Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2006

State of Hawaii

Sir:

Your Committees on Consumer Protection & Commerce and Judiciary, to which was referred S.B. No. 3066, S.D. 1, entitled:

beg leave to report as follows:

The purpose of this bill is to partially even the playing field between lenders with in-state credit card businesses and those with out-of-state credit card businesses, by providing that Hawaii's 18 percent cap on credit card interest only applies to the simple interest numeric periodic rate and does not apply to credit card fees that are considered interest.

The Hawaii Bankers Association supported this bill. The Commissioner of Financial Institutions of the Department of Commerce and Consumer Affairs, Hawaii Credit Union League, and Hawaii Financial Services Association supported the intent of this bill.

Your Committees find that federal law gives banks the right to operate in other states using the credit card usury law of their home states. In Hawaii, credit card "interest" is capped at 18 percent, and is defined to include fees that are considered interest. This makes it difficult for banks to charge fees because of uncertainty as to whether a fee will be considered interest subject to the cap, and cause a usury violation. This uncertainty creates risks for Hawaii banks and disadvantages them in comparison to mainland competitors who charge fees without the same uncertainty.

Your Committees find that removing fees that are interest from the usury cap will help banks keep their credit card businesses in Hawaii and increase their competitiveness in the national credit card industry. Your Committees also note that this bill requires credit card companies to disclose both interest rates and fees to the consumer, and does not affect their credit card simple interest numeric periodic rates, which continue to be subject to the 18 percent limit.

Your Committees have amended this bill by:

(1) Changing its effective date to upon approval; and

As affirmed by the records of votes of the members of your Committees on Consumer Protection & Commerce and Judiciary that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 3066, S.D. 1, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 3066, S.D. 1, H.D. 1, and be placed on the calendar for Third Reading.