Bill Text: HI HB1317 | 2018 | Regular Session | Introduced

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Bill Title: Relating To The Hawaii Credit Creation Pilot Program.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced - Dead) 2017-11-30 - Carried over to 2018 Regular Session. [HB1317 Detail]

Download: Hawaii-2018-HB1317-Introduced.html

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HOUSE OF REPRESENTATIVES	H.B. NO.	1317
TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to the hawaii credit creation pilot program.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 

     SECTION 1.  The legislature finds that consumer demand for responsible consumer loans in principal amounts of at least $600 and up to $5,000 exceeds the supply of these loans.  The purpose of this Act is to establish the Hawaii credit creation pilot program to assist consumers in accessing loans of that size and building their credit and to add consumer protections for these loans that exceed current protections under existing law.

     SECTION 2.  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   .  Hawaii credit creation 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).

     "Licensee" means a company approved by the commissioner to participate in the pilot program.

     "Pilot program" means the Hawaii credit creation 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.

     "Referral partner" means an entity that brings a licensee and a prospective borrower together, either at that referral partner's physical location for business or via the licensee's website, for the purpose of negotiating a loan contract.

     "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  Hawaii credit creation pilot program; established.  There is established within the division of financial institutions of the department of commerce and consumer affairs the Hawaii credit creation pilot program.  The purpose of the pilot program shall be to increase the availability of responsible small dollar consumer loans of at least $600 and up to $5,000.

     §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 may 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 referral partner 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 $600 and a term of not less than one hundred twenty days.

     (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 interest for the loan made pursuant to this section at an annual simple interest rate not to exceed thirty-six per cent.

     (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 seven per cent of the principal amount, exclusive of the administrative fee, or $90, whichever is less.

     (d)  An administrative fee shall not be contracted for or received in connection with the refinance of a loan unless at least four 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.

     (e)  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 an amount not to exceed:

     (1)  $14 for a period of delinquency not less than seven days; or

     (2)  $20 for a period of delinquency not less than fourteen days.

     (f)  Delinquency fees imposed pursuant to subsection (e) 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 payment that 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.

     (g)  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 commercially reasonable 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.

     §412:9-E  Disclosure required.  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.

     §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 proceeds 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 a data furnisher of the licensee's type by the 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)  Any 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 through the application of laws other than those of this State.

     (b)  Any waiver by a borrower shall be knowing, voluntary, 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 the 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, entered into after a claim or dispute has arisen; provided that nothing in this section shall affect the enforceability or validity of any other provision of that contract; and

     (2)  Any loan with a principal amount over $5,000.

     §412:9-I  Referral partners; services performed; prohibited activities.  (a)  A licensee may use the services of one or more referral partners as provided in this part.

     (b)  A referral partner may perform one or more of the following services for a licensee at the referral partner'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 referral partner 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 referral partner 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 referral partner 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;

     (8)  Obtain a borrower's signature on documents prepared by the licensee and deliver final copies of the documents to the borrower;

     (9)  Disburse loan proceeds to borrowers, if borrowers choose to receive their loan proceeds directly from the referral partner rather than from the licensee;

    (10)  Accept loan payments from borrowers on behalf of licensees, if borrowers choose to make their loan payments directly to the referral partner; provided that the referral partner may collect a payment processing fee from the borrower not to exceed $2 per payment; and

    (11)  Provide borrowers with any notice or disclosure required to be provided to the borrowers by the licensee.

     (c)  A referral partner shall not:

     (1)  Provide counseling or advice to a borrower or prospective borrower;

     (2)  Provide to a borrower or prospective borrower loan-related marketing material that has not been previously approved by the licensee; or

     (3)  Interpret or explain the relevance, significance, or effect of any marketing materials or loan documents that the referral partner provides to a borrower or prospective borrower.

     (d)  A referral partner 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  Referral partners; disclosure required.  (a)  At the time the referral partner receives or processes an application for a loan under the pilot program, the referral partner 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 Referral partner].  We may pay a fee to [Name of Referral partner] 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 Referral partner] 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 of financial institutions.

     (c)  The applicant shall acknowledge receipt of the disclosure statement in writing.

     §412:9-K  Referral partners; compensation; written agreement; requirements.  (a)  All arrangements between a licensee and a referral partner shall be set forth in written agreement.  The written agreement shall state that:

     (1)  The referral partner agrees to comply with all rules established by the commissioner regarding the activities of referral partners pursuant to this part; and

     (2)  The commissioner shall have access to all the referral partner's books and records that pertain to the referral partner's operations under the written agreement with the licensee.

     (b)  A referral partner may be compensated by the licensee pursuant to the written agreement required under subsection (a).

     (c)  Any compensation of a referral partner by a licensee shall be subject to the following requirements:

     (1)  No fee shall be paid to a referral partner in connection with a loan application until and unless that loan is consummated;

     (2)  No fee shall be paid to a referral partner based upon the principal amount of the loan;

     (3)  No fee paid to a referral partner shall exceed an annual assessment of $60 per loan whether paid at the time of consummation of the loan, through installments, or in any other manner agreed upon by the licensee and the referral partner; and

     (4)  No fee shall be paid to a referral partner unless the referral partner reports its location for performing services authorized under this part; provided that the commissioner has not barred the referral partner 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 owes or pays to a referral partner in connection with the borrower's loan or loan application.

     §412:9-L  Licensees; utilization of referral partners, requirements.  (a)  A licensee that utilizes the services of a referral partner shall notify the commissioner within fifteen days of entering into a contract with a referral partner of that fact via a form prescribed by the commissioner, which shall contain the following information:

     (1)  The name and business address of the referral partner and all locations at which the referral partner will perform services permitted under this part;

     (2)  The name and contact information for any employee of the referral partner who is knowledgeable about and has the authority to execute the contract governing the business relationship between the referral partner and the licensee;

     (3)  The name and contact information for one or more employees of the referral partner who are responsible for the referral partner's finding activities on behalf of the licensee;

     (4)  A list of the activities the referral partner shall perform on behalf of the licensee; and

     (5)  Any other information that the commissioner may require.

     (b)  The commissioner shall charge an annual referral partner registration fee for each referral partner utilized by a licensee, to be established by rule pursuant to chapter 91.

     (c)  A licensee shall submit an annual report to the commissioner that shall include any information pertaining to each referral partner utilized by the licensee and the licensee's relationship and business arrangement with each referral partner, as the commissioner may require by rule pursuant to chapter 91.

     §412:9-M  Examination; violation; penalty.  (a)  Every licensee and every referral partner shall permit the commissioner to examine the operations of the licensee or the referral partner to ensure the licensee or the referral partner is in compliance with this part.  The licensee or referral partner shall pay the entire cost of the examination.

     (b)  Upon a determination that a referral partner has acted in violation of this part or any rule adopted pursuant to this part, the commissioner shall have the authority to:

     (1)  Disqualify the referral partner from performing services under this part;

     (2)  Prohibit the referral partner from performing services at one or more specific locations of business of the referral partner;

     (3)  Terminate a written agreement between the referral partner and licensee; and

     (4)  Prohibit the use of the referral partner by 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 $5,000 for each violation of this part by a referral partner."

     SECTION 3.  (a)  The commissioner of financial institutions shall submit a report to the legislature no later than twenty days prior to the convening of each regular session on the status of the Hawaii credit creation pilot program established by section 2 of this Act.

     (b)  The reports shall include:

     (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, and the total amount loaned;

     (4)  The number and type of referral partners used by licensees and the relative performance of loans using referral partners compared to the performance of the loans consummated without a referral partner;

     (5)  The number and percentage of borrowers who obtained one or more pilot program loans on which late fees were assessed, and the total amount of late fees assessed;

     (6)  The number and percentage of borrowers who achieved a credit score increase;

     (7)  Information relating to the number and types of violations of the new part of chapter 412, article 9, Hawaii Revised Statutes, established by section 2 of this Act, by licensees and referral partners;

     (8)  Recommendations for improving the pilot program; and

     (9)  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 Hawaii credit creation pilot program should be continued after June 30, 2022.

     SECTION 4.  In codifying the new sections added by section 2 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 5.  This Act shall take effect on July 1, 2017, and shall be repealed on June 30, 2022.

 

INTRODUCED BY:	_____________________________

 

 

Report Title:

Hawaii Credit Creation Pilot Program; Division of Financial Institutions; Department of Commerce and Consumer Affairs; Financial Institutions; Referral Partners

 

Description:

Establishes the Hawaii credit creation pilot program, within the department of commerce and consumer affairs division of financial institutions, to increase the availability of responsible small dollar consumer loans of at least $600 and up to $5,000.  Specifies requirements of the program, including application requirements, interest rates, use of referral partners, and fees.  Requires annual status reports to the legislature and a recommendation regarding continuation of the pilot program.  Repeals on June 30, 2022.

 

 

 

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