If you were broke and desperate, perhaps the least you might expect of the government is that it wouldn’t help to make your situation worse. Yet that is exactly what the state has done for nearly 16 years now through its laissez faire treatment of Hawaii’s burgeoning payday loan industry.

As Civil Beat’s Anita Hofschneider reported earlier this week, Hawaii has one of the nation’s most permissive payday lending laws, allowing companies to charge an annual percentage rate of up to 459 percent, according to an analysis performed a decade ago by the State Auditor.

Sadly, not much has changed since that analysis, except the number of lenders offering their payday products to typically poor borrowers with few options.

Nationally, that has resulted in a troubling trend: According to the Consumer Financial Protection Bureau, four out of five payday loans are followed by another payday loan within two weeks. The effect of that trend is only magnified in Hawaii with its stratospheric APR limit and lax oversight of the industry.

Payday lending shop along Farrington Highway. 21 march 2015. photograph Cory Lum/Civil Beat

A payday lending shop along Farrington Highway in Waianae. There are at least four in Waianae and Nanakuli, some of the poorest areas on Oahu.

Cory Lum/Civil Beat

Here’s how the payday loan process works. Borrowers can take out loans of up to $600. The lender gets a 15 percent fee, but the loan must be repaid within 32 days.

Cash-strapped individuals, who often need the money to cover basic expenses such as food and rent, are frequently unable to repay on time. A federal report notes that rather than being repaid, 80 percent of such loans are rolled over or renewed. As a result, payday loan borrowers are typically indebted for roughly 200 days.

Despite the fact that they’re not supposed to be able to take out a second loan while the first note remains due, many do so to repay the first, ensnaring themselves in a cycle of loan repayment from which it is difficult to escape.

Hawaii’s House Consumer Protection and Commerce Committee on Wednesday took up Senate Bill 737, a measure that would bring long overdue reform to this industry, including establishing a five-day waiting period between paying off one loan and taking out another and increasing the fine for lenders who willfully violate the law to $5,000. But when it came to interest rates — the heart of the bill — the committee lost its nerve.

In its original form, SB737 would have eliminated the 459 percent APR, forbidding payday lenders from charging any more than 36 percent. However, bowing to committee Vice Chair Justin Woodson, the committee elected to leave the percentage rate blank before passing the measure unanimously. It now will be up to Rep. Sylvia Luke’s Finance Committee to determine not only what the ceiling should be, but whether the APR rate limit is even “the appropriate measurement solution.”

In all of these considerations, payday lenders are well represented: Bruce Coppa, former chief of staff for then-Gov. Neil Abercrombie and current lobbyist for Capitol Consultants, was dutifully watching on Wednesday. He has said lack of enforcement of state law preventing lenders from rolling over loans is the real culprit, not the APR ceiling.

The federal Consumer Financial Protection Bureau on Thursday released a proposed framework of reform regulations that would bring new discipline to the $46-billion payday loan industry, which it says collects about $8.7 billion annually in interest and fees. While the proposals focus on eliminating “debt traps” around issues like borrower qualification and the number of loans and loan rollovers possible in a given period, they stopped short of capping interest rates for these short-term debts, in part because until now, payday lending regulation has been done at the state level.

Critics already say the proposed federal regulations don’t go far enough, and that the payday loan industry will be able to exploit loopholes and largely continue current practices. Given that the industry’s products have already been banned outright in 14 states and the District of Columbia, that’s particularly disappointing.

For Hawaii, the interest rate issue thus comes down to what course the House chooses next. Will it follow the Senate’s lead and come through on behalf of impoverished borrowers? Or will it allow SB737 to die, as it did similar reform measures in 2013 and 2014, and continue to leave individuals at the mercy of loan sharks who circle our islands in ever greater numbers?

We’re watching, too.

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