financial assistance. The Supplemental Nutrition Assistance Program (SNAP) helps you not have to worry about where your next meal will come from. Finally, the non-profit financial organization Hawaiian Community Assets can help you achieve economic self-sufficiency should you fall prey to a payday loan debt cycle.
Guides to Payday and Title Loans in Hawaii Cities
Payday and title loans are a big issue for Hawaii residents. And it gets even more complicated at the city level. Check back soon for these payday and title loan guides to the following cities in Hawaii:
Maui | Honolulu | Hilo