Usury & Consumer Loans

This information constitutes informal guidelines only and do not constitute legal advice or rules by DFI.  Since DFI neither administers nor interprets Chapter 478, a lender needing assistance in understanding any provisions of this law should consult an attorney.

The State’s laws on Interest and Usury are codified in Chapter 478, Hawaii Revised Statutes (“HRS”) (hereafter “Chapter 478”).  A lender desiring to make a loan in this State should review and understand Chapter 478 in order to determine the maximum allowable interest rate it may charge for a particular loan or type of loan transaction, and to determine whether the loan is exempt from the application of Chapter 478.

DFI administers and interprets the Code of Financial Institutions, codified in Chapter 412, HRS (“Chapter 412”). Generally, financial institutions regulated under Chapter 412 are subject to Chapter 478’s interest rate limitations, as follows:

With respect to a “consumer credit”1 transaction (except a credit card agreement) or a “home business loan”2 , a financial institution regulated under Chapter 412, other than a trust company or credit union, may stipulate by written contract, either:

  1. For any rate of simple interest not exceeding two percent per month or 24 percent per year; or
  2. For a finance charge in any form at an annual percentage rate not exceeding 24 percent. (See, Sections 478-4(a) and -4(b), HRS)

The foregoing rate limitations do not apply to credit transactions authorized for financial services loan companies licensed under Article 9 of Chapter 412, and for credit unions chartered under Article 10 of Chapter 412. (See, Section 478-4(d), HRS)

In addition, certain types of transactions are exempt from the laws on Interest and Usury, as set forth in Section 478-8, HRS. One of these exemptions is for indebtedness which is secured by a first mortgage lien on real property. Thus, any lender’s first mortgage loans are not subject to the interest rate limitations of Chapter 478.  As a result of this exemption, a mortgage lender whose lending activities with Hawaii borrowers are limited to first mortgage loans only, may not be subject to licensing requirements under Chapter 412.

Another exemption from the application of Chapter 478 is for mortgage loans made in accordance with alternative mortgage loan rules that may be adopted by the Commissioner of the DFI pursuant to Section 412:2-108, HRS.  Alternative mortgage loans include “reverse annuity” and “graduated payment” mortgage loans.

1. “Consumer credit” means credit extended to a natural person primarily for a personal, family, or household purpose: (1) In which the principal amount does not exceed $250,000 or in which there is an express written commitment to extend credit in a principal amount not exceeding $250,000; or (2) Such credit is secured by real property or by personal property used or expected to be used as the borrower’s principal dwelling. (Section 478-1, HRS)

2. “Home business loan” means a credit transaction (1) in which the principal amount does not exceed $250,000 or in which there is an express written commitment to extend credit in a principal amount not exceeding $250,000, (2) which is not a consumer credit transaction; and (3) which is secured by a mortgage of the principal dwelling of any natural person who is a mortgagor named in the mortgage given as security in connection with the credit transaction. (Section 478-1, HRS)