Report Title:

Financial Services Loan Companies; Recodified

 

Description:

Replaces article 9 of the code of financial institutions relating to financial services loan companies with two new articles governing depository FSLCs and nondepository FSLCs, respectively. (SD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

1778

TWENTY-FIRST LEGISLATURE, 2002

H.D. 1

STATE OF HAWAII

S.D. 1


 

A BILL FOR AN ACT

 

RELATING TO FINANCIAL SERVICES LOAN COMPANIES.

 

 

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

SECTION 1. Chapter 412, Hawaii Revised Statutes, is amended by adding a new article 9A to read as follows:

"ARTICLE 9A

DEPOSITORY FINANCIAL SERVICES LOAN COMPANIES

PART I. GENERAL PROVISIONS

§412:9A-100 Application to existing depository financial services loan companies. (a) The provisions of this article shall apply to all depository financial services loan companies existing after June 30, 2003, except as provided in this section.

(b) The existence and licenses of depository financial services loan companies formed or existing on July 1, 2003, are not affected by the enactment of this article, nor by the amendment or repeal thereby of any laws under which they were formed or licensed.

(c) Except to the extent specifically provided in this article, the power and authority of depository financial services loan companies existing on July 1, 2003, shall not be limited or restricted in any way by the enactment of this article nor by the amendment or repeal of the laws under which they were formed or created, or which granted such power and authority.

(d) Neither the enactment nor amendment of this article, nor the amendment or repeal of any laws under which depository financial services loan companies existing on July 1, 2003, were formed or created, shall void, render voidable, abrogate, terminate or amend any contract, agreement, lease, loan, commitment, indenture, restrictive covenant, participation agreement, trust, designation, appointment, agency, investment, certificate, or other instrument of any description to which an existing depository financial services loan company is a party or by which it is bound, or under which it holds any rights or benefits, which were in effect on June 30, 2003.

(e) If a greater rate of interest than that permitted under the laws in effect on June 30, 2003, was contracted for by a depository financial services loan company in any loan made, renewed, or extended before July 1, 2003, 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 the laws in effect on June 30, 2003, has been directly or indirectly contracted for, the depository financial services loan company shall recover only 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 that 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, renewed, or extended by a depository financial services loan company before July 1, 2003.

(f) Any precomputed loan made before July 1, 2003, as well as the rights, obligations, and interests flowing from these loans, are governed by the laws that applied to the loan on June 30, 2003, and any precomputed loan may be amended, collected, refunded, terminated, completed, or enforced, but not renewed, under those laws.

(g) As used in this section, the term "precomputed loan" means a consumer loan where interest is paid or deducted in advance at the inception of the loan and is computed under either the discount or add-on method as follows:

(1) 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 charges that are authorized and permitted by the law in effect at the time the loan is made, may be deducted from the principal amount and may be retained by the depository financial services loan company when the loan is made, and may be applied (in the case of other charges) for the purposes authorized by the law in effect when 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 the borrower does not receive the full principal amount, but receives only the balance thereof after the deductions; and

(2) 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 charges that are authorized and permitted under the law in effect at the time the loan is made, may be added to the amount actually to be received by the borrower, and the total amount including the addition may then constitute 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 may be retained by the depository financial services loan company when the loan is made, and may be applied (in the case of other charges) for the purposes authorized by the law in effect when 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.

§412:9A-101 Definitions. In this article:

"Consumer loan" means a loan made to a natural person primarily for personal, family, or household purposes:

(1) In which the principal amount does not exceed $25,000 or in which there is an express written commitment to extend credit in a principal amount not exceeding $25,000; or

(2) Which is secured by real property, or by personal property used or expected to be used as the borrower's principal dwelling.

"Depository financial services loan company" means a corporation that is authorized by this chapter:

(1) To accept deposits and whose deposits are insured by the Federal Deposit Insurance Corporation, and

(2) To make or is engaged in making loans where the interest charged, contracted for, or received is in excess of rates permitted by law other than this article.

Depository financial services loan companies were previously known as "industrial loan companies".

"Principal" or "principal amount" means the face amount of the note or other form of contract.

"Service corporation" means a corporation whose stock is owned entirely by one or more depository financial services loan companies.

"Truth in Lending Act" means the federal Truth in Lending Act (15 U.S.C. 1601, et seq.), Regulation Z of the Board of Governors of the Federal Reserve System, and the Official Staff Commentary to Regulation Z prepared by the staff of the Federal Reserve Board, and amendments of the Act, Regulation Z, and such Commentary.

§412:9A-102 Necessity for depository financial services loan company license. Except as expressly permitted by federal law, this chapter, or section 414-431, no person shall:

(1) Engage in any activity for which a license to operate as a depository financial services loan company is required by this chapter, including without limitation, making loans and extensions of credit where the interest charged, contracted for, or received is in excess of rates permitted by law other than this article;

(2) Use the term "depository financial services loan company" in a manner that might suggest or lead others into believing that the person is that type of financial institution;

(3) Hold itself out as engaging in the business of a depository financial services loan company; or

(4) Exercise the powers or privileges restricted to depository financial services loan companies under applicable law;

unless it is a corporation incorporated in this State and has such a license.

§412:9A-103 Annual license fee and assessment. On or before December 31 of each year, each depository financial services loan company shall pay to the commissioner an annual license fee of $50 for each license that it holds for the ensuing year. A depository financial services loan company whose application for a license was approved in December may pay to the commissioner the first annual license fee of $50 for the ensuing year on or before the expiration of thirty days after receiving notice of the approval of the depository financial services loan company’s application.

PART II. POWERS OF DEPOSITORY FINANCIAL SERVICES LOAN

COMPANIES

§412:9A-200 General powers of a depository financial services loan company. Except as expressly prohibited or limited by this chapter, a depository financial services loan company shall have the power to make loans where the interest charged, contracted for, or received is in excess of the rates permitted by law other than this article, and to engage in other activities that are usual and incidental to the business for which it is licensed, and shall have all rights, powers, and privileges, of a corporation organized under the laws of this State, including but not limited to, the power to:

(1) Make loans and extensions of credit of any kind, whether unsecured or secured by real or personal property of any kind or description;

(2) Borrow money from any source;

(3) Charge or retain a fee for the originating, selling, brokering, or servicing of loans and extensions of credit;

(4) Discount, purchase, or acquire loans, including but not limited to notes, credit sales contracts, mortgage loans, or other instruments;

(5) Become the legal or beneficial owner of tangible personal property and fixtures and such other real property interests as shall be incidental thereto, to lease such property, to obtain an assignment of a lessor's interest in a lease of the property, and to incur obligations incidental to the depository financial services loan company’s position as the legal or beneficial owner and the lessor of the property;

(6) Sell or refer credit-related insurance products, and collect premiums or fees for the sale or referral thereof, including, but not limited to, credit life insurance, credit disability insurance, accident and health or sickness insurance, involuntary unemployment insurance, personal property insurance, and mortgage protection insurance;

(7) Make investments as permitted under this article;

(8) Solicit, accept, and hold deposits from any person and issue documents evidencing the accounts; provided that a depository financial services loan company shall not solicit, accept, or hold demand deposits or authorize a depositor to make transfers by check, draft, debit card, negotiable order of withdrawal, or similar order, payable to third parties; and

(9) Offer gifts, premiums, other considerations, or promotional items to solicit deposits. Premiums may be offered in lieu of all or part of the interest on deposits.

§412:9A-201 Powers of a depository financial services loan company that require regulatory approval. In addition to the powers granted in section 412:9A-200, depository financial services loan companies shall have the right, power, and privilege to:

(1) Sell or refer the following products and services, and collect premiums or fees for the sale or referral thereof, only after obtaining the written approval of the commissioner:

(A) Accidental death and dismemberment insurance, whether or not connected with a loan; provided that the purchase of such insurance shall be voluntary and not required as a condition of a loan. The approval of the insurance commissioner shall also be obtained prior to the sale of any insurance product; and

(B) Auto club memberships and home and automobile security plans, whether or not connected with a loan and extension of credit; provided that the purchase of any such service or product shall be voluntary and not required as a condition of a loan.

In approving any request to sell or refer these products and services, the commissioner may impose conditions and restrictions that are in the public interest;

(2) Issue standby letters of credit only after obtaining the written approval of the commissioner. In approving any request to issue standby letters of credit pursuant to this paragraph, the commissioner may impose conditions and restrictions that are in the public interest. Any depository financial services loan company issuing standby letters of credit shall include those standby letters of credit with all other loans and extensions of credit for the purpose of calculating the limit on loans and extensions of credit to one borrower under section 412:9A-303; and

(3) Sell fixed-rate annuities and collect premiums and fees for the sale or referral of those fixed-rate annuities, only after obtaining the written approval of the commissioner. The depository financial services loan company shall comply with all applicable requirements of chapter 431. Sales shall be made by a general agent, subagent, or solicitor licensed pursuant to chapter 431. In approving any request to sell or refer fixed-rate annuities pursuant to this paragraph, the commissioner may impose conditions and restrictions that are in the public interest.

§412:9A-202 Prohibitions for depository financial services loan companies. Except as otherwise expressly authorized by this chapter, a depository financial services loan company shall not:

(1) Employ its funds, directly or indirectly, in trade or commerce by buying or selling ordinary goods, chattels, wares, and merchandise, or by owning or operating industrial or manufacturing plants of any kind;

(2) Issue commercial letters of credit;

(3) Buy and sell real estate, except as provided in section 412:9A-307(f);

(4) Engage in any activity requiring a charter as a trust company under article 8 of this chapter;

(5) Solicit, accept, or hold demand deposits, or authorize a depositor to make transfers by check, draft, debit card, negotiable order of withdrawal, or similar order, payable to third parties;

(6) Deal in gold bullion or in foreign currencies;

(7) Engage in any business for which an insurance agent or agency license is required, or in any business of a securities broker or dealer. This prohibition shall not apply to the sale of credit life and other forms of credit-related insurance products and shall not affect previous licenses or approvals granted to sell securities or noncredit-related forms of insurance;

(8) Make loans and extensions of credit secured by its own capital stock except in cases where the taking of the security is necessary to prevent loss upon an indebtedness previously contracted in good faith;

(9) Make or renew precomputed loans, as defined in section 412:9A-100(g); and

(10) Make, extend, defer, or renew a consumer loan unless:

(A) The loan is in writing and is signed by all borrowers, guarantors, and other persons obligated on the loan; and

(B) A copy of the loan agreement and any other documents containing all the terms of the agreement between the parties is provided to all borrowers, guarantors, and other persons obligated on the loan.

§412:9A-203 Required reserve for a depository financial services loan company. (a) Every depository financial services loan company shall maintain and have on hand at all times a reserve composed of cash and other securities in an amount equal to seven per cent of the depository financial services loan company’s liabilities on outstanding deposits with an original term not exceeding one year, and five per cent of the depository financial services loan company's liabilities on outstanding deposits with an original term of one year or more. The reserve shall not be pledged. The reserve requirement shall be determined as of the same calendar day in each calendar week and shall be based on the daily average of all outstanding deposits of the immediately preceding seven calendar days. During the succeeding seven-calendar-day period beginning with each determination date, the average daily balance of the reserve shall equal or exceed the reserve amount so determined. Determination of the reserve requirement shall be computed within two working days after the determination date.

(b) Cash reserves shall be limited to cash on hand, cash in federal reserve banks, federal home loan banks, and federally-insured financial institutions, and direct obligations of the United States, this State or its counties. Cash reserves may be deposited in United States branches of non-United States banks, with the written approval of the commissioner. The cash reserve at all times shall be at least fifty per cent of the reserve required by this section.

(c) Other securities used as reserves shall be limited to obligations of the United States and its agencies and of this State and its counties that qualify as permitted investments under sections 412:9A-307(a)(1) and (2) and 412:9A-307(b), reverse repurchase agreements whereby the depository financial services loan company has purchased obligations of the United States under terms which require the seller to repurchase the obligations of the United States for cash on demand or in not less than thirty days, bankers acceptances, irrevocable lines of credit of one year or more approved by the commissioner, and securities listed on the New York or the American stock exchanges, or the National Market System of the Nasdaq Stock Market. Not more than twenty-five per cent of the total reserve shall be held in securities listed on the New York or American stock exchanges, or the National Market System of the Nasdaq Stock Market.

(d) If the reserve or cash reserve portion of the reserve of any depository financial services loan company falls below the amount required by this section, the depository financial services loan company shall promptly take action to correct the deficiency. Upon discovery of any deficiency, the depository financial services loan company shall notify the commissioner of the deficiency and inform the commissioner of any action being taken to correct the deficiency. If the deficiency has not been corrected, the commissioner in writing may direct the depository financial services loan company to take action necessary to cure the deficiency.

§412:9A-204 Membership in federal home loan bank. Any depository financial services loan company may become a member of a federal home loan bank organized under authority of the Federal Home Loan Bank Act, or any successor or similar systems of federal home loan banks established by Congress, and may purchase and hold shares of such federal home loan bank. The depository financial services loan company may have and exercise all powers not in conflict with the laws of this State incident to such membership; provided that notwithstanding such membership the depository financial services loan company and its directors, officers, and shareholders shall continue to be subject to all liabilities and duties imposed upon them by any law of this State.

§412:9A-205 Service corporations. Subject to the approval of the commissioner, one or more depository financial services loan companies may form and own a service corporation only under the following conditions:

(1) The depository financial services loan company or companies participating in the formation of the service corporation are in and will remain in a safe and sound condition, and the depository financial services loan company's or companies’ solvency will not be adversely affected by the formation or ownership of the service corporation;

(2) A depository financial services loan company may not own or invest in any capital stock, securities, or other interest of a service corporation if, together with its investment in the capital stock, securities, or other interest of any other service corporations, its aggregate outstanding investment in all service corporations will exceed fifty per cent of the depository financial services loan company’s capital and surplus;

(3) No service corporation may be formed except upon written approval by the commissioner of an application submitted in a form satisfactory to the commissioner. The approval shall be subject to the written acknowledgment by the applicant that the service corporation shall be subject to:

(A) The supervision of the commissioner;

(B) Examination pursuant to this section; and

(C) Such other terms and conditions as the commissioner deems appropriate;

(4) Every service corporation shall permit the commissioner to examine its books, records, and activities from time to time, to the extent and whenever the commissioner deems necessary to determine the propriety of any investment by a depository financial services loan company in such service corporation and whether the activities of the service corporation pose a significant risk of loss to the parent depository financial services loan company. The service corporation shall pay the entire cost of the examination. In addition, a service corporation, at its sole expense, shall cause an independent audit to be made of its books, records, and activities if and when deemed necessary by the commissioner;

(5) A service corporation may engage in any activity permitted to its parent depository financial services loan company and any other activity as the commissioner may approve;

(6) A service corporation may engage in permitted activities directly or through one or more subsidiaries or joint ventures; and

(7) Whenever a service corporation engages in an activity which is not permitted under this section, and because of such activity a depository financial services loan company's investment in the service corporation would be improper, within ninety days following written notice from the commissioner to the depository financial services loan company:

(A) The improper activity shall be discontinued; or

(B) The depository financial services loan company shall divest itself of its ownership or investment in the service corporation.

The service corporation or the depository financial services loan company may appeal the commissioner’s decision and request a hearing in accordance with chapter 91.

PART III. LOANS AND INVESTMENTS

§412:9A-300 General requirements for loans and extensions of credit. A depository 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.

§412:9A-301 Interest computation methods. A depository financial services loan company may charge, contract for, and receive interest on loans on a simple interest basis in accordance with this article. Simple interest loans are loans on which interest is computed on the principal balance remaining unpaid from time to time. "Principal balance remaining unpaid" means the original principal amount less payments applied to reduce the original principal amount.

§412:9A-302 Interest rates. (a) A depository 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 this article. The terms "finance charge" and "annual percentage rate" shall have the same meaning as under the Truth in Lending Act.

(1) For simple interest loans, a depository 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.

(2) For rate computation purposes a depository 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.

(b) 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.

(c) 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.

§412:9A-303 Limitation on loans and extensions of credit to one borrower. (a) No depository financial services loan company shall permit a person to become indebted or liable to it, either directly or indirectly, on loans and extensions of credit in a total amount outstanding at any one time in excess of twenty per cent of the depository financial services loan company’s capital and surplus; provided that such aggregate amount may be increased to one hundred per cent of the depository financial services loan company’s capital and surplus if the loans and extensions of credit made to the person in excess of twenty per cent of the depository financial services loan company’s capital and surplus are fully secured by real property as provided in section 412:9A-304.

(b) The limitations set forth in this section shall not apply to:

(1) Loans and extensions of credit to the extent secured by a pledge or security interest in a deposit account in the lending depository financial services loan company; and

(2) Loans and extensions of credit secured by the interest-bearing obligations of the United States or those for which the faith and credit of the United States are distinctly pledged to provide for the payment of principal and interest thereof or of the State or any county or municipal or political subdivision of this State, issued in compliance with the laws of this State, where the market value of the security shall be at any time not less than one hundred five per cent of the face amount of the loans and extensions of credit.

§412:9A-304 Loans and extensions of credit fully secured by real property. (a) For loans and extensions of credit fully secured by real property other than unimproved raw land, a depository financial services loan company may advance, directly or indirectly, up to and including ninety-five per cent of the appraised value or real property evaluation required under the Federal Deposit Insurance Act and the rules and regulations of the Federal Deposit Insurance Corporation, of the real property securing the loan and extension of credit. The principal amount of the loan and extension of credit shall be added together with the outstanding balances of all prior liens on the real property to determine the ninety-five per cent loan-to-value ratio.

(b) For loans and extensions of credit fully secured by mortgages on unimproved raw land, the maximum loan-to-value ratio shall not exceed seventy per cent of the appraised value or real property evaluation required under the Federal Deposit Insurance Act and the rules and regulations of the Federal Deposit Insurance Corporation, of the unimproved raw land. Parcels of land with direct access by road and served by electric power shall not be deemed unimproved raw land.

(c) Notwithstanding subsections (a) and (b):

(1) Depository financial services loan companies that make loans fully secured by real property in excess of twenty per cent of their capital and surplus, shall obtain appraisals of the real property securing those loans; and

(2) Depository financial services loan companies may renew, refinance, or restructure loans that were originally fully secured by real property which, at the time of renewal, refinancing, or restructuring, exceed the percentage set forth in subsections (a) and (b); provided that:

(A) No new funds are advanced;

(B) Any such loans or extensions of credit are fully supported by other credit factors consistent with safe and sound lending practices; and

(C) The aggregate amount of all such loans and extensions of credit outstanding at any one time shall not exceed one hundred per cent of the depository financial services loan company’s capital and surplus.

§412:9A-305 Limits on transactions with affiliates, executive officers, directors or principal shareholders. No depository financial services loan company shall make any loan and extension of credit or engage in any transaction in violation of section 18j of the Federal Deposit Insurance Act, title 12 United States Code 1828(j) or sections 22(g), 22(h), 23A, or 23B of the Federal Reserve Act, title 12 United States Code 375a, 375b, 371c, and 37lc-1.

§412:9A-306 General requirement for investments. (a) A depository financial services loan company shall make investments that are consistent with prudent banking practices and in compliance with all applicable federal and state law.

(b) The board of directors of a depository financial services loan company and any other person charged with the responsibility of investing the depository financial services loan company's assets shall exercise such reasonable diligence, discretion, judgment, and intelligence as would be expected of a prudent investor. Among other things, they shall not engage in speculative or unsound investments, and at all times they shall consider the probable safety as well as the probable income of the capital being invested.

(c) The board of directors shall establish written investment policies.

§412:9A-307 Permitted investments. (a) To the extent specified in this subsection, a depository financial services loan company may invest its own assets in securities and obligations of:

(1) The United States government and any agency of the United States government whose debt obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States including, without limitation, Federal Reserve Banks, the Government National Mortgage Association, the Department of Veterans Affairs, the Federal Housing Administration, the United States Department of Agriculture, the Export-Import Bank, the Overseas Private Investment Corporation, the Commodity Credit Corporation, and the Small Business Administration;

(2) United States government-sponsored agencies which are originally established or chartered by the United States government to serve public purposes specified by the Congress but whose debt obligations are not explicitly guaranteed by the full faith and credit of the United States including, without limitation, Banks for Cooperatives, the Federal Agricultural Mortgage Corporation, Federal Farm Credit Banks, Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, the Federal National Mortgage Association, the Financing Corporation, the Resolution Funding Corporation, the Student Loan Marketing Association, the Tennessee Valley Authority, and the United States Postal Service; and

(3) Quasi-United States governmental institutions including, without limitation, the International Bank for Reconstruction and Development (World Bank), the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the European Investment Bank, and other multilateral lending institutions in which the United States government is a shareholder or contributing member; provided that the total amount invested in any one issuer shall not exceed twenty per cent of the depository financial services loan company’s capital and surplus.

(b) A depository financial services loan company may invest its own assets in bonds, securities, or similar obligations issued by this State or any county of this State, through an appropriate agency or instrumentality.

(c) To the extent specified in this subsection, a depository financial services loan company may invest its own assets in bonds or similar obligations issued by any state of the United States other than this State, the District of Columbia, or any territory or possession of the United States, by municipal governments of these states, territories, or possessions, or by any foreign country or political subdivision of that country; provided that:

(1) The bond, note, or warrant has been issued in compliance with the constitution and laws of that government;

(2) There has been no default in payment of either principal or interest on any of the general obligations of that government for a period of five years immediately preceding the date of the investment; and

(3) The total amount invested in the obligations of any one issuer by a depository financial services loan company shall not exceed twenty per cent of the depository financial services loan company’s capital and surplus.

(d) To the extent specified in this subsection, a depository financial services loan company may invest its own assets in notes, bonds, and other obligations of any corporation which at the time of the investment is incorporated under the laws of the United States or any state or territory thereof or the District of Columbia; provided that the aggregate amount invested by a depository financial services loan company under this subsection and subsections (e) and (g)(3) in any one corporation shall not exceed twenty per cent of the depository financial services loan company’s capital and surplus.

(e) To the extent specified in this subsection, a depository financial services loan company may invest its own assets in securities of investment grade quality. The term "investment grade" means notes, bonds, certificates of interest or participation, beneficial interests, mortgage or receivable-related securities, and other obligations that are commonly understood to be of investment grade quality including, without limitation, those securities that are rated within the four highest grades by any nationally-recognized rating service or unrated securities of similar quality as reasonably determined by the depository financial services loan company in its prudent judgment, which may be based in part upon estimates which it believes to be reliable. Investment grade does not include investments that are predominantly speculative in nature. The aggregate amount invested by a depository financial services loan company under this subsection and subsections (d) and (g)(3) in any one company or other issuer shall not exceed twenty per cent of the depository financial services loan company’s capital and surplus. Subject to the approval of the commissioner, the twenty per cent limitation shall not apply to investment grade securities secured entirely by mortgage loans originated by the depository financial services loan company. In approving any transaction under this section, the commissioner may impose any conditions to ensure the safety and soundness of the institution.

(f) To the extent specified in this subsection, a depository financial services loan company may purchase, hold, convey, sell, or lease real or personal property as follows:

(1) The real property in or on which the business of the depository financial services loan company is carried on, and other space in or on the same property to rent as a source of income; permanent or vacation residences or recreational facilities for its officers and employees; and other real property necessary for the accommodation of the depository financial services loan company’s business, including but not limited to parking facilities, data processing centers, and real property held for future use where the depository financial services loan company in good faith expects to utilize the property as depository financial services loan company premises; provided that:

(A) Within five years after the depository financial services loan company ceases to use any real property and improvements thereon for one of the foregoing purposes, it shall sell the real property or cease to carry it as an asset; and

(B) Without the approval of the commissioner, the property shall not exceed seventy-five per cent of the depository financial services loan company’s capital and surplus;

(2) Personal property used in or necessary for the accommodation of the depository financial services loan company’s business, including but not limited to furniture, fixtures, equipment, vaults, and safety deposit boxes; provided that the depository financial services loan company’s investment in furniture and fixtures, without the approval of the commissioner, shall not exceed twenty-five per cent of the depository financial services loan company’s capital and surplus;

(3) Personal property and fixtures that the depository financial services loan company acquires for purposes of leasing to third parties and any real property interest that is incidental thereto;

(4) Any real property or tangible personal property that may come into its possession as security for loans or in the collection of debts; or that may be purchased by or conveyed to the depository financial services loan company in satisfaction of or on account of debts previously contracted in the course of its business, when the property was held as security by the depository financial services loan company; and

(5) The seller’s interest under an agreement of sale, as that term is defined in sections 501-101.5 and 502-85 including, without limitation, the reversionary interest in the real property and the right to income under the agreement of sale, with or without recourse to the seller.

Except as otherwise authorized in this section, any tangible personal property coming into the possession of any depository financial services loan company pursuant to paragraph (4) shall be disposed of as soon as practicable and, without the written consent of the commissioner, shall not be considered part of the assets of the depository financial services loan company two years after the date of acquisition.

Except as otherwise authorized in this section, any real property acquired by a depository financial services loan company pursuant to paragraph (4) shall be sold or exchanged for other real property by the depository financial services loan company within five years after title thereto has vested in it by purchase or otherwise, or within any further time that may be granted by the commissioner.

Any depository financial services loan company acquiring any real property in any manner other than provided by this section, immediately upon receiving notice from the commissioner, shall charge the same to profit and loss, or otherwise remove the same from the assets, and when any loss impairs the capital and surplus of the depository financial services loan company, the impairment shall be made good in the manner provided in this chapter.

(g) To the extent specified in this subsection, a depository financial services loan company may invest its own assets in capital stock of:

(1) Service corporations as set forth in this article;

(2) A corporation whose stock is acquired or purchased to save a loss on a preexisting debt secured by the stock; provided that the stock shall be sold within twelve months of the date acquired or purchased, or within any further time that may be granted by the commissioner;

(3) Companies listed on the New York or American stock exchanges or on the National Association of Securities Dealers Automated Quotations; provided that the aggregate amount invested by a depository financial services loan company under this paragraph and subsections (d) and (e) in any one corporation shall not exceed twenty per cent of the depository financial services loan company’s capital and surplus.

(h) To the extent specified in this subsection, a depository financial services loan company may invest its own assets in securities issued by a diversified investment management company (as defined in the Investment Company Act of 1940), commonly known as a diversified mutual fund. The fund must have been in existence for at least five years. The aggregate amount invested by a depository financial services loan company under this subsection in any one diversified mutual fund shall not exceed twenty per cent of the depository financial services loan company’s capital and surplus.

(i) To the extent specified herein, a depository financial services loan company may invest its own assets in limited partnerships formed to invest in residential properties which will qualify for the low income housing tax credit under section 42 of the Internal Revenue Code of 1986, as amended, and under chapters 235 and 241; provided that the total amount invested by a depository financial services loan company under this subsection in any one limited partnership, without the prior approval of the commissioner, shall not exceed two per cent of the depository financial services loan company's capital and surplus, and the aggregate amount invested under this subsection, without the prior approval of the commissioner, shall not exceed five per cent of the depository financial services loan company's capital and surplus. In no case shall the aggregate amount invested by a depository financial services loan company under this subsection exceed ten per cent of the depository financial services loan company’s capital and surplus.

§412:9A-308 Deposits made by depository financial services loan companies. A depository financial services loan company may deposit any of its funds with:

(1) A federal reserve bank or a federal home loan bank in any amount; or

(2) Another depository institution; provided that the deposits in any one depository institution do not exceed twenty-five per cent of the depository financial services loan company’s capital and surplus, unless otherwise permitted by federal law.

§412:9A-309 Assignments, sale or pledge of loans. (a) Except as prohibited by subsection (b), any loan made by a depository financial services loan company 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.

(b) Notwithstanding subsection (a), no precomputed loans that were made by a depository financial services loan company before July 1, 2003, and in accordance with and under the provisions of the law in effect at the time the loan was made, 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, a depository 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 depository financial services loan company that originated the loan."

SECTION 2. Chapter 412, Hawaii Revised Statutes, is amended by adding a new article 9B to read as follows:

"ARTICLE 9B.

NONDEPOSITORY FINANCIAL SERVICES LOAN COMPANIES

PART I. GENERAL PROVISIONS

§412:9B-100 Application to existing nondepository financial services loan companies. (a) The provisions of this article shall apply to all nondepository financial services loan companies existing after June 30, 2003, except as provided in this section.

(b) The existence and licenses of nondepository financial services loan companies formed or existing on July 1, 2003, are not affected by the enactment of this article, nor by the amendment or repeal thereby of any laws under which they were formed or licensed.

(c) Except to the extent specifically provided in this article, the power and authority of nondepository financial services loan companies existing on July 1, 2003, shall not be limited or restricted in any way by the enactment of this article nor by the amendment or repeal of the laws under which they were formed or created, or which granted such power and authority.

(d) Neither the enactment nor amendment of this article, nor the amendment or repeal of any laws under which nondepository financial services loan companies existing on July 1, 2003, were formed or created, shall void, render voidable, abrogate, terminate, or amend any contract, agreement, lease, loan, commitment, indenture, restrictive covenant, participation agreement, trust, designation, appointment, agency, investment, certificate, or other instrument of any description to which an existing nondepository financial services loan company is a party or by which it is bound, or under which it holds any rights or benefits, which were in effect on June 30, 2003.

(e) Any precomputed loan made before July 1, 2003, as well as the rights, obligations, and interests flowing from such loans, shall be governed by the laws that applied to the loan on June 30, 2003, and any precomputed loan may be amended, collected, refunded, terminated, completed, or enforced, but not renewed, under those laws.

(f) As used in this section, the term "precomputed loan" means a consumer loan where interest is paid or deducted in advance at the inception of the loan and is computed under either the discount or add-on method as follows:

(1) 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 charges that are authorized and permitted by the law in effect at the time the loan is made, may be deducted from the principal amount and may be retained by the nondepository financial services loan company when the loan is made, and may be applied (in the case of other charges) for the purposes authorized by the law in effect when 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 the borrower does not receive the full principal amount, but receives only the balance thereof after the deductions; and

(2) 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 charges that are authorized and permitted under the law in effect at the time the loan is made, may be added to the amount to be actually received by the borrower, and the total amount including the addition may then constitute 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 may be retained by the nondepository financial services loan company when the loan is made, and may be applied (in the case of other charges) for the purposes authorized by the law in effect when 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.

§412:9B-1O1 Definitions. In this article:

"Consumer loan" means a loan made to a natural person primarily for personal, family, or household purposes:

(1) In which the principal amount does not exceed $25,000 or in which there is an express written commitment to extend credit in a principal amount not exceeding $25,000; or

(2) Which is secured by real property, or by personal property used or expected to be used as the borrower’s principal dwelling.

"Nondepository financial services loan company" means a corporation that is authorized by this chapter to make or engage in making loans where the interest charged, contracted for, or received is in excess of rates permitted by law other than this article, but is not authorized to accept deposits. Nondepository financial services loan companies were previously known as "industrial loan companies".

"Open-end credit" means a loan by a nondepository financial services loan company under a plan in which:

(1) The nondepository financial services loan company reasonably contemplates repeated transactions;

(2) The nondepository financial services loan company may impose a finance charge from time to time on an outstanding unpaid balance; and

(3) The amount of credit that may be extended to the borrower during the term of the plan (up to any limit set by the nondepository financial services loan company) is generally made available to the extent that any outstanding balance is repaid.

"Principal" or "principal amount" means the face amount of the note or other form of contract.

"Truth in Lending Act" means the federal Truth in Lending Act (15 U.S.C. 1601, et seq.), Regulation Z of the Board of Governors of the Federal Reserve System, and the Official Staff Commentary to Regulation Z prepared by the staff of the Federal Reserve Board, and amendments of the Act, Regulation Z, and such Commentary.

§412:9B-102 Necessity for nondepository financial services loan company license. Except as expressly permitted by federal law, this chapter, or section 414-431, no person shall:

(1) Engage in any activity for which a license to operate as a nondepository financial services loan company is required by this chapter, including without limitation, making loans and extensions of credit where the interest charged, contracted for, or received is in excess of rates permitted by law other than this article;

(2) Use the term "nondepository financial services loan company" in a manner that might suggest or lead others into believing that the person is that type of financial institution;

(3) Hold itself out as engaging in the business of a nondepository financial services loan company; or

(4) Exercise the powers or privileges restricted to nondepository financial services loan companies under applicable law;

unless it holds a license under this chapter.

§412:9B-103 Annual license fee and assessment. On or before December 31 of each year, each nondepository financial services loan company shall pay to the commissioner an annual license fee of $50 for each license that it holds for the ensuing year. A nondepository financial services loan company whose application for a license was approved in December may pay to the commissioner the first annual license fee of $50 for the ensuing year on or before the expiration of thirty days after receiving notice of the approval of the nondepository financial services loan company’s application.

PART II. POWERS OF NONDEPOSITORY FINANCIAL SERVICES

LOAN COMPANIES

§412:9B-200 General powers of a nondepository financial services loan company. Except as expressly prohibited or limited by this chapter, a nondepository financial services loan company shall have the power to make loans where the interest charged, contracted for, or received is in excess of rates permitted by law other than this article, and to engage in other activities that are usual or incidental to the business for which it is licensed, and shall have all rights, powers, and privileges of a corporation organized under the laws of this State, including but not limited to, the power to:

(1) Make loans and extensions of credit of any kind, whether unsecured or secured by real or personal property of any kind or description;

(2) Borrow money from any source, subject to the limitations in section 412:9B-202(6);

(3) Charge or retain a fee for the originating, selling, brokering, or servicing of loans and extensions of credit;

(4) Discount, purchase, or acquire loans, including but not limited to notes, credit sales contracts, mortgage loans, or other instruments;

(5) Become the legal or beneficial owner of tangible personal property and fixtures and such other real property interests as shall be incidental thereto, to lease such property, to obtain an assignment of a lessor’s interest in a lease of the property, and to incur obligations incidental to the nondepository financial services loan company’s position as the legal or beneficial owner and the lessor of the property; and

(6) Sell or refer credit-related insurance products, and collect premiums or fees for the sale or referral thereof, including, but not limited to, credit life insurance, credit disability insurance, accident and health or sickness insurance, involuntary unemployment insurance, personal property insurance, and mortgage protection insurance.

§412:9B-201 Powers of a nondepository financial services loan company that require regulatory approval. In addition to the powers granted in section 412:9B-200, nondepository financial services loan companies shall have the right, power, and privilege to:

(1) Sell or refer the following products and services, and collect premiums or fees for the sale or referral thereof only after obtaining the approval of the commissioner:

(A) Accidental death and dismemberment insurance, whether or not connected with a loan; provided that the purchase of such insurance shall be voluntary and not required as a condition of a loan. The approval of the insurance commissioner shall also be obtained prior to the sale of any insurance product; and

(B) Auto club memberships and home and automobile security plans, whether or not connected with a loan and extension of credit; provided that the purchase of any such service or product shall be voluntary and not required as a condition of a loan.

In approving any request to sell or refer these products and services, the commissioner may impose such conditions and restrictions that are in the public interest.

(2) Issue standby letters of credit only after obtaining the written approval of the commissioner. In approving any request to issue standby letters of credit pursuant to this paragraph, the commissioner may impose conditions and restrictions that are in the public interest. Any nondepository financial services loan company issuing standby letters of credit shall report the aggregate amount of its standby letters of credit outstanding under MEMORANDA - Total Standby Letters of Credit Outstanding, on its financial statements submitted to the commissioner pursuant to section 412:3-112. The aggregate amount of the standby letters of credit outstanding shall not exceed twenty per cent of a nondepository financial services loan company's capital and surplus. Standby letters of credit issued by a nondepository financial services loan company shall not be used for consumer loan transactions. The issuing nondepository financial services loan company shall identify itself as a nondepository financial services loan company in the standby letter of credit.

§412:9B-202 Prohibitions for nondepository financial services loan companies. Except as otherwise expressly authorized by this chapter, a nondepository financial services loan company shall not:

(1) Employ its funds, directly or indirectly, in trade or commerce by buying or selling ordinary goods, chattels, wares, and merchandise, or by owning or operating industrial or manufacturing plants of any kind;

(2) Issue commercial letters of credit;

(3) Buy and sell real estate except for the real property used in the course of business of the nondepository financial services loan company, or any real property that may come into its possession as security for loans or in the collection of debts, or that may be purchased by or conveyed to the nondepository financial services loan company in satisfaction of or on account of debts previously contracted in the course of its business, when the property was held as security by the nondepository financial services loan company;

(4) Engage in any activity requiring a charter as a trust company under article 8 of this chapter;

(5) Deal in gold bullion or in foreign currencies;

(6) Solicit, accept, or hold deposits, investment certificates, thrift certificates, or other accounts or instruments identical or similar to a deposit account, nor shall it borrow money in the form of, or issue, promissory notes, debentures, bonds, or other obligations to the public; provided that a nondepository financial services loan company may borrow funds from, and issue, its notes, debentures, bonds, or other obligations to financial institutions and other institutional lenders and not more than twenty-five institution-affiliated parties at any one time;

(7) Engage in any business for which an insurance agent or agency license is required, or in any business of a securities broker or dealer. This prohibition shall not apply to the sale of credit life and other forms of credit-related insurance products and shall not affect previous licenses or approvals granted to sell securities or noncredit-related forms of insurance;

(8) Make or renew precomputed loans, as defined in section 412:9B-100(f);

(9) Make, extend, defer, or renew a consumer loan unless:

(A) The loan is in writing and is signed by all borrowers, guarantors, and other persons obligated on the loan; and

(B) A copy of the loan agreement and any other documents containing all the terms of the agreement between the parties is provided to all borrowers, guarantors, and other persons obligated on the loan; and

(10) Engage in any practice that would lead a consumer to believe that approval of the loan or extension of credit, or the receipt of loan proceeds, is conditional upon either:

(A) The purchase of any optional credit-related insurance product; or

(B) An agreement by the consumer not to obtain, or a prohibition on the consumer from obtaining, any credit-related insurance product from an entity unaffiliated with the nondepository financial services loan company.

PART III. LOANS AND INVESTMENTS

§412:9B-300 General requirements for loans and extensions of credit. A nondepository 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.

§412:9B-301 Interest computation methods. A nondepository financial services loan company may charge, contract for, and receive interest on loans on a simple interest basis in accordance with this article. Simple interest loans are loans on which interest is computed on the principal balance remaining unpaid from time to time. "Principal balance remaining unpaid" means the original principal amount less payments applied to reduce the original principal amount.

§412:9B-302 Interest rates. (a) A nondepository 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 this article. The terms "finance charge", "annual percentage rate", "amount financed", and "prepaid finance charge" shall have the same meaning as under the Truth in Lending Act.

(1) For simple interest loans, a nondepository 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.

(2) For loans with a maximum term of forty-eight months, where the "amount financed" plus any "prepaid finance charge" that is withheld from the proceeds of the credit equals $7,500 or less, a nondepository financial services loan company may charge, contract for, and receive a "finance charge" in any form or forms at an "annual percentage rate" that exceeds twenty-four per cent a year, but not more than thirty-one and sixty-six one hundredths 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.

For rate computation purposes a nondepository 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.

(b) 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.

(c) 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 other than the rate limitations in this article.

§412:9B-303 Effect of excessive interest. If a greater rate of interest than that permitted under this article is contracted for in any loan made 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 nondepository 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 nondepository financial services loan companies.

§412:9B-304 Consumer loan charges and prohibitions. (a) A nondepository financial services loan company may assess and impose loan charges and fees that are reasonably related to a consumer loan and not specifically prohibited in this article or by law. A nondepository financial services loan company is prohibited from imposing the following charges or fees on any consumer loan:

(1) Late charges:

(A) Collected more than once for the same delinquent installment;

(B) Exceeding five per cent of the delinquent installment; or

(C) Assessed after acceleration of the maturity of the consumer loan.

Delinquency occurs when the installment or payment is not paid on the due date as stated in the contract;

(2) Prepayment penalties:

(A) On a loan with a term of five years or more, that is primarily secured by an interest in real property and is prepaid within five years of the date of the loan:

(i) If the amount prepaid in any twelve-month period (measured from the date of the loan or from any anniversary of the loan date) is less than or equal to twenty per cent of the original principal amount of the loan; or

(ii) If the amount prepaid in any twelve-month period (measured from the date of the loan or from any anniversary of the loan date) exceeds twenty per cent of the original principal amount of the loan, unless the penalty is computed only on the amount in excess of the twenty per cent amount in each twelve-month period and the penalty does not exceed six months of interest at the maximum interest rate permissible by law on the consumer loan on the amount in excess of the twenty per cent amount;

(B) On a loan that is secured by an interest in real property and has a term of less than five years;

(C) On a loan that is not secured by an interest in real property; and

(D) On any amount that is paid because of the exercise of any acceleration provision by the nondepository financial services loan company;

(3) Nonrefundable discount, points, loan fees, and loan origination charges on a consumer loan that is not secured by an interest in real property and is made under the interest rate provisions in section 412:9B-302(a)(2); provided that a nonrefundable discount, point, loan fee, or loan origination charge may be charged if those fees do not exceed $25 in the aggregate, and are not contracted for or received in connection with the refinancing of that loan unless at least twelve months have elapsed since such fees were last paid by the borrower. Any nonrefundable discount, points, loan fees, and origination charges shall be included as part of the finance charge to determine compliance of the loan with the annual percentage rate limits under section 412:9B-302 when the consumer loan is made;

(4) Fees, charges, commissions, and expenses that are not bona fide, not reasonable, or not reasonably related to the consumer loan transaction; and

(5) Insurance premiums of the kind and to the extent described in subsection (e)(2) of section 226.4 of Regulation Z of the Board of Governors of the Federal Reserve System, where the insurance premium exceeds $20.

The commissioner may prohibit, pursuant to rule, any fees in addition to those enumerated in this section.

(b) A nondepository financial services loan company is permitted to assess and impose a fee for a dishonored check; provided that the fee shall not exceed the amount permitted in section 490:3-506.5.

§412:9B-305 Open-end consumer loans. (a) Open-end consumer loans shall be subject to the following special restrictions:

(1) A nondepository 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 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 nondepository 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 nondepository 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 nondepository 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 nondepository 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.

§412:9B-306 Assignments, sale or pledge of loans. Any loan made by a nondepository financial services loan company 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 nondepository 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 nondepository financial services loan company that originated the loan.

§412:9B-307 Reporting and recordkeeping requirements. Every nondepository financial services loan company shall provide, as part of the report filed with the commissioner under section 412:3-112(a)(2)(C), the following information about its business activities for the six-month period covered by the report:

(1) The number of loans made, purchased, renewed, or refinanced during the six-month period, by type of loan. Numbers reported should include any loans that were made, purchased, renewed, or refinanced during the six-month period that were subsequently sold, paid off, renewed, or refinanced;

(2) Non-loan products:

(A) A list of all non-loan products which the nondepository financial services loan company sells or refers, or collects any premium or fees for the sale or referral thereof, including but not limited to, credit life insurance, credit disability insurance, accident and health or sickness insurance, involuntary unemployment insurance, personal property insurance, mortgage protection insurance, accidental death and dismemberment insurance, auto club memberships, and automobile security plans; and

(B) For each listed non-loan product, the number of loans made, purchased, renewed, or refinanced during the six-month period, in connection with which the non-loan product was sold or referred; and

(3) Loan fees, charges, commissions, expenses, penalties, and points:

(A) A list of all types or categories of loan fees, charges, commissions, expenses, penalties, and points that are assessed; and

(B) For each type or category on the list:

(i) The type of loan involved and the dollar amount of or the rate at which the fee, charge, commission, expense, penalty, or points are assessed; and

(ii) A description or explanation of what portion of the assessed amount is retained by the nondepository financial services loan company, what portion is paid to affiliates, and what portion is paid to unaffiliated third parties."

SECTION 3. Section 207-11, Hawaii Revised Statutes, is amended by amending the definition of "foreign lender" to read as follows:

""Foreign lender" means (A) "a depository institution" as defined in section 501(a)(2) of the federal Depository Institutions Deregulation and Monetary Control Act of 1980, a "real estate investment trust" as defined in the Internal Revenue Code, an insurance company, the principal office of which is in another state, whether incorporated or unincorporated and whether acting in its individual capacity or in a fiduciary capacity, (B) the trustee or trustees from time to time in office of any employee benefit plan, (C) a lender approved by the Secretary of the United States Department of Housing and Urban Development for participation in any mortgage insurance program under the National Housing Act, (D) any corporation of which all of the capital stock (except the directors' qualifying shares) is owned by one or more foreign lenders specified in (A), (B), and (C), and (E) any corporation of which all of the capital stock (except for the directors' qualifying shares) is owned by one or more foreign lenders specified in (D), but the term "foreign lender" does not include any financial services loan company licensed under article [9] 9A or article 9B of chapter 412."

SECTION 4. Section 412:4-101, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Except as specifically prohibited by federal law or any provision of this chapter, and subject to section 412:8-200 with respect to trust companies, [section 412:9-400] sections 412:9A-200 to 412:9A-202 with respect to depository financial services loan companies, and section [412:9-500] 412:9B-202 with respect to nondepository financial services loan companies, Hawaii financial institutions may open accounts and accept deposits therein of any type generally accepted by financial institutions in the United States."

SECTION 5. Section 476-28, Hawaii Revised Statutes, is amended to read as follows:

"§476-28 Regulation of finance charges. It shall be unlawful, directly or indirectly, to charge, contract for, collect, or receive any finance charge, on a credit sale contract except as is provided by this section.

(1) [If] Before July 1, 2003, if the finance charge is stated as a dollar amount and is added on or deducted in advance, and the buyer promises to pay a fixed total of payments, the finance charge shall not exceed the amount of interest or discount which, based on the laws in effect on June 30, 2003, could [lawfully] be added on or deducted in advance by a depository or nondepository financial services loan company under [article 9 of] chapter 412 on a loan to run for the same period as the credit sale contract, where the actual cash received by the borrower would be equal in amount to the principal balance of the credit sale contract, provided that a minimum finance charge of not more than $10 shall be allowable in a credit sale when the finance charge is stated in a dollar amount. Upon maturity of a contract, the rate of finance charge on the unpaid principal balance of the contract shall be eighteen per cent a year, unless a lesser rate for [after maturity] after-maturity finance charge is specified in the contract. After June 30, 2003, a credit sale contract that was made before July 1, 2003, under this paragraph, as well as the rights, obligations, and interests flowing from the contract, are governed by the laws that applied to the contract on June 30, 2003, and a credit sale contract made under this paragraph may be amended, collected, refunded, terminated, completed, or enforced, but not renewed, under those laws.

(2) As an alternative to the finance charge authorized by paragraph (1), a seller may contract for and receive a finance charge at a rate not exceeding twenty-four per cent a year on the principal balance remaining unpaid from time to time under the contract, whether or not the rate of the finance charge under the contract is fixed or variable. Upon maturity of a contract, the rate of finance charge on the unpaid principal balance of the contract may be [twelve] no greater than:

(A) Twelve per cent a year[, the];

(B) The original contract rate of finance charge; or[, in the case of]

(C) For any extension or deferral, the rate of finance charge permitted by this chapter on the amount extended or deferred[, whichever is greatest].

(3) Effective on July 1, 2003, for a credit sale contract where the principal balance is $7,500 or less with a maximum term of forty-eight months, a seller may contract for and receive a finance charge at a rate that exceeds twenty-four per cent a year, but not more than thirty-one and sixty-six one hundredths per cent a year on the principal balance remaining unpaid from time to time under the contract, whether or not the rate of the finance charge under the contract is fixed or variable. Upon maturity of a contract, the rate of finance charge on the unpaid principal balance of the contract may be no greater than:

(A) Twelve per cent a year;

(B) The original contract rate of finance charge; or

(C) For any extension or deferral, the rate of finance charge permitted by this chapter on the amount extended or deferred."

SECTION 6. Section 478-4, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) The rate limitations contained in subsections (a) and (b) of this section shall not apply to any credit transaction authorized by, and entered into in accordance with the provisions of, articles [9] 9B and 10 of chapter 412 or 476."

SECTION 7. Section 478-5, Hawaii Revised Statutes, is amended to read as follows:

"§478-5 Usury not recoverable. If a greater rate of interest than that permitted by law is contracted for with respect to any consumer credit transaction, any home business loan or any credit card agreement, the contract shall not, by reason thereof, be void. But if in any action on the contract proof is made that a greater rate of interest than that permitted by law has been directly or indirectly contracted for, the creditor shall only recover the principal and the debtor shall recover costs. If interest has been paid, judgment shall be for the principal less the amount of interest paid. This section shall not [be held to] apply[,] to loans made by nondepository financial services loan companies and credit unions at the rates authorized under and pursuant to articles [9] 9B and 10 of chapter 412."

SECTION 8. Article 9 of chapter 412, Hawaii Revised Statutes, is repealed.

SECTION 9. This Act shall not affect rights and duties that matured, penalties that were incurred, proceedings that were begun, applications that were filed, and the validity of any extension of credit or other transaction lawfully entered into prior to the effective date of this Act, provided that precomputed loans made prior to the effective date of this Act shall only be enforceable, collectible, and refundable in accordance with the provisions of this Act.

SECTION 10. All acts passed by the legislature during this regular session of 2002, whether enacted before or after the effective date of this Act, shall be amended to conform to this Act unless such acts specifically provide that this Act is being amended.

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect on July 1, 2050.