Rep. Sylvia Luke proved the old adage this week regarding laws and sausages. While the process for making both isn’t pretty, voters should take a long look at Senate Bill 737 and Luke’s actions in getting the payday lending reform bill to its current state.

As Civil Beat’s Anita Hofschneider reported, the Nuuanu Valley Democrat rushed the bill through her House Finance Committee last week, promising to include language that would introduce a new annual percentage rate cap on payday loans. Hawaii’s payday lending law has been roundly criticized by the state auditor and a long list of community organizations for allowing an APR of up to 459 percent.

In the version that passed the Senate, SB737 would have lowered the cap to 36 percent and brought additional oversight to payday lending.

But when Luke’s committee report on the bill was released on Monday, language regarding the APR cap was gone entirely – an abrupt about face from what committee members actually voted on.

The bill passed the House on Tuesday as one of 150 “final crossover” bills, but Luke’s failure to deliver on her promise, which was caught on Capitol TV’s videotape of the proceedings (and available at Hofschneider’s story, linked above), raises serious questions about the measure.

Pay day lending shop in Kalihi. Near North King Street.  21 march 2015. photograph Cory Lum/Civil Beat

A payday lending shop in Kalihi is only a block away from its competitor. Social service organizations say that in Hawaii, the payday loan debt trap contributes to the high rate of homelessness among local residents.

Cory Lum/Civil Beat

Community activists are howling over Luke’s move, but legislators have been quiet thus far, and Luke didn’t return a phone call on the matter from Civil Beat on Tuesday.

The House Consumer Protection Committee passed the bill with the APR cap left blank, deferring to the financial expertise of Luke’s committee to set an appropriate interest ceiling. Luke’s actions seem to undermine that good faith effort.

Consumer Protection Vice Chair Justin Woodson, who led the discussion of the bill in his committee,  said on Wednesday that he wasn’t aware of Luke’s action on the APR and couldn’t comment on it. But he pointed to multiple examples of beefed up oversight of lenders within the bill and enhanced lender penalties for statutory violations, including fines of up to $1,000 and the potential loss of their business.

While we support enhanced oversight, it doesn’t obviate the need to address the APR, nor does it excuse forwarding a bill that is different from what the Finance Committee voted on. Payday lending interests are being represented on this bill by lobbyist Bruce Coppa, formerly the chief of staff for Gov. Neil Abercrombie, and the lingering impression is that lenders’ financial interests are being protected at the expense of consumers.

This matter is not without consequences. Payday loans are intended to be a short-term, stopgap measure for borrowers facing cash-flow issues and few personal loan options, but they typically trap consumers in a difficult-to-escape cycle of debt. National data shows four out of five payday loans are followed by another such loan within two weeks, and borrowers are indebted an average of 200 days over the course of a year, rather than simply the period from the loan to the next payday.

The lingering impression is that lenders’ financial interests are being protected at the expense of consumers.

As the period of indebtedness grows, so does the overall interest rate, ballooning to an annualized 459 percent in Hawaii, according to the state auditor.

Luke and her colleagues know that. They also know that payday lending has been banned outright in 14 states and the District of Columbia and that the federal Consumer Financial Protection Bureau proposed a framework of new regulations last month that would bring tough new discipline to the industry.

Opting for a different legislative solution is one thing. Passing a bill out of committee that includes interest rate reform, but sending a different version of that bill forward for a full House vote is quite another.

Rep. Luke owes her colleagues and constituents some answers. House and Senate conferees, meanwhile should fix the mess and reinsert a reasonable interest rate cap in this long-overdue reform measure, one that protects the interests of some of Hawaii’s most vulnerable consumers.

Toward that end, language deleted from the original version of SB 737 bears repeating: “The legislature finds that it is in the interest of the public to limit the interest rate a check casher is allowed to charge by way of a deferred deposit agreement.”

About the Author