What fees, charges and expenses are captured by §412:9-304(5), HRS, rather than by §412:9-304(4), HRS?
DFI has issued the following administrative interpretation letter dated June 21, 2005, concerning the manner in which DFI proposes to interpret §412:9-304, HRS, in light of certain amendments effected by Act 38, Session Laws of Hawaii (2005). Those amendments are effective from July 1, 2005. Please note that both Act 38 and §412:9-304, HRS apply only to Hawaii financial services loan companies that have been licensed under Article 9 of Hawaii's Code of Financial Institutions (the "Code"), Chapter 412, HRS. Act 38 and §412:9-304, HRS are not applicable to persons that are not licensed and regulated under Article 9 of the Code as a Hawaii financial services loan company. (For general information about the factors that determine whether a lender may need to be licensed as a Hawaii financial services loan company, please review DFI's fact sheet for business customers entitled "Understanding Certain Licensing Requirements of the Division of Financial Institutions for Lenders that Do Not Take Deposits" which you can access via the web link on DFI's home page entitled "Publications".)
June 21, 2005
«Title» «FirstName» «LastName»
«JobTitle»
«Company»
«Address1»
«City», «State» «PostalCode»
Re Interpretive Letter Regarding §412:9-304,
Hawaii Revised Statutes ("HRS") ______
Dear «Title» «LastName»:
This interpretive letter is being circulated to all depository and nondepository financial services loan companies regulated by the Division of Financial Institutions (“DFI”) of the State of Hawaii pursuant to Article 9 of the Code of Financial Institutions, Chapter 412, HRS.
Recently, DFI received an inquiry concerning the manner in which DFI proposes to interpret §412:9-304, HRS, in light of certain amendments effected by Act 38, Session Laws of Hawaii (2005). Those amendments will take effect July 1, 2005.
As recently described in DFI’s letter dated May 31, 2005 to your institution,
Act 38 has, among other things, amended §412:9-304(5), HRS, to permit a financial services loan company to charge, contract for and receive in advance or otherwise fees, charges and expenses reasonably related to the consumer loan, which 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, do 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.
The inquiry posed to DFI about this particular amendment is whether the fees, charges and expenses referred to in §412:9-304(5), HRS, will be seen as including, in whole or in part, those nonrefundable discount, points, loan fees, and loan origination charges that are presently described in §412:9-304(4), HRS.
DFI has reviewed §412:9-304, HRS, in its present form (i.e. prior to the implementation of the amendments enacted by Act 38), and considers that the nonrefundable discount, points, loan fees, and loan origination charges described in §412:9-304(4), HRS, are essentially items that refer to what is traditionally known as the loan origination fee [for processing or originating the loan, as opposed to processing of loan documents which is a fee mentioned in
§412:9-304(5), HRS] and the loan discount on Lines 801 and 802, respectively, of the HUD-1 Settlement Statement. As noted in §412:9-304(4), HRS, except for open-end loans, those fees are included as interest to determine compliance of the loan with the interest rates limits under §412:9-302(b), HRS, when the consumer loan is made. As such, DFI regards those items to be, not only on the basis of subject matter, but also as evidenced by their placement in a separate paragraph of §412:9-304, HRS, entirely distinct from, and not to be included among, the fees, charges and expenses that are the subject of §412:9-304(5), HRS.
The amendments to this section that will be effective on July 1, 2005, as a result of the enactment of Act 38, do not, in DFI’s view, alter this preexisting distinction in the separate subject matter of paragraphs (4) and (5) of §412:9-304, HRS, nor does DFI believe that it was the logic or intent of Act 38 to alter that distinction in the subject matter of the two paragraphs.
Accordingly, it is DFI’s interpretation that, upon the implementation of the amendments enacted by Act 38, effective July 1, 2005, the one per cent limitation on the fees, charges and expenses described and referred to in §412:9-304(5), HRS, will not include any items that are properly the subject of and included in §412:9-304(4), HRS.
As a reminder, the complete text of Act 38 can be accessed on the Hawaii State Legislature website by going to: www.capitol.hawaii.gov; select “Bill Status and Docs”; scroll down to the box (on the right-hand side of the page) entitled “2005 Regular Session Bills Introduced, Passed, and Vetoed”; select “List of Acts (by Act number)”; scroll down to select the link for Act 38.
Please contact the Division if you have any questions about this letter.
Very truly yours,
D. B. Griffin III
GLR:DBG:bl
cc: «CoCode»– Correspondence
File AI:05-02
05-ADM-405-LF-F
