LRB-2564/4
MDK&MES:jld:rs
2009 - 2010 LEGISLATURE
February 9, 2010 - Introduced by Senators Sullivan, Hansen, Miller, Lehman and
Robson, cosponsored by Representative
Fields. Referred to Committee on
Veterans and Military Affairs, Biotechnology, and Financial Institutions.
SB530,1,7
1An Act to amend 49.857 (1) (d) 12., 73.0301 (1) (d) 6., 138.04, 138.09 (1m) (a),
2138.09 (3) (f), 138.10 (2m), 138.10 (15), 220.02 (2) (b), 220.04 (10), 220.285 (1),
3321.60 (1) (a) 12., 403.414 (7), 422.201 (3) and 425.301 (4); and
to create 59.69
4(4h), 62.23 (7) (hi), 138.09 (1a), 138.09 (3) (e) 1. g. and 138.14 of the statutes;
5relating to: regulating consumer small loans, limiting the areas in which a
6payday lender may operate, granting rule-making authority, and providing a
7penalty.
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
borrower, pays the borrower 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 bill creates requirements for regulating certain payday loan
and similar transactions by prohibiting a person from originating or servicing a
"consumer small loan" involving a Wisconsin resident unless the division issues a
new license, that is created in the bill, to the person. The bill defines "consumer small
loan" as an unsecured consumer loan, including an indebtedness evidenced by a
promissory note or an agreement to defer presenting a check or debiting a consumer's
bank account for a fee. A separate license is required for each place of business at
which a person originates or services a consumer small loan involving a Wisconsin
resident. Financial institutions and their affiliates are exempt from the requirement
to be licensed under the bill. Also, a person who is licensed under the bill is not
required to be licensed as a licensed lender.
Fees. As under the current law, the bill does not impose any limit on the
interest that may charged on a consumer small loan before the maturity date of the
loan. The bill defines "maturity date" as the date specified when originating the loan
on which the loan is required to be paid in full. However, if a consumer small loan
is not paid in full on or before the maturity date, the bill 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 bill also allows a borrower to prepay a consumer small loan in
whole or in part. If a loan is prepaid in full, the licensee must, as specified in the bill,
refund any unearned interest that has been assessed. In addition, the bill prohibits
a licensee from assessing a fee or charge for accessing or using the statewide
database described below. Except for a returned check fee, discussed below, the bill
does not otherwise affect the fees, charges, or interest that may be assessed by a
licensee.
Maximum liability and database. The bill prohibits a licensee from making
a consumer small loan to a borrower that results in the borrower having an
outstanding aggregate liability of more than $900 to all licensees who have made
loans to the borrower. The bill 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 that the database operator must charge licensees for
accessing the database. In addition, the bill requires licensees to provide information
to the database operator regarding the consumer small loans that they make and
close. The bill 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 bill 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 bill prohibits a licensee from doing any of the
following: 1) making a consumer small loan to a borrower with an invalid social
security number and 2) making false or deceptive statements regarding consumer
small loans. The bill 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 borrowers with specified
disclosures in both English and Spanish. The bill allows a licensee to charge a
borrower a fee not exceeding $15 for a returned check. Also, while the bill allows a
licensee to bring an action against the borrower to collect the amount of a returned
check, the bill prohibits a licensee from threatening or pursuing criminal action
against the borrower.
Zoning requirements. Generally under current law, a city, village, town, or
county (political subdivision) may engage in zoning and land use planning. This bill
imposes some limitations on the locations in which a business, owned by a licensee,
that makes consumer small loans (payday lender) may operate. Generally under the
bill, 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 bill. Also, if a political
subdivision has enacted an ordinance regulating payday lenders that is in effect on
the bill's effective date, the political subdivision may continue to enforce that
ordinance.
Other requirements. The bill creates other requirements for consumer small
loans, including the following:
1. The bill specifies requirements for license applications, including the
payment of a $300 application investigation fee and an annual $500 fee.
2. The bill requires the database to report invalid social security numbers to
licensees or the division.
3. The bill allows the division to revoke or suspend licenses based on violations,
promulgate rules and issue orders to enforce the bill'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 bill provides that a violation of any of the bill'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 bill allows a borrower to recover damages of $250 or the amount of the
consumer small loan, whichever is greater, as well as costs and attorney fees, from
a person who makes a consumer small loan to the borrower in violation of the bill's
requirements.
6. The bill voids any consumer small loan made by a person who does not have
a license required under the bill and allows a borrower to recover any amounts paid
to such a person.
7. The bill provides that licensees are not subject to civil forfeitures as a result
of relying on inaccurate information contained in the database.
8. The bill allows a borrower to repay a consumer small loan with proceeds of
a subsequent consumer small 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 consumer small loan, the bill prohibits the borrower from repaying the
subsequent consumer small loan with another consumer small loan made by the
same or another licensee or affiliate.
9. The bill allows the division to operate the database described above, as an
alternative to contracting with a third-party provider.
Finally, the bill 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 bill requires the reports to be made in the form and manner
prescribed by the division.
Because this bill creates a new crime or revises a penalty for an existing crime,
the Joint Review Committee on Criminal Penalties may be requested to prepare a
report concerning the proposed penalty and the costs or savings that are likely to
result if the bill is enacted.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB530,4,53
49.857
(1) (d) 12. A license or certificate of registration issued under ss. 138.09,
4138.12,
138.14, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72,
5224.725, 224.93 or subch. IV of ch. 551.
SB530, s. 2
6Section
2. 59.69 (4h) of the statutes is created to read:
SB530,4,77
59.69
(4h) Payday lenders. (a)
Definitions. In this subsection:
SB530,4,88
1. "Consumer small loan" has the meaning given in s. 138.14 (1) (c).
SB530,4,99
2. "Licensee" has the meaning given in s. 138.14 (1) (i).
SB530,4,1110
3. "Payday lender" means a business, owned by a licensee, that makes
11consumer small loans.
SB530,5,212
(b)
Limits on locations of payday lenders. Except as provided in par. (c), no
13payday lender may operate in a county unless it receives a permit to do so from the
1county zoning agency, and the county zoning agency may not issue a permit to a
2payday lender if any of the following applies:
SB530,5,43
1. The payday lender would be located within 1,500 feet of another payday
4lender.
SB530,5,65
2. The payday lender would be located within 150 feet of a single-family or
62-family residential zoning district.
SB530,5,87
(c)
Exceptions. 1. Paragraph (b) only applies in the unincorporated parts of the
8county which have not adopted a zoning ordinance as authorized under s. 60.62 (1).
SB530,5,109
2. A county may regulate payday lenders by enacting a zoning ordinance that
10contains provisions that are more strict than those specified in par. (b).
SB530,5,1311
3. If a county has enacted an ordinance regulating payday lenders that is in
12effect on the effective date of this subdivision .... [LRB inserts date], the ordinance
13continues to apply and the county may enforce the ordinance.
SB530, s. 3
14Section
3. 62.23 (7) (hi) of the statutes is created to read:
SB530,5,1515
62.23
(7) (hi)
Payday lenders. 1. In this paragraph:
SB530,5,1616
a. "Consumer small loan" has the meaning given in s. 138.14 (1) (c).
SB530,5,1717
b. "Licensee" has the meaning given in s. 138.14 (1) (i).
SB530,5,1918
c. "Payday lender" means a business, owned by a licensee, that makes
19consumer small loans.
SB530,5,2220
2. Except as provided in subds. 3. and 4., no payday lender may operate in a
21city unless it receives a permit to do so from the city council, and the city council may
22not issue a permit to a payday lender if any of the following applies:
SB530,5,2423
a. The payday lender would be located within 1,500 feet of another payday
24lender.
SB530,6,2
1b. The payday lender would be located within 150 feet of a single-family or
22-family residential zoning district.
SB530,6,43
3. A city may regulate payday lenders by enacting a zoning ordinance that
4contains provisions that are more strict than those specified in subd. 2.
SB530,6,75
4. If a city has enacted an ordinance regulating payday lenders that is in effect
6on the effective date of this subdivision .... [LRB inserts date], the ordinance
7continues to apply and the city may enforce the ordinance.
SB530,6,1310
73.0301
(1) (d) 6. A license or certificate of registration issued by the
11department of financial institutions, or a division of it, under ss. 138.09, 138.12,
12138.14, 217.06, 218.0101 to 218.0163, 218.02, 218.04, 218.05, 224.72, 224.725,
13224.93 or under subch. IV of ch. 551.
SB530, s. 5
14Section
5. 138.04 of the statutes is amended to read:
SB530,6,20
15138.04 Legal rate. The rate of interest upon the loan or forbearance of any
16money, goods or things in action shall be $5 upon the $100 for one year and according
17to that rate for a greater or less sum or for a longer or a shorter time; but parties may
18contract for the payment and receipt of a rate of interest not exceeding the rate
19allowed in ss. 138.041 to 138.056, 138.09 to
138.12
138.14, 218.0101 to 218.0163, or
20422.201, in which case such rate shall be clearly expressed in writing.
SB530, s. 6
21Section
6. 138.09 (1a) of the statutes is created to read:
SB530,6,2222
138.09
(1a) This section does not apply to any of the following:
SB530,6,2423
(a) Banks, savings banks, savings and loan associations, trust companies,
24credit unions, or any of their affiliates.
SB530,6,2525
(b) Consumer small loans made under s. 138.14.
SB530, s. 7
1Section
7. 138.09 (1m) (a) of the statutes is amended to read:
SB530,7,122
138.09
(1m) (a) Before any person may do business under this section
or, charge
3the interest authorized by sub. (7)
and before any creditor other than a bank, savings
4bank, savings and loan association or credit union may, or assess a finance charge
5on a consumer loan in excess of 18% per year, that person shall first obtain a license
6from the division. Applications for a license shall be in writing and upon forms
7provided for this purpose by the division. An applicant at the time of making an
8application shall pay to the division a nonrefundable $300 fee for investigating the
9application and a $500 annual license fee for the period terminating on the last day
10of the current calendar year. If the cost of the investigation exceeds $300, the
11applicant shall upon demand of the division pay to the division the amount by which
12the cost of the investigation exceeds the nonrefundable fee.
SB530, s. 8
13Section
8. 138.09 (3) (e) 1. g. of the statutes is created to read:
SB530,7,1414
138.09
(3) (e) 1. g. A consumer small loan licensee under s. 138.14.
SB530, s. 9
15Section
9. 138.09 (3) (f) of the statutes is amended to read:
SB530,8,216
138.09
(3) (f) Every licensee shall make an annual report to the division for
17each calendar year on or before March 15 of the following year. The report shall
cover 18include business transacted by the licensee under the provisions of this section and
19shall give all reasonable and relevant information that the division may require. The
20reports shall be made
upon forms furnished in the form and manner prescribed by
21the division
and shall be signed and verified by the oath or affirmation of the licensee
22if an individual, one of the partners if a partnership, a member or manager if a
23limited liability company or an officer of the corporation or association if a
24corporation or association. Any licensee operating under this section shall keep the
1records affecting loans made pursuant to this section separate and distinct from the
2records of any other business of the licensee.
SB530, s. 10
3Section
10. 138.10 (2m) of the statutes is amended to read:
SB530,8,64
138.10
(2m) Pawnbroking by licensed lenders. The division of banking may
5promulgate rules regulating the conduct of pawnbroking by persons licensed under
6s. 138.09
or 138.14.
SB530, s. 11
7Section
11. 138.10 (15) of the statutes is amended to read:
SB530,8,98
138.10
(15) Exception. This section does not apply to any person that is
9licensed under s. 138.09
or 138.14.
SB530, s. 12
10Section
12. 138.14 of the statutes is created to read: