HOUSE OF REPRESENTATIVES
TWENTY-EIGHTH LEGISLATURE, 2016
STATE OF HAWAII
A BILL FOR AN ACT
relating to the increased access to responsible small dollar loans pilot program.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Chapter 412, Hawaii Revised Statutes, is amended by adding a new part to article 9 to be appropriately designated and to read as follows:
"Part . INCREASED ACCESS TO RESPONSIBLE SMALL DOLLAR LOANS PILOT PROGRAM
§412:9-A Definitions. As used in this part:
"Consumer reporting agency" shall have the same meaning as in the federal Fair Credit Reporting Act, title 15 United States Code section 1681a(f).
"Finder" means a company that brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract at the finder's physical location for business.
A finder shall not include a company whose sole means of bringing a licensee and prospective borrower together at the company's physical location for business is via an electronic access point through which a prospective borrower may directly access the internet website of a licensee.
"Licensee" means a company approved by the commissioner to participate in the pilot program.
"Pilot program" means the increased access to responsible small dollar loans pilot program established by this part.
"Prime rate" means the prime rate as posted in the Wall Street Journal on the first business day of the month.
"Refinance" means the replacement or revision of an existing loan contract between a licensee and a borrower that results in an extension of additional principal to that borrower.
§412:9-B Increased access to responsible small dollar loans pilot program; established. There shall be established within the division of financial institutions the increased access to responsible small dollar loans pilot program. The purpose of the pilot program shall be to increase the availability of responsible small dollar investment loans of at least $300 and less than $2,500.
§412:9-C Application required; fee; approval required. (a) Any company licensed or chartered under this chapter and who is in good standing may file an application with the commissioner to participate in the pilot program. The application shall be submitted in a form prescribed by the commissioner and shall be accompanied by an application fee of $ or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. The application fee shall not be refundable.
(b) No licensee may offer to make a loan or impose any charges or fees pursuant to section 412:9-D or use a finder pursuant to section 412:9-I without prior approval from the commissioner to participate in the pilot program.
§412:9-D Loan requirements; interest rate; fees. (a) Any loan made pursuant to this part shall meet the following requirements:
(1) The loan shall be unsecured;
(2) The licensee shall underwrite the loan in accordance with section 412:9-F;
(3) Interest on the loan shall accrue on a simple interest basis, through the application of a daily periodic rate to the actual unpaid principal balance each day;
(4) The disclosure statement required under section 412:9-E shall be provided to the consumer; and
(5) The loan shall have a minimum principal amount upon origination of $300 and a term of not less than:
(A) Ninety days for loans whose principal balance upon origination is at least $300 but less than $500;
(B) One hundred twenty days for loans whose principal balance upon origination is at least $500 but less than $1,500; or
(C) One hundred eighty days for loans whose principal balance upon origination is at least $1,500 but less than $2,500.
(b) Notwithstanding any other law to the contrary, a licensee approved by the commissioner to participate in the pilot program may contract for and receive charges for a loan made pursuant to this section at an annual simple interest rate not to exceed the following:
(1) The lesser of thirty-six per cent or the prime rate, as of the date of loan origination, plus 32.75 per cent on that portion of the unpaid principal balance of the loan up to and including, but not in excess of, $1,000; provided that the interest rate calculated as of the date of loan origination shall be fixed for the life of the loan; or
(2) The lesser of thirty-five per cent or the prime rate, as of the date of loan origination, plus 28.75 per cent, on that portion of the unpaid principal balance of the loan in excess of $1,000, but less than $2,500; provided that the interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c) A licensee may contract for and receive an administrative fee, which shall be fully earned immediately upon making the loan, in an amount not to exceed the following:
(1) Seven per cent of the principal amount, exclusive of the administrative fee, or $90, whichever is less, on the first loan made to a borrower; or
(2) Six per cent of the principal amount, exclusive of the administrative fee, or $75, whichever is less, on the second and subsequent loans made to that borrower;
provided that a licensee shall not charge the same borrower an administrative fee more than once in any four month period.
(d) A licensee shall not refinance a loan made pursuant to this section unless the following conditions have been met at the time the borrower submits an application to refinance:
(1) The borrower has repaid at least sixty per cent of the outstanding principal remaining on the loan;
(2) The borrower is not delinquent on the outstanding loan;
(3) The licensee has underwritten the new loan in accordance with section 412:9-F; and
(4) If the loan proceeds of the original loan and the refinance loan are to be used for personal, family, or household purposes, the borrower has not previously refinanced the outstanding loan more than once.
(e) Notwithstanding subsection (d), an administrative fee shall not be contracted for or received in connection with the refinance of a loan unless at least eight months have elapsed since the receipt of a previous administrative fee paid by a borrower. With the exception of a refinance loan, only one administrative fee may be contracted for or received until the loan has been paid in full.
(f) A licensee may require reimbursement from a borrower for the actual insufficient funds fees incurred by the licensee due to the actions of the borrower and may contract for and receive a delinquency fee in the following amounts:
(1) An amount not to exceed $14, for a period of delinquency not less than seven days; or
(2) An amount not to exceed $20, for a period of delinquency not less than fourteen days.
(g) Delinquency fees imposed pursuant to subsection (f) shall be subject to the following requirements:
(1) No more than one delinquency fee may be imposed per delinquent payment;
(2) No more than two delinquency fees may be imposed during any period of thirty consecutive days;
(3) No delinquency fee may be imposed on a borrower who is one hundred eighty days or more past due if that fee would result in the sum of the borrower's remaining unpaid principal balance, accrued interest, and delinquency fees to exceed one hundred eighty per cent of the original principal amount of the borrower's loan; and
(4) The licensee or any of its wholly owned subsidiaries shall attempt to collect a delinquent payment for a period of at least thirty days following the start of the delinquency before selling or assigning that unpaid debt to an independent party for collection.
(h) The licensee shall notify each borrower, at least two days prior to each payment due date, of the amount due and the payment due date. Notification may be provided by any means mutually acceptable to the borrower and the licensee. A borrower shall have the right to opt out of this notification at any time, upon electronic or written request to the licensee. The licensee shall notify each borrower of this right prior to disbursing loan proceeds.
(i) A licensee, finder, or any other person that participates in loan origination under this part shall not offer, sell, or require a borrower to contract for credit insurance or insurance on tangible personal or real property, in connection with or incidental to the making of any loan under this part.
(j) A licensee, finder, or any other person that participates in loan origination under this part shall not refer a borrower to any other person for the purchase of credit insurance or insurance on tangible personal or real property, in connection with or incidental to the making of any loan under this part.
§412:9-E Disclosure required. (a) The licensee shall disclose in writing, in at least twelve-point font, the following information to each consumer at the time of application:
(1) The amount borrowed;
(2) The total dollar cost of the loan to the consumer if the loan is paid back on time, including the sum of the administrative fee, principal amount borrowed, and interest payments;
(3) The corresponding annual percentage rate, calculated in accordance with Regulation Z of the Board of Governors of the Federal Reserve System, title 12 Code of Federal Regulations part 226;
(4) The periodic payment amount;
(5) The delinquency fee schedule;
(6) The following statement:
"REPAYING YOUR LOAN EARLY WILL LOWER YOUR BORROWING COSTS BY REDUCING THE AMOUNT OF INTEREST YOU WILL PAY. THIS LOAN HAS NO PREPAYMENT PENALTY."; and
(7) A statement that the consumer has the right to rescind the loan; provided that the consumer shall notify the licensee of the consumer's intent to rescind the loan and return the principal advanced by the end of the business day following the date the loan is consummated.
(b) The disclosure statement required under this section shall be provided in printed form unless the consumer indicates in a separate writing the consumer's election to receive the disclosure statement through means of a computer disc, electronic mail, download from an internet site, thumb drive, any other media that may require the use of a device or a machine to be viewed or heard, or by any other means contemplated by chapter 489E.
§412:9-F Loan underwriting required. (a) Prior to making a loan pursuant to section 412:9-D, a licensee shall underwrite the loan to determine a borrower's ability and willingness to repay the loan pursuant to the loan terms. A licensee shall not make a loan if the licensee determines through underwriting that the borrower's total monthly debt service payments at the time of origination, including the loan for which the borrower is being considered and all outstanding forms of credit that can be independently verified by the licensee, exceed fifty per cent of the borrower's gross monthly income.
(b) A licensee shall seek information and documentation pertaining to all of a borrower's outstanding debt obligations during the loan application and underwriting process, including loans that are self-reported by the borrower but not available through independent verification. The licensee shall verify the information using a credit report from at least one consumer reporting agency or through other available electronic debt verification services that provide reliable evidence of a borrower's outstanding debt obligations.
(c) The licensee shall request from the borrower and include all information obtained from the borrower regarding outstanding deferred deposit transactions in the calculation of the borrower's outstanding debt obligations.
(d) The licensee shall not be required to consider loans to the borrower from friends or family for purposes of debt-to-income ratio evaluation.
(e) The licensee shall verify the borrower's income that the licensee relies upon to determine the borrower's debt-to-income ratio using information from the following:
(1) Electronic means or services that provide reliable evidence of the borrower’s actual income; or
(2) W-2 forms, tax returns, payroll receipts, bank statements, or other third-party documents that provide reasonably reliable evidence of the borrower's actual income.
§412:9-G Credit education; report to consumer reporting agency; acceptance as data furnisher. (a) Prior to disbursement of loan proceeds for a loan made pursuant to section 412:9-D, a licensee shall:
(1) Offer a credit education program or seminar to the borrower that has been previously reviewed and approved by the commissioner for use in complying with this section; or
(2) Invite the borrower to a credit education program or seminar offered by an independent third party that has been previously reviewed and approved by the commissioner for use in complying with this section;
provided that any credit education program or seminar offered under this subsection shall be provided at no cost to the borrower.
(b) A borrower shall not be required to participate in a credit education program or seminar under subsection (a) as a condition of loan proceed disbursement.
(c) A licensee shall report each borrower's payment performance to at least one consumer reporting agency upon acceptance as a data furnisher by that consumer reporting agency. Any licensee that is accepted as a data furnisher after admittance into the pilot program shall report all borrower payment performance occurring after the licensee's inception of lending under the pilot program as soon as practicable after the licensee's acceptance into the pilot program, but in no event more than six months after the licensee's acceptance into the pilot program.
(d) The commissioner may approve a licensee for the pilot program before that licensee has been accepted as a data furnisher by a consumer reporting agency if the commissioner has a reasonable expectation, based on information supplied by the licensee, of the following:
(1) The licensee will be accepted as a data furnisher once the licensee achieves a lending volume required of data furnishers of the licensee's type by a consumer reporting agency; and
(2) The lending volume will be achieved within the first six months of the licensee commencing lending under the pilot program;
provided that the commissioner shall withdraw approval for pilot program participation from any licensee that fails to become accepted as a data furnisher by a consumer reporting agency within six months of commencing lending under the pilot program.
(e) A licensee shall provide each borrower with the name of the consumer reporting agency or agencies to which the licensee will report the borrower's payment history. A licensee that is accepted as a data furnisher after admittance into the pilot program shall notify a borrower, as soon as practicable following acceptance as a data furnisher, regarding the name of the consumer reporting agency or agencies to which the licensee will report that borrower's payment history.
§412:9-H Waivers; when unlawful. (a) A licensee shall be prohibited from requiring, as a condition of providing a loan under this part, a borrower to:
(1) Waive any right, penalty, remedy, forum, or procedure provided for in any law applicable to the loan, including the right to file and pursue a civil action or file a complaint with or otherwise communicate with the commissioner or any court of appropriate jurisdiction or other public entity; or
(2) Agree to resolve disputes in a jurisdiction outside the State or to the application of laws other than those of this State, as provided by law.
(b) Any waiver by a borrower shall be knowing, voluntary, and in writing and expressly not made a condition of doing business with the licensee under this part. Any waiver that is required as a condition of doing business with a licensee under this part shall be contrary to public policy and shall be void and unenforceable. The licensee shall have the burden of proving that a waiver of any right, penalty, remedy, forum, or procedure was knowing, voluntary, and not made a condition of the loan contract with the borrower.
(c) A licensee shall be prohibited from refusing to do business with or discriminating against a borrower or an applicant on the basis that the borrower or applicant refuses to waive any right, penalty, remedy, forum, or procedure, including the right to file and pursue a civil action or file a complaint with or otherwise communicate with the commissioner or any court of appropriate jurisdiction or other public entity. The exercise of a borrower's or applicant's right to refuse to waive any right, penalty, remedy, forum, or procedure, including a rejection of a contract requiring a waiver, shall not affect any otherwise legal terms of a contract or agreement.
(d) This section shall not apply to:
(1) Any agreement to waive any right, penalty, remedy, forum, or procedure, including any agreement to arbitrate a claim or dispute, after a claim or dispute has arisen; provided that nothing in this section shall affect the enforceability or validity or any other provision of the contract; and
(2) Any loan with a principal amount of $2,500 or more.
§412:9-I Finders; services performed; prohibited activities. (a) A licensee may use the services of one or more finders as provided in this part.
(b) A finder may perform one or more of the following services for a licensee at the finder's physical location for business:
(1) Distribute, circulate, use, or publish preprinted brochures, flyers, fact sheets, or other written materials relating to loans that the licensee may make or negotiate and that have been reviewed and approved in writing by the licensee prior to being distributed, circulated, or published;
(2) Provide written factual information about loan terms, conditions, or qualification requirements to a prospective borrower that have been prepared by the licensee or reviewed and approved in writing by the licensee; provided that a finder may discuss this written factual information with a prospective borrower in general terms but shall not provide counseling or advice to a prospective borrower;
(3) Notify a prospective borrower of the information needed in order to complete a loan application; provided that a finder shall not provide counseling or advice to a prospective borrower;
(4) Enter information provided by the prospective borrower on a preprinted or electronic application form or onto a preformatted computer database; provided that a finder shall not provide counseling or advice to a prospective borrower;
(5) Assemble credit applications and other materials obtained in the course of a credit application transaction for submission to the licensee;
(6) Contact the licensee to determine the status of a loan application;
(7) Communicate a response returned by the licensee's automated underwriting system to a borrower or a prospective borrower; or
(8) Obtain a borrower's signature on documents prepared by the licensee and deliver final copies of the documents to the borrower.
(c) A finder shall not engage in any of the following activities:
(1) Provide counseling or advice to a borrower or prospective borrower;
(2) Provide loan-related marketing material that has not been previously approved by the licensee to a borrower or a prospective borrower; or
(3) Interpret or explain the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower.
(d) A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security, including compliance with chapters 487J, 487N, and 487R.
§412:9-J Finders; disclosure required. (a) At the time the finder receives or processes an application for a loan under the pilot program, the finder shall provide a written disclosure statement to the applicant on behalf of the licensee, which shall contain wording substantially similar to the following and shall be printed in not less than ten-point font:
"Your loan application has been referred to us by [Name of Finder]. We may pay a fee to [Name of Finder] for the successful referral of your loan application. IF YOU ARE APPROVED FOR THE LOAN, [NAME OF LICENSEE] WILL BECOME YOUR LENDER, AND YOU WILL BE BUILDING A RELATIONSHIP WITH [NAME OF LICENSEE]. If you wish to report a complaint about [Name of Finder] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Commerce and Consumer Affairs Division of Financial Institutions."
(b) The statement required under subsection (a) shall include the most recent contact information, including a telephone number and internet website, for the division.
(c) The applicant shall acknowledge receipt of the disclosure statement in writing.
(d) If a loan pursuant to this part is consummated, the licensee shall provide the borrower with a written copy of the disclosure statement required by this section within fourteen days following the date of loan consummation. A licensee may include the disclosure within the licensee's loan contract or may provide the disclosure as a separate document to the borrower, via any means acceptable to the borrower.
§412:9-K Finders; compensation; written agreement; requirements. (a) All arrangements between a licensee and a finder shall be set forth in a written agreement. The written agreement shall state that the finder agrees to comply with all rules established by the commissioner regarding the activities of finders pursuant to this part and the commissioner shall have access to all the finder's books and records that pertain to the finder's operations under the written agreement with the licensee.
(b) A finder may be compensated by the licensee pursuant to the written agreement required under subsection (a).
(c) Any compensation of a finder by a licensee shall be subject to the following requirements:
(1) No fee shall be paid to a finder in connection with a loan application until and unless that loan is consummated;
(2) No fee shall be paid to a finder based upon the principal amount of the loan;
(3) No fee paid to a finder shall exceed the following amounts:
(A) $45 per loan for the first forty loans originated each month at the finder's location; and
(B) $40 per loan for any subsequent loans originated during that month at the finder's location; and
(4) The finder's location for performing services permitted under this part and other information required by section 412:9-L have been reported to the commissioner, and the commissioner has not barred the finder from providing services at that location.
(d) No licensee shall directly or indirectly pass on to a borrower any fee or any portion of any fee that the licensee pays to a finder in connection with the borrower's loan or loan application.
§412:9-L Licensees; utilization of finders; requirements. (a) A licensee that utilizes the services of a finder shall notify the commissioner within fifteen days of entering into a contract with a finder on a form prescribed by the commissioner, which contains the following information:
(1) The name and business address of the finder and all locations at which the finder will perform services permitted under this part;
(2) The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee;
(3) The name and contact information for one or more employees of the finder who are responsible for the finder's finding activities on behalf of the licensee;
(4) A list of the activities the finder shall perform on behalf of the licensee; and
(5) Any other information that the commissioner may require.
(b) The commissioner shall charge an annual finder registration fee for each finder utilized by a licensee, to be established by rule pursuant to chapter 91.
(c) A licensee shall submit an annual report to the commissioner, which shall include any information pertaining to each finder utilized by the licensee and the licensee's relationship and business arrangements with each finder, as the commissioner may require by rule pursuant to chapter 91.
§412:9-M Examination; violation; penalty. (a) Every licensee and every finder shall permit the commissioner to examine the operations of the licensee or the finder to ensure the licensee or the finder is in compliance with this part. The licensee or finder shall pay the entire cost of the examination.
(b) Upon a determination that a finder has acted in violation of this part or any rule adopted pursuant to this chapter, the commissioner shall have the authority to:
(1) Disqualify a finder from performing services under this part;
(2) Prohibit a finder from performing services at one or more specific locations of the finder;
(3) Terminate a written agreement between a finder and licensee; and
(4) Prohibit the use of a finder by all licensees, if that action is in the public interest.
(c) In addition to any other penalty provided by law, the commissioner may impose an administrative fine of up to $2,500 for each violation of this part by a finder."
SECTION 2. (a) The commissioner of financial institutions shall submit a preliminary report to the legislature no later than twenty days prior to the convening of the regular session of 2018 and a final report no later than twenty days prior to the convening of the regular session of 2021 on the status of the increased access to responsible small dollar loans pilot program established by section 1 of this Act.
(b) The reports shall include but not be limited to the following information:
(1) The number of entities that applied to participate in the pilot program;
(2) The number of entities accepted to participate in the pilot program;
(3) The number of pilot program loan applications received by licensees participating in the pilot program, the number of loans made pursuant to the pilot program, the total amount loaned, the distribution of loan lengths upon origination, and the distribution of interest rates and principal amounts upon origination among those loans;
(4) The number of borrowers who obtained more than one pilot program loan and the distribution of the number of loans per borrower;
(5) The number and percentage of borrowers who applied for a refinance loan;
(6) The number and type of finders used by licensees and the relative performance of loans consummated by finders compared to the performance of loans consummated without a finder;
(7) The number and percentage of borrowers who obtained one or more pilot program loans on which late fees were assessed; the total amount of late fees assessed; and the average late fee assessed by dollar amount and as a percentage of the principal amount loaned;
(8) Information relating to the number and percentage of pilot program borrowers who experienced at least one delinquency and the distribution of principal loan amounts corresponding to those delinquencies;
(9) Information relating to the number and types of violations of the new part of chapter 412, article 9, Hawaii Revised Statutes, established by section 1 of this Act, by licensees and finders;
(10) Recommendations for improving the program; and
(11) Any other information the commissioner of financial institutions deems relevant.
(c) The final report shall also include a recommendation from the commissioner of financial institutions regarding whether the increased access to responsible small dollar loans pilot program should be continued after June 30, 2021.
SECTION 3. In codifying the new sections added by section 1 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 4. This Act shall take effect on July 1, 2016; provided that this Act shall be repealed on June 30, 2021.
Increased Access to Responsible Small Dollar Loans Pilot Program; Division of Financial Institutions; Financial Institutions; Finders
Establishes the increased access to responsible small dollar loans pilot program, within the department of commerce and consumer affairs division of financial institutions, to increase the availability of responsible small dollar investment loans of at least $300 but less than $2,500. Specifies requirements of the program, including application requirements, interest rates, use of finders, and fees. Requires a preliminary report to the legislature no later than twenty days prior to the convening of the regular session of 2018 and a final report no later than twenty days prior to the convening of the regular session of 2021. Pilot program repeals June 30, 2021.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.