STAND. COM. REP. NO.394-02

Honolulu, Hawaii

, 2002

RE: H.B. No. 1778

H.D. 1



Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii


Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 1778 entitled:


begs leave to report as follows:

The purpose of this bill is to support competition in the lending community and contribute to the economic health of Hawaii's financial services loan industry while protecting consumers, by repealing Article 9 of the Code of Financial Institutions, which governs depository and nondepository financial services loan companies, and replacing it with two separate articles. This bill establishes an Article A for depository financial services loan companies, which are subject to dual regulatory oversight by the State and the Federal Depository Insurance Corporation (FDIC), and an Article B for nondepository financial services loan companies, which are subject to state regulation, only.

Among other things, this bill amends the law applicable to both non-depository and depository financial services loan companies by:

(1) Removing the "laundry list" of allowed consumer loan fees and replacing it with a list of prohibitions similar to those applicable to FDIC-insured institutions; and

(2) Eliminating the ability to make precomputed loans, and grandfathering existing precomputed loans.

In addition, the law applicable to depository financial services loan companies is revised by applying the same 24 annual percentage rate (APR) loan ceiling on simple interest loans that is applicable to other FDIC-insured institutions.

Regulation of nondepository financial services loan companies is reformed by:

(1) Providing a 31.66 APR loan ceiling on certain simple interest loans of up to $7,500 with a maximum term of 48 months, and 24 APR ceiling for all other loans;

(2) Allowing nonrefundable discount, points, loan fees, and loan origination charges reasonably related to a consumer loan, but limiting fees permitted for consumer loans at rates higher than 24 APR that are not secured by real property;

(3) Requiring additional, biannual filings with the Division describing loan fees collected, and non-loan products such as credit insurance, sold; and

(4) Allowing imposition of a "bounced" check fee charge not to exceed $20.

Testimony in support of this bill was received from the Hawaii Financial Services Association. The Department of Commerce and Consumer Affairs testified in support of this bill and suggested amendments.

Your Committee finds that in 1996, the Commissioner of Financial Institutions appointed a task force of representatives knowledgeable and experienced in the financial services loan industry, to update and recodify Article 9. This bill was drafted by the task force and represents a balancing of consumer and industry needs and protections.

Your Committee further finds that this bill as drafted creates ambiguity regarding what statutes will apply to financial services loan companies currently in existence once Article 9 is repealed.

Your Committee has amended this bill to:

(1) Clarify the applicability of existing law and of the new Articles A and B to financial services loan companies;

(2) Remove differences between this bill and the bill developed by the Task Force;

(3) Change the effective date of this bill from July 1, 2003, to July 1, 2050, to encourage further discussion; and

(4) Make other technical, nonsubstantive amendments for purposes of clarity, consistency, and style.

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1778 and recommends that it pass Second Reading and be referred to the Committee on Finance.


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