Lawmakers want cap on interest rate for payday loans

Lawmakers want cap on interest rate for payday loans
Updated: Apr. 6, 2015 at 5:57 PM HST
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HONOLULU (HawaiiNewsNow)

Disabled Navy veteran Timothy Derby's Social Security and VA benefits aren't enough to cover his bills, so he had to take out payday loans.

"I've got three on the internet and four locally," he said.

Derby's caught in the debt cycle those who advocate for the underprivileged want to eliminate. They said payday lender's compound interest rates can reach 459 percent.

"We've heard stories of people who are paying as much as $1,000 in fees on a loan that was originally only $300," said Scott Morishige of PHOCUSED.

Lender Money Mart believes abuses happen in the industry but doubts interest rates reach triple digits because payday loans are short term.

"It's 15 percent of the face value of the check. So you get the loan, your next payday you come in and you repay the loan," said Tony Irwin, the company's government affairs director.

The Hawaii Appleseed Center said borrowers get hooked when they take out loans to pay off other loans. Lawmakers want to cap the interest on deferred deposit transactions at 36 percent. Irwin said at that rate, on a $100 loan Money Mart would make only a dollar and change.

"We can't keep the lights on. We can't employ people," he said. "You can't run a business at that rate."

He said the state should enforce its present law and crack down on unscrupulous lenders.

"If they were, then some of these operators would be caught and would not be in business," he said.

Morishige said adopting the cap in the payday loan bill could keep consumers from getting in over their heads.

"There are people who've been evicted from their homes as a result of the debt they accumulate through payday loans," he said.

"Every time I turn around I'm borrowing from Peter to pay Paul," Derby said.

Hawaii's legislation is timely, 17 states have capped the payday loan interest rate at 36 percent.

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