Published in the Star Advertiser April 8, 2015
By Kim Harman
Hawaii law allows payday lenders to charge families 459 percent APR (annual percentage rate) on 14- to 32-day loans.
This high interest rate is the result of a loophole that was created in Hawaii law in 1999; prior to 1999, payday loans were not legal here.
Payday loans are small, short-term loans, often secured with a post-dated check that come due on your next “payday.”
According to the Center for Responsible Lending, payday lending is a $46 billion industry nationwide and is growing here, in large part due to Hawaii allowing such high interest rates.
Early this session, Senate Bill 737 was introduced to reduce the interest rate on payday loans from the current 459 percent to 36 percent. Seventeen states and the District of Columbia already cap their payday in terest rates at 36 percent or have made them illegal altogether. The federal government has capped interest rates on payday loans at 36 percent since 2006 for all military and their families. The Department of Defense has found the cap to be so successful in protecting military families from the payday debt cycle that they are requesting authority from Congress to expand the cap to cover other types of high-interest loans, such as car title loans.
But in Hawaii, families are targeted by aggressive payday marketing, charged $86 every paycheck for interest on a $500 loan and trapped in a debt cycle that is very hard to escape. Even successful financial literacy programs run by veteran community organizations such as Catholic Charities and Hawaiian Community Assets struggle to find ways to get these families out of the cycle.
Borrowers have been at the state Capitol, telling their stories to legislators. Veronica, a young mother, was trapped in her payday loan for 11 months. Napua, whose son just joined the Army, told the House Consumer Protection Committee of being ashamed that she fell for the “easy money” promised by a payday storefront.
The Hawaii Office of Consumer Protection has testified in favor of the 36 percent cap at hearings this year. A broad coalition of clergy, advocates, environmentalists and more has called for an end to these usurious interest rates that take advantage of our most vulnerable families.
One legislator on the Finance Committee asked me a few weeks ago: “If we tell the stores and the gas stations that they cannot inflate the price of water and gasoline when a tsunami warning is declared, why is it OK for payday lenders to inflate the cost of credit when a family is in financial crisis?”
Many in Hawaii are in agreement that 400-plus percent interest rates are usury and should not be allowed. Catholic, Methodist and Episcopal bishops here and across the country have been particularly outspoken in support of a 36 percent cap on payday loan annual interest rates.
Supporters of the current interest rate argue that it is unfair to call their fees and charges “interest.” The Truth in Lending Act as well as the Federal Trade Commission require that payday lenders combine all these costs into an APR or annual percentage rate so that borrowers can compare the cost of credit from one storefront to another. In the U.S., we all must use APR for loans, no matter what an individual lender would prefer to call it.
Two weeks ago, President Barack Obama spoke out against predatory payday loan practices. The national Consumer Financial Protection Bureau (CFPB) is holding hearings and doing what it can to curb abusive payday practices, but the CFPB, like the U.S. military, was never authorized by Congress to cap interest rates for the general public.
Capping interest rates is the No. 1 reform that would help local families trapped in the payday debt cycle and must be governed by each state legislature.