LRBs0352/4
MDK&MES:nwn:jf
2009 - 2010 LEGISLATURE
SENATE SUBSTITUTE AMENDMENT 1,
TO 2009 SENATE BILL 530
April 2, 2010 - Offered by Senator
Sullivan.
SB530-SSA1,1,7
1An Act to amend 20.144 (1) (g), 49.857 (1) (d) 12., 73.0301 (1) (d) 6., 138.04,
2138.09 (1m) (a), 138.09 (3) (f), 138.10 (2m), 138.10 (15), 220.02 (2) (b), 220.04
3(10), 220.285 (1), 321.60 (1) (a) 12., 403.414 (7), 422.201 (3) and 425.301 (4); and
4to create 20.144 (1) (j), 59.69 (4h), 62.23 (7) (hi), 138.09 (1a), 138.09 (3) (e) 1.
5g., 138.14 and 812.35 (1a) of the statutes;
relating to: regulating payday loans,
6limiting the areas in which a payday lender may operate, granting rule-making
7authority, making an appropriation, and providing a penalty.
Analysis by the Legislative Reference Bureau
Under current law, a lender other than a financial institution (i.e., a bank,
savings bank, savings and loan association, or credit union) generally must obtain
a license from the Division of Banking (division) in the Department of Financial
Institutions (DFI) to assess a finance charge greater than 18 percent. This type of
lender is generally referred to as a "licensed lender." With certain limited exceptions,
current law provides no maximum finance charge for a loan entered into by a licensed
lender. A lender who makes payday loans is typically required to be a licensed lender.
In a standard payday loan transaction, the lender accepts a personal check from the
customer, pays the customer the amount of the check less any applicable finance
charge, and agrees to wait a short time, such as two weeks, before depositing the
check. Except for the requirement to obtain a license as a licensed lender, current
law does not specifically regulate payday loan transactions.
Licenses. This substitute amendment creates requirements for regulating
certain payday loan and similar transactions by prohibiting a person from
originating or servicing a "payday loan" involving a Wisconsin resident unless the
division issues a new license, that is created in the substitute amendment, to the
person. The substitute amendment defines "payday loan" as a transaction between
an individual with an account at a financial establishment and another person in
which the person agrees to either: 1) accept from the individual one or more checks,
hold the checks for a period of time before negotiating them, and, before negotiating
the checks, loan the individual an agreed amount for a term of 90 days or less; or 2)
accept the individual's authorization to initiate one or more electronic fund transfers
(EFTs) from the individual's account, wait for a period of time before initiating the
EFTs, and, before initiating the EFTs, loan the individual an agreed amount for a
term of 90 days or less. The foregoing definitions apply regardless of whether the
person making the loan is physically located in this state. The substitute
amendment requires a separate license for each place of business at which a person
originates or services a payday loan involving a Wisconsin resident. Financial
institutions and their affiliates are exempt from the requirement to be licensed
under the substitute amendment. Also, a person who is licensed under the substitute
amendment is not required to be licensed as a licensed lender.
Fees. Except for the maximum liability limit discussed below, the substitute
amendment does not impose any limit on the interest that may charged on a payday
loan before the maturity date of the loan. The substitute amendment defines
"maturity date" as the date specified when originating the loan on which the loan is
required to be paid in full. If a payday loan is not paid in full on or before the maturity
date, the substitute amendment limits the amount of interest that a licensee can
charge after the maturity date to not more than 2.75 percent per month. Also,
interest may not be assessed on any post-maturity date interest earned by the
licensee. The substitute amendment also allows a customer to prepay a payday loan
in whole or in part. If a loan is prepaid in full, the licensee must, as specified in the
substitute amendment, refund any unearned interest that has been assessed. Also,
the substitute amendment prohibits a licensee from imposing any penalty on a
customer arising from the customer's prepayment of or default or late payment on
a payday loan, except for the dishonored check or denied ETF fee described below.
In addition, the substitute amendment prohibits a licensee from assessing a fee or
charge for accessing or using the statewide database described below.
Maximum liability and database. The substitute amendment prohibits a
licensee from making a payday loan to a customer that results in the customer
having an outstanding aggregate liability in principal, interest, and all other fees
and charges, to all licensees who have made loans to the customer of more than
$1,500 or 35 percent of the customer's gross monthly income, whichever is less. The
substitute amendment requires DFI to contract with a third-party provider to
operate a single statewide database that licensees may access to determine
compliance with the foregoing prohibition. The division must, by rule or order,
specify a transaction fee of no more than $1 that the database operator must charge
licensees for accessing the database. DFI must use the fees to pay for developing,
implementing, and maintaining the database and to promote financial literacy. In
addition, the substitute amendment requires licensees to provide information to the
database operator regarding the payday loans that they make and close. The
substitute amendment also creates procedures that licensees must follow in the
event that the database is not fully operational or that licensees are unable to access
the database. The substitute amendment provides that any information in the
database regarding a person's transactional history is confidential and not subject
to the open records law.
Licensee requirements. The substitute amendment prohibits a licensee from
making a payday loan to a customer with an invalid customer identification number.
The substitute amendment requires the division to specify the manner for assigning
customer identification numbers, which may not be based on a customer's social
security number. In addition, the substitute amendment prohibits a licensee from
making false or deceptive statements regarding payday loans.
The substitute amendment also requires a licensee to do all of the following:
1) maintain in force a bond of no more than $5,000 for each place of business at which
the licensee makes loans to Wisconsin residents; 2) post their license at each place
of business or make them easily viewed on their Internet Web sites; 3) provide
written notice to the division of changes of address for places of business; 4) comply
with specified record-keeping and reporting requirements; and 5) provide customers
with specified disclosures in both English and Spanish. The substitute amendment
allows a licensee to charge a customer a fee not exceeding $15 for a dishonored check
or denial of an authorized ETF. Also, while the substitute amendment allows a
licensee to bring an action against the customer to collect the amount of a returned
check, the substitute amendment prohibits a licensee from threatening or pursuing
criminal action against the customer.
In addition, if a customer fails to repay a payday loan in full at the end of the
loan term, the licensee must offer the customer the opportunity to repay the
outstanding balance in four equal installments with due dates coinciding with the
customer's pay period schedule. However, if a licensee makes such an offer to a
customer, then, for 12 months following the offer, no licensee, including the licensee
making the offer, is required to make another such offer to the customer. As noted
above, a licensee may not impose any penalty on a customer for late payment,
including repayment made pursuant to such an offer.
Zoning requirements. Generally under current law, a city, village, town, or
county (political subdivision) may engage in zoning and land use planning. This
substitute amendment imposes some limitations on the locations in which a
business, owned by a licensee, that makes payday loans (payday lender) may
operate. Generally under the substitute amendment, a payday lender may not
operate in a political subdivision unless it receives a permit to do so from the political
subdivision's governing body or zoning agency, and the governing body or zoning
agency may not issue a permit to a payday lender if the business would be located
within 1,500 feet of another payday lender or if the business would be located within
150 feet of certain residential zoning districts. A political subdivision may, however,
enact a zoning ordinance that contains provisions even more restrictive than the
conditions established in the substitute amendment. Also, if a political subdivision
has enacted an ordinance regulating payday lenders that is in effect on the substitute
amendment's effective date, the political subdivision may continue to enforce that
ordinance, but only if that ordinance is at least as restrictive as the provisions
created in the substitute amendment, except that the substitute amendment
"grandfathers" a payday lender doing business at a nonconforming location on the
effective date of the substitute amendment by allowing the payday lender to continue
to do business at that location, even if the location does not comply with the
substitute amendment's requirements.
Other requirements. The substitute amendment creates other requirements
for payday loans, including the following:
1. The substitute amendment specifies requirements for license applications,
including the payment of a $300 application investigation fee and an annual $500
fee. The substitute amendment also requires the applicant to acknowledge the
applicant is subject to the debt collection requirements of the Wisconsin Consumer
Act with respect to payday loans.
2. The substitute amendment requires the database to report invalid customer
identification numbers to licensees or the division.
3. The substitute amendment allows the division to revoke or suspend licenses
based on violations, promulgate rules and issue orders to enforce the substitute
amendment's requirements, and assess administrative forfeitures of $100 per day
against licensees who fail to notify the database operator about loans that are closed.
4. The substitute amendment provides that a violation of any of the substitute
amendment's requirements is a misdemeanor subject to a fine of not more than $500,
imprisonment for not more than six months, or both.
5. The substitute amendment allows a customer to recover damages of $250 or
the amount of the payday loan, whichever is greater, as well as costs and attorney
fees, from a person who makes a payday loan to the customer in violation of the
substitute amendment's requirements.
6. The substitute amendment voids any payday loan made by a person who does
not have a license required under the substitute amendment and allows a customer
to recover any amounts paid to such a person.
7. The substitute amendment provides that licensees are not subject to civil
forfeitures as a result of relying on inaccurate information contained in the database.
8. The substitute amendment allows a customer to repay a payday loan with
proceeds of a subsequent payday loan made by the same or another licensee or an
affiliate of the same or another licensee. In addition, if a licensee makes such a
subsequent payday loan, the substitute amendment prohibits the customer from
repaying the subsequent payday loan with another payday loan made by the same
or another licensee or affiliate.
9. The substitute amendment allows a customer to rescind a payday loan,
without incurring any fee, by returning the payday loan proceeds to the licensee by
the close of business on the next business day after the payday loan is made.
10. The substitute amendment allows the division to operate the database
described above, as an alternative to contracting with a third-party provider.
11. The substitute amendment prohibits a licensee or third-party provider
from selling any information regarding a customer or a payday loan made to a
customer.
12. The substitute amendment prohibits earnings garnishment actions to
recover amounts owed on a payday loan.
13. The substitute amendment requires the division to make annual reports
to the legislature regarding payday loans made in the preceding year.
Finally, the substitute amendment eliminates a requirement under current law
that certain annual reports made by licensed lenders to the division must be verified
by oath or affirmation. Instead, the substitute amendment requires the reports to
be made in the form and manner prescribed by the division.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB530-SSA1,5,102
20.144
(1) (g)
General program operations. The amounts in the schedule for
3the general program operations of the department of financial institutions. Except
4as provided in pars. (a), (h), (i),
(j), and (u), all moneys received by the department,
5other than by the office of credit unions and the division of banking, and 88% of all
6moneys received by the department's division of banking shall be credited to this
7appropriation, but any balance at the close of a fiscal year under this appropriation
8shall lapse to the general fund. Annually, $200,000 of the amounts received under
9this appropriation account shall be transferred to the appropriation account under
10s. 20.575 (1) (g).
SB530-SSA1, s. 2
11Section
2. 20.144 (1) (j) of the statutes is created to read:
SB530-SSA1,6,3
120.144
(1) (j)
Payday loan database and financial literacy. All moneys received
2under s. 138.14 (14) (h), for developing, implementing, maintaining, or contracting
3for operating, the database under s. 138.14 (14), and for promoting financial literacy.
SB530-SSA1,6,86
49.857
(1) (d) 12. A license or certificate of registration issued under ss. 138.09,
7138.12,
138.14, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72,
8224.725, 224.93 or subch. IV of ch. 551.
SB530-SSA1,6,1010
59.69
(4h) Payday lenders. (a)
Definitions. In this subsection:
SB530-SSA1,6,1111
1. "Licensee" has the meaning given in s. 138.14 (1) (i).
SB530-SSA1,6,1312
2. "Payday lender" means a business, owned by a licensee, that makes payday
13loans.
SB530-SSA1,6,1414
3. "Payday loan" has the meaning given in s. 138.14 (1) (k).
SB530-SSA1,6,1815
(b)
Limits on locations of payday lenders. Except as provided in par. (c), no
16payday lender may operate in a county unless it receives a permit to do so from the
17county zoning agency, and the county zoning agency may not issue a permit to a
18payday lender if any of the following applies:
SB530-SSA1,6,2019
1. The payday lender would be located within 1,500 feet of another payday
20lender.
SB530-SSA1,6,2221
2. The payday lender would be located within 150 feet of a single-family or
222-family residential zoning district.
SB530-SSA1,6,2423
(c)
Exceptions. 1. Paragraph (b) only applies in the unincorporated parts of the
24county which have not adopted a zoning ordinance as authorized under s. 60.62 (1).
SB530-SSA1,7,2
12. A county may regulate payday lenders by enacting a zoning ordinance that
2contains provisions that are more strict than those specified in par. (b).
SB530-SSA1,7,63
3. If a county has enacted an ordinance regulating payday lenders that is in
4effect on the effective date of this subdivision .... [LRB inserts date], the ordinance
5may continue to apply and the county may continue to enforce the ordinance, but only
6if the ordinance is at least as restrictive as the provisions of par. (b).
SB530-SSA1,7,107
4. Notwithstanding the provisions of subd. 3., if a payday lender that is doing
8business on the effective date of this subdivision .... [LRB inserts date], from a
9location that does not comply with the provisions of par. (b), the payday lender may
10continue to operate from that location notwithstanding the provisions of par. (b).
SB530-SSA1, s. 5
11Section
5. 62.23 (7) (hi) of the statutes is created to read:
SB530-SSA1,7,1212
62.23
(7) (hi)
Payday lenders. 1. In this paragraph:
SB530-SSA1,7,1313
a. "Licensee" has the meaning given in s. 138.14 (1) (i).
SB530-SSA1,7,1514
b. "Payday lender" means a business, owned by a licensee, that makes payday
15loans.
SB530-SSA1,7,1616
c. "Payday loan" has the meaning given in s. 138.14 (1) (k).
SB530-SSA1,7,1917
2. Except as provided in subds. 3., 4., and 5., no payday lender may operate in
18a city unless it receives a permit to do so from the city council, and the city council
19may not issue a permit to a payday lender if any of the following applies: