Amendment SSA1-SB530

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 An Act to amend 20.144 (1) (g), 49.857 (1) (d) 12., 73.0301 (1) (d) 6., 138.04, 138.09 (1m) (a), 138.09 (3) (f), 138.10 (2m), 138.10 (15), 220.02 (2) (b), 220.04 (10), 220.285 (1), 321.60 (1) (a) 12., 403.414 (7), 422.201 (3) and 425.301 (4); and to create 20.144 (1) (j), 59.69 (4h), 62.23 (7) (hi), 138.09 (1a), 138.09 (3) (e) 1. g., 138.14 and 812.35 (1a) of the statutes; relating to: regulating payday loans, limiting the areas in which a payday lender may operate, granting rule-making authority, 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, s. 1 Section 1. 20.144 (1) (g) of the statutes is amended to read:

SB530-SSA1,5,10 20.144 (1) (g) General program operations. The amounts in the schedule for the general program operations of the department of financial institutions. Except as provided in pars. (a), (h), (i), (j), and (u), all moneys received by the department, other than by the office of credit unions and the division of banking, and 88% of all moneys received by the department's division of banking shall be credited to this appropriation, but any balance at the close of a fiscal year under this appropriation shall lapse to the general fund. Annually, $200,000 of the amounts received under this appropriation account shall be transferred to the appropriation account under s. 20.575 (1) (g).

SB530-SSA1, s. 2 Section 2. 20.144 (1) (j) of the statutes is created to read:

SB530-SSA1,6,3 20.144 (1) (j) Payday loan database and financial literacy. All moneys received under s. 138.14 (14) (h), for developing, implementing, maintaining, or contracting for operating, the database under s. 138.14 (14), and for promoting financial literacy.

SB530-SSA1, s. 3 Section 3. 49.857 (1) (d) 12. of the statutes, as affected by 2009 Wisconsin Act 2, is amended to read:

SB530-SSA1,6,8 49.857 (1) (d) 12. A license or certificate of registration issued under ss. 138.09, 138.12, 138.14, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.725, 224.93 or subch. IV of ch. 551.

SB530-SSA1, s. 4 Section 4. 59.69 (4h) of the statutes is created to read:

SB530-SSA1,6,10 59.69 (4h) Payday lenders. (a) Definitions. In this subsection:

SB530-SSA1,6,11 1. "Licensee" has the meaning given in s. 138.14 (1) (i).

SB530-SSA1,6,13 2. "Payday lender" means a business, owned by a licensee, that makes payday loans.

SB530-SSA1,6,14 3. "Payday loan" has the meaning given in s. 138.14 (1) (k).

SB530-SSA1,6,18 (b) Limits on locations of payday lenders. Except as provided in par. (c), no payday lender may operate in a county unless it receives a permit to do so from the county zoning agency, and the county zoning agency may not issue a permit to a payday lender if any of the following applies:

SB530-SSA1,6,20 1. The payday lender would be located within 1,500 feet of another payday lender.

SB530-SSA1,6,22 2. The payday lender would be located within 150 feet of a single-family or 2-family residential zoning district.

SB530-SSA1,6,24 (c) Exceptions. 1. Paragraph (b) only applies in the unincorporated parts of the county which have not adopted a zoning ordinance as authorized under s. 60.62 (1).

SB530-SSA1,7,2 2. A county may regulate payday lenders by enacting a zoning ordinance that contains provisions that are more strict than those specified in par. (b).

SB530-SSA1,7,6 3. If a county has enacted an ordinance regulating payday lenders that is in effect on the effective date of this subdivision .... [LRB inserts date], the ordinance may continue to apply and the county may continue to enforce the ordinance, but only if the ordinance is at least as restrictive as the provisions of par. (b).

SB530-SSA1,7,10 4. Notwithstanding the provisions of subd. 3., if a payday lender that is doing business on the effective date of this subdivision .... [LRB inserts date], from a location that does not comply with the provisions of par. (b), the payday lender may continue to operate from that location notwithstanding the provisions of par. (b).

SB530-SSA1, s. 5 Section 5. 62.23 (7) (hi) of the statutes is created to read:

SB530-SSA1,7,12 62.23 (7) (hi) Payday lenders. 1. In this paragraph:

SB530-SSA1,7,13 a. "Licensee" has the meaning given in s. 138.14 (1) (i).

SB530-SSA1,7,15 b. "Payday lender" means a business, owned by a licensee, that makes payday loans.

SB530-SSA1,7,16 c. "Payday loan" has the meaning given in s. 138.14 (1) (k).

SB530-SSA1,7,19 2. Except as provided in subds. 3., 4., and 5., no payday lender may operate in a city unless it receives a permit to do so from the city council, and the city council may not issue a permit to a payday lender if any of the following applies:

SB530-SSA1,7,21 a. The payday lender would be located within 1,500 feet of another payday lender.

SB530-SSA1,7,23 b. The payday lender would be located within 150 feet of a single-family or 2-family residential zoning district.

SB530-SSA1,7,25 3. A city may regulate payday lenders by enacting a zoning ordinance that contains provisions that are more strict than those specified in subd. 2.

SB530-SSA1,8,4 4. If a city has enacted an ordinance regulating payday lenders that is in effect on the effective date of this subdivision .... [LRB inserts date], the ordinance may continue to apply and the city may continue to enforce the ordinance, but only if the ordinance is at least as restrictive as the provisions of subd. 2.

SB530-SSA1,8,8 5. Notwithstanding the provisions of subd. 4., if a payday lender that is doing business on the effective date of this subdivision .... [LRB inserts date], from a location that does not comply with the provisions of subd. 2., the payday lender may continue to operate from that location notwithstanding the provisions of subd. 2.

SB530-SSA1, s. 6 Section 6. 73.0301 (1) (d) 6. of the statutes, as affected by 2009 Wisconsin Act 2, is amended to read:

SB530-SSA1,8,14 73.0301 (1) (d) 6. A license or certificate of registration issued by the department of financial institutions, or a division of it, under ss. 138.09, 138.12, 138.14, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.725, 224.93 or under subch. IV of ch. 551.

SB530-SSA1, s. 7 Section 7. 138.04 of the statutes is amended to read:

SB530-SSA1,8,21 138.04 Legal rate. The rate of interest upon the loan or forbearance of any money, goods or things in action shall be $5 upon the $100 for one year and according to that rate for a greater or less sum or for a longer or a shorter time; but parties may contract for the payment and receipt of a rate of interest not exceeding the rate allowed in ss. 138.041 to 138.056, 138.09 to 138.12 138.14, 218.0101 to 218.0163, or 422.201, in which case such rate shall be clearly expressed in writing.

SB530-SSA1, s. 8 Section 8. 138.09 (1a) of the statutes is created to read:

SB530-SSA1,8,23 138.09 (1a) This section does not apply to any of the following:

SB530-SSA1,8,25 (a) Banks, savings banks, savings and loan associations, trust companies, credit unions, or any of their affiliates.

SB530-SSA1,8,26 (b) Payday loans made under s. 138.14.

SB530-SSA1, s. 9 Section 9. 138.09 (1m) (a) of the statutes is amended to read:

SB530-SSA1,9,13 138.09 (1m) (a) Before any person may do business under this section or, charge the interest authorized by sub. (7) and before any creditor other than a bank, savings bank, savings and loan association or credit union may, or assess a finance charge on a consumer loan in excess of 18% per year, that person shall first obtain a license from the division. Applications for a license shall be in writing and upon forms provided for this purpose by the division. An applicant at the time of making an application shall pay to the division a nonrefundable $300 fee for investigating the application and a $500 annual license fee for the period terminating on the last day of the current calendar year. If the cost of the investigation exceeds $300, the applicant shall upon demand of the division pay to the division the amount by which the cost of the investigation exceeds the nonrefundable fee.

SB530-SSA1, s. 10 Section 10. 138.09 (3) (e) 1. g. of the statutes is created to read:

SB530-SSA1,9,15 138.09 (3) (e) 1. g. A payday loan licensee under s. 138.14.