Loans and Extensions of Credit

HRS div. 2, tit. 22, ch. 412, art. 9, pt. III

in effect

HRS §412:9-300 General requirements for loans and extensions of credit

412:9-300. General requirements for loans and extensions of credit A financial services loan company shall make loans and extensions of credit that are consistent with prudent lending practices, and in compliance with all applicable federal and state laws. L 1993, c 350, pt of §1

HRS §412:9-301 Interest computation methods

412:9-301. Interest computation methods A financial services loan company may charge, contract for, and receive interest on loans on a precomputed basis or a simple interest basis. (1) Precomputed loans are loans where interest is paid or deducted in advance at the inception of the loans. The two types of precomputed loans, discount and add-on, are as follows: (A) Under the discount method, interest is computed on the principal amount of the loan for the full term of the loan as though the principal amount were to remain outstanding and unpaid for the full term of the loan. The interest and other authorized and permitted charges may be deducted from the principal amount at the time the loan is made and may be retained by the financial services loan company and applied (in the case of other charges) for the purposes authorized by this article. Interest may be computed and retained in this manner notwithstanding the fact that periodic payments to reduce the principal amount are required on the loan and the borrower does not receive the full principal amount, but only the balance thereof after the deductions; (B) Under the add-on method, interest is computed on the amount to be actually received by the borrower, as though the amount were to remain outstanding and unpaid for the full term of the loan. Interest and other authorized and permitted charges may be added to the amount to be actually received by the borrower, and the total amount produced by the addition may then be constituted the principal amount of the loan. The amount of the interest and other authorized and permitted charges so added may then be deducted from the principal amount and retained by the financial services loan company at the time the loan is made. Interest may be computed and retained in this manner notwithstanding the fact that periodic payments to reduce the principal amount are required on the loan and that the amount received by the borrower is less than the principal amount by the amount of the interest and other charges; (2) Simple interest loans are loans on which interest is computed on the principal balance remaining unpaid from time to time. "Principal balance remaining unpaid" is defined as the original principal amount less payments applied to reduce the original principal amount. [L 1993, c 350, pt of §1]

HRS §412:9-302 Interest rates

412:9-302. Interest rates (a) A financial services loan company shall have the right to charge, contract for, and receive interest, fees and other charges on loans, as permitted by chapter 478, or as otherwise permitted by law. (b) In addition to and without limiting the authority granted by subsection (a), for any loan on which interest is calculated under the authority of section 412:9-301, a financial services loan company may charge, contract for, and receive interest at any rate which does not exceed the maximum rate allowed by this section: (1) For precomputed loans, interest that is paid or deducted in advance shall not exceed fourteen per cent a year for the first eighteen months or portion thereof, plus ten and one-half per cent a year for the next twelve months or portion thereof, plus seven per cent a year for the next twelve months or portion thereof, plus four per cent a year for the last six months or portion thereof, of the term of the loan. The maximum term of a precomputed loan where the preceding rates are charged will be forty-eight months. If the term of a precomputed loan exceeds forty-eight months, the financial services loan company may charge, contract for, and receive a "finance charge" in any form or forms at an "annual percentage rate" not to exceed twenty-four per cent a year, together with any other charges that are excluded or excludable from the determination of finance charge under the Truth in Lending Act. The terms "finance charge" and "annual percentage rate" shall have the same meaning as under the Truth in Lending Act. (2) For simple interest loans, a financial services loan company may charge, contract for, and receive a "finance charge" in any form or forms at an "annual percentage rate" not to exceed twenty-four per cent a year, together with any other charges that are excluded or excludable from the determination of finance charge under the Truth in Lending Act. The terms "finance charge" and "annual percentage rate" as used in this subsection shall have the same meaning as under the Truth in Lending Act. The rate in this subsection shall be applicable to any simple interest loan, whether or not the Truth in Lending Act applies to the transaction, notwithstanding the fixed or variable manner in which interest or a finance charge may be computed under the loan, and whether or not the contract uses the terms "interest" or "annual percentage rate" or "finance charge" or any combination of such terms. For rate computation purposes the financial services loan company conclusively shall be presumed to have given all disclosures in accordance with the terms of the loan that are contemplated by the Truth in Lending Act, including those necessary to exclude any charges from the finance charge. (c) On maturity of a loan, the rate of interest on the unpaid principal balance of the loan shall be twenty-four per cent a year, unless a lesser rate is specified in the note or other form of contract signed by the borrower as an after-maturity interest rate. (d) Any open-end loan account that is also a "credit card agreement" as defined in section 478-1 shall be subject to the rate limitations in section 478-4 rather than the rate limitations in this article. [L 1993, c 350, pt of §1]

HRS §412:9-303 Effect of excessive interest

412:9-303. Effect of excessive interest If a greater rate of interest than that permitted under this article is contracted for in any loan under this article, the loan shall not, by reason thereof, be void. But, if in any action on the loan, proof is made that a greater rate of interest than that permitted by law has been directly or indirectly contracted for, the financial services loan company shall only recover the amount actually received by the borrower in cash, credit or the equivalent thereof plus the charges, if any, which were properly charged to the borrower and which have not been deducted from the principal amount of the contract or otherwise paid by the borrower. The borrower shall only recover costs. If interest has been paid, judgment shall be for the recoverable amount less the amount of interest paid. Sections 478-5 and 478-6 shall not apply to loans made under this article by financial services loan companies. [L 1993, c 350, pt of §1]

HRS §412:9-304 Consumer loan charges

412:9-304. Consumer loan charges Unless specifically authorized in this article or by rule adopted by the commissioner, a financial services loan company shall only have the right to charge, contract for, and receive in advance or otherwise, the following charges in addition to the interest permitted in section 412:9-302 for a consumer loan made under this article, including but not limited to a first-lien mortgage loan: (1) Late charges under the consumer loan on any delinquent installment, or portion of the delinquent installment where there has been no extension or deferment. Delinquency occurs when the installment or payment is not paid on the due date. Late charges shall not be collected more than once for the same delinquent installment. Late charges on any consumer loan shall not exceed five per cent of the delinquent installment, and late charges shall not be assessed on any consumer loan after acceleration of the maturity of the consumer loan; (2) A prepayment penalty as provided in the note or other form of contract signed by the borrower on any amount that is voluntarily prepaid; provided that: (A) The prepayment penalty on any consumer loan with a term of five years or more that is primarily secured by an interest in real property and in which the interest rate is computed under section 412:9-301(2) and which is prepaid within five years of the date of the loan shall be computed on the amount prepaid in excess of twenty per cent of the original principal amount of the loan in any twelve-month period measured from the date of the loan or from any anniversary of the loan date. The prepayment penalty may be charged only on amounts in excess of the twenty per cent amount in each twelve-month period in such five-year period and shall not exceed six months of interest at the then-applicable loan interest rate on the amount prepaid; provided that the interest rate is permissible under applicable usury law; (B) The prepayment penalty shall not be charged on a consumer loan that is a variable rate or open-end loan, on a precomputed loan on which interest is computed under section 412:9-301(1), or on loans that are not secured by real estate; and (C) The prepayment penalty shall not be charged on any amount that is paid because of the exercise of any acceleration provision by the financial services loan company; (3) Extension or deferment charges on any payment on account of the principal balance of a loan, or a portion thereof, that is due on a particular date, but is extended or deferred to a later date by mutual agreement. The charges shall be based upon the amount so extended or deferred at interest not exceeding that permitted upon the original loan under section 412:9-302, for the actual period of the extension or deferment. The extension or deferment charges may be collected either in advance at the commencement of the period of extension or deferment or otherwise as agreed. The term and conditions of the extension or deferment, including the amount of the consumer loan so extended or deferred, and the period of, and the charge for the extension or deferment shall be set forth in writing and signed by the borrower with one copy given to the borrower; (4) Nonrefundable discount, points, loan fees, and loan origination charges; provided that: (A) Discount, points, loan fees, and loan origination charges shall not be charged on precomputed loans on which interest is computed under section 412:9-301(1); and (B) The nonrefundable discount, points, loan fees, and loan origination charges shall be permitted on consumer loans on which interest is computed under section 412:9-301(2) if the consumer loan is secured by an interest in real property or if the consumer loan is made to a lessee of land subject to the Hawaiian Homes Commission Act and the loan, but for the provisions of the Act, would be secured by a mortgage on the leasehold interest. Provided further that, except for open-end loans, the nonrefundable discount, points, loan fees, and origination charges shall be included as interest to determine compliance of the loan with the interest rate limits under section 412:9-302(b)(2) when the consumer loan is made. The nonrefundable discount, points, loan fees, and loan origination charges shall be fully earned on the date the loan commitment agreement or other form of contract is executed and the commitment fee paid, or on the date the consumer loan is made, and shall not be subject to refund on prepayment of the consumer loan; (5) Fees, charges, and expenses reasonably related to the consumer loan that are retained by the financial services loan company; provided that the fees, charges, and expenses are charged only on consumer loans that are secured by an interest in real property; and provided further that the total dollar amount of the fees, charges, and expenses, whether or not itemized, shall not exceed one per cent of the principal amount of the loan. The fees, charges, and expenses may include but are not limited to notary fees, appraisal fees, appraisal review fees, and fees for the development, processing, and preparation of loan documents, including deeds, promissory notes, mortgages, and reconveyance, settlement, and similar documents; (6) Fees, charges, and expenses reasonably related to the consumer loan that are actually paid to third parties, affiliates, or subsidiaries for services actually rendered, no portion of which is rebated, refunded, or paid directly or indirectly to the financial services loan company by the third parties, affiliates, or subsidiaries. The fees, charges, and expenses may include but are not limited to charges for credit reports, actual taxes, and fees charged by a governmental agency for recording, filing, or entering of record any security agreements or instruments, including the partial or complete release of such security agreements or instruments, insurance premiums of the kind and to the extent described in paragraph (2) of subsection (e) of section 226.4 of Regulation Z of the Board of Governors of the Federal Reserve System and to the extent that the insurance premium does not exceed $20, appraisal fees, appraisal review fees, title report or title insurance fees, mortgage reserve funds to be used for payment of taxes, insurance, lease rent and condominium assessments, real property tax services fees, wire transfer fees, and attorney's fees and expenses for documentation of the consumer loan or for the collection of any consumer loan in default. [L 1993, c 350, pt of §1; am L 1995, c 26, §2, c 39, §1, and c 44, §1; am L 1997, c 158, §2; am L 2005, c 38, §2; am L 2008, c 196, §7]

HRS §412:9-305 Open-end consumer loans

412:9-305. Open-end consumer loans (a) Open-end consumer loans made under the authority of this article shall be subject to the following special restrictions: (1) A financial services loan company shall not compound interest on any open-end consumer loan by adding any unpaid interest to the unpaid principal balance of the open-end loan. However, the unpaid principal balance may include charges other than interest and late charges; (2) Regardless of the interest computation method used in each billing cycle under an open-end loan agreement, the unpaid principal balance of any day shall be determined by adding to any balance unpaid as of the beginning of that day all advances and other permissible amounts (other than interest) charged to the borrower, and deducting all payments and other credits made or received that day; (3) If credit life insurance or credit disability insurance is provided, the additional charge for the insurance shall be calculated in each billing cycle by applying the current monthly premium rate (which may be calculated daily), as approved by the insurance commissioner, to the entire outstanding balances, or to as much of the outstanding balances that the insurance covers, using the same method used for the calculation of loan interest. A financial services loan company shall not be obligated to advance to the insurer any premiums for the insurance on a borrower who is delinquent in making the required minimum payments on the loan if one or more of the payments is past due for ninety days or more. However, the financial services loan company shall advance to the insurer the amounts required to keep the insurance in force during the ninety-day period. The advanced amounts may be debited to the borrower's open-end account; and (4) A financial services loan company may retain any security interest in real or personal property securing the open-end loan until the open-end loan is terminated. (b) A financial services loan company may impose charges on an open-end consumer loan for: (1) Participation in an open-end loan account, whether assessed on an annual, periodic, or other basis; and (2) Payment of items that overdraw an open-end loan account. [L 1993, c 350, pt of §1; am L 1995, c 45, §1]

HRS §412:9-307 Fraction of a month

412:9-307. Fraction of a month In computing interest, late charges, or refunds for precomputed loans under sections 412:9-302, 412:9-304 and 412:9-306 any fraction of a month may be considered as a whole month. L 1993, c 350, pt of §1

HRS §412:9-308 Repayment terms

412:9-308. Repayment terms Nothing in this article shall prohibit loans with a demand feature, including but not limited to a single payment demand loan. L 1993, c 350, pt of §1

HRS §412:9-309 Assignments, sale or pledge of loans

412:9-309. Assignments, sale or pledge of loans Any loan made under this article may be assigned, sold, or pledged in whole or in part to any person. That person may charge, contract for, and receive interest on, and enforce the terms of, the loan to the same extent permitted except for the assignment, sale, or pledge; provided that no loan shall be assigned, sold or pledged to another person doing business in the State unless that other person is a financial institution or has the right to charge, contract for, or receive interest at the same interest rate and on the same terms as provided for in the loan, and if there is an assignment or sale, that loan is assigned or sold without recourse. Notwithstanding the foregoing, any financial services loan company may assign loans to a person or persons that are not financial institutions for purposes of collection of delinquent payments. That person or persons may enforce the terms of the loan to the same extent as the financial services loan company that originated the loan. [L 1993, c 350, pt of §1]

Source: Hawaii State Legislature (capitol.hawaii.gov), via Internet Archive capturesURL: https://www.capitol.hawaii.gov/hrscurrent/Vol08_Ch0401-0429/HRS0412/HRS_0412-.htmFetched: 11/10/2026