A bill to lower maximum payday loan interest rates died Friday after a fiery standoff between Sen. Rosalyn Baker and Rep. Justin Woodson, both of Maui County.

Baker’s proposal, Senate Bill 737, would have capped the annual percentage rate for payday loans at 36 percent, much lower than the current 459 percent.

Woodson countered with a different proposal Thursday that he said was intended to improve enforcement of the current law and maintain the existing interest rate cap.

On Friday morning, Baker wasn’t having it.

Payday lending shop next to 7-11 in Waianae.  21 march 2015. photograph Cory Lum/Civil Beat

Payday lending companies say that they offer a much-needed service to consumers, and would go out of business if forced to lend at a maximum 36 percent APR.

Cory Lum/Civil Beat

“Basically what your bill does is to put this kind of anti-consumer predatory lending thing in the statute in a different way than what it currently exists,” she said. “That’s not acceptable to the Senate.”

“The House position is 18 percent transactional fee, the Senate position is 36 percent APR,” Woodson said, noting that the law stipulates loans must be paid back within 30 days and he doesn’t think the APR is an appropriate way to measure their cost.

Baker pointed out that most borrowers take out multiple loans and remain indebted for months. A national study found that 80 percent of payday loans are rolled over or renewed within two weeks.

“But if the House wants to be known as the group that is anti-consumer protection and wants to be standing up for a predatory lending practice, so be it,” she said. “The Senate will not agree, and we can adjourn now. Is that your pleasure?”

“There’s a lot of misinformation …” Woodson started to say.

“Is that your pleasure?” Baker interrupted.

“We agree to disagree Senator,” he said.

“We’re adjourned.” She slammed the gavel.

Math Problems

Hawaii legalized the payday lending industry in 1999 through a statute called “deferred deposits.” The law permits lenders to charge a 15 percent fee on a loan of up to $600, and the money has to be paid back within a month.

Generally the loan lasts for a two-week period and in practice, lenders charge a total of 17.65 percent per loan. For example, one customer who took out a $500 loan at Money Mart paid $88.20 after two weeks.

To Woodson, that’s a reasonable fee that will let payday loan companies stay in business. He said after Friday’s hearing that he doesn’t think Baker understands the way the loans work.

“We have to conduct ourselves in a certain way in this building but I think how Sen Baker was acting was unbecoming,” he said. “What happened today was… potentially a burning of a bridge.”

Senator Roslyn Baker

Sen. Roslyn Baker during a conference committee hearing on payday loans this week.

Cory Lum/Civil Beat

But Baker thinks that it’s Woodson who is miscalculating how much the loans cost. His latest draft of the bill changed the law to allow a lender to charge $17.65 per $100 loan, which she believes would actually increase the legal interest rate.

Kim Harman, a community organizer who has been advocating for the 36 percent APR cap, agreed.

“Woodson either truly doesn’t understand how payday loans work or it feels like he was punishing borrowers for trying to improve them,” Herman said.

The representative from Kahului has been taking heat from advocates like Harman who see his position as defending a predatory industry at the expense of low-income residents.

Woodson said he believes his position, which is backed by key House leaders like Rep. Sylvia Luke, helps consumers while still ensuring that payday lenders can stay in business.

He disagreed that the annual percentage rate is the best way to measure the cost of the loan, even though a national study found that payday loan borrowers are indebted an average of 199 days each year.

‘Window Dressing’

Woodson’s proposal would have implemented a five-day cooling-off period between loans to discourage repeat borrowers.

Steve Levins, who leads the state Office of Consumer Protection, said studies from other states have shown that cooling-off periods are not effective in protecting debt traps.

For Levins, only the 36 percent APR would create meaningful reform. Although the state has laws in place banning companies from rolling over loans and giving out more than one loan to the same customer, the rules haven’t been effective in keeping consumers out of debt, he said.

“To just put window dressing on the current law and to make it appear that consumers were being protected… it’s not something that we can support,” Levins said.

Rep Justin Woodson payday lending

Rep. Justin Woodson, center, at a hearing on payday loans this week.

Cory Lum/Civil Beat

The bill’s failure is good news for payday lending companies like Dollar Financial, which owns nine stores in the state, including Money Mart.

“Under existing law, gross income on a $100 transaction is $17.65. Under this proposal, it is $1.38,” the company stated in written testimony opposing Baker’s version of the bill. “No business can survive a 92.2% decrease in gross income. It doesn’t leave enough revenue to pay the light bill, much less employee payroll and benefits.”

Harman said she is disappointed but not surprised the bill failed.

“There’s millions of dollars of profit to be made on poor people in Hawaii so of course there’s going to be a huge fight by the lenders and their lobbyists to protect those millions,” she said. “When the industry is able to pay so much money to fight it, you get confusing language and tricky numbers and it’s an uphill battle.”

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