Sen. Rosalyn Baker from Maui has revised Senate Bill 737 to re-insert a 36 percent cap on the annual percentage rate payday loan companies would be able to charge Hawaii residents.

Payday lenders can currently charge customers a 459 percent APR on a 14-day loan, according to a 2005 state analysis. Several social service organizations have been lobbying Baker and other lawmakers to cap the rate, which they say has trapped many low-income residents in a cycle of debt and even contributed to homelessness.

Senator Rosyln Baker

Sen. Rosalyn Baker from Maui reads from her proposed draft of SB 737 during a conference committee hearing Wednesday.

Cory Lum/Civil Beat

Although the Senate passed a bill capping the rate at 36 percent APR earlier this session, House Rep. Sylvia Luke removed the interest rate limit.

Baker said the draft she put forth Wednesday incorporates some of the House’s concerns about better enforcement, but announced that she won’t budge on the 36 percent APR. Eliminating that rate cap is a “show-stopper for the Senate,” she said.

But Rep. Justin Woodson from Maui, who is leading the House negotiations on the bill, has been reticent to support a cap. On Wednesday, he questioned whether low-income borrowers have enough other options available to them.

“As it specifically relates to Hawaii, some of the language proposed will drive individuals to less regulated markets, such as the Internet,” Woodson said.

A Pew Charitable Trusts study found that in states that restrict payday loan stores, only five out of 100 borrowers turned to online payday lenders.

Rep Justin Woodson payday lending

Rep. Justin Woodson said he’s worried about whether payday loan customers will turn to less-regulated Internet sources.

Cory Lum/Civil Beat

Still, payday loan companies — including the owners of Maui Loan, which is in Woodson’s district — argue that if the 36 percent APR cap is approved, they will go out of business.

The companies also contend that the APR isn’t a good way to evaluate the cost of their loans, which must be paid back within a month.

But according to a study by the Consumer Finance Protection Bureau, more than 80 percent of payday loans are rolled over or renewed within two weeks, and borrowers are indebted a median of 199 days per year. The federal agency is considering rules to further regulate the industry but doesn’t have the authority to cap interest rates.

Woodson plans to present a counter-proposal to Baker’s draft during another meeting Thursday morning.

If the House and Senate conference committee members don’t come to an agreement by the end of this week, the bill will die.

As of 2014, payday loans were effectively banned in 14 states and the District of Columbia, according to an analysis by Pew Charitable Trusts. Since 2006, federal law has capped payday loan interest rates at 36 percent APR for loans to active military service members and their families.

Click here to read more background on the issue.

About the Author