Clearinghouse Rule 23-___
PROPOSED ORDER OF THE
DEPARTMENT OF FINANCIAL INSTITUTIONS,
DIVISION OF BANKING
CREATING RULES
The scope statement for this rule was approved by the Governor on May 25, 2023 and published in Administrative Register No. 809B on May 30, 2023. A preliminary hearing on the scope statement was held on July 20, 2023. The scope statement was approved by the Division of Banking on October 18, 2023. ______________________________________________________________________________
ANALYSIS
1. Statutes interpreted:
Section 218.02 of the Wisconsin Statutes. 2. Statutory authority:
3. Explanation of agency authority:
Section 218.02 (9) (a) of the Wisconsin Statutes authorizes the Department of Financial Institutions - Division of Banking to “make such rules and require such reports as the division deems necessary for the enforcement of this section,” and section 218.02 (7) (d) requires the division to “determine and fix by general order”—i.e., administrative rule—“the maximum fees or charges that such companies may make.” 4. Related statutes or rules:
Some adjustment service companies (namely, debt settlement services that solicit customers by telephone across state lines) are subject to the requirements of the Federal Trade Commission’s Telemarketing Sales Rule, codified at 16 C.F.R. part 310. That rule prohibits companies that renegotiate, settle, reduce, or otherwise alter debts individually on behalf of customers from accepting fees from a customer unless and until at least one of the customer’s debts is successfully settled, and it requires them to utilize one of two fee structures (the “percentage of debt” structure or the “percentage of savings” structure). Neither of these alternative fee structures is presently authorized under applicable Wisconsin law governing adjustment service companies. 5. Plain language analysis:
The required analysis is set forth in the Division’s May 2024 Report and Recommendations Concerning Telemarketer-Sold Debt Relief Services, which is attached.
6. Summary of, and comparison with, existing or proposed federal regulation:
As noted in section 4 above, the federal Telemarketing Sales Rule restricts the nature and timing
of fees that certain adjustment service companies may charge to customers. In addition, the
Telemarketing Sales Rule identifies and prohibits certain deceptive or abusive acts or practices by telemarketer-sold debt relief services.
7. Summary of comments received during preliminary comment period and at public hearing on the statement of scope:
The Division received written comments from two trade groups representing members of the debt relief services industry (the American Fair Credit Council and the Consumer Debt Relief Initiative), as well as a company that provides account management services for industry members (Global Holdings, LLC). Their comments are summarized as applicable in Sections II.A through II.E of the Division’s May 2024 Report and Recommendations Concerning Telemarketer-Sold Debt Relief Services.
8. Comparison with rules in adjacent states:
The federal Telemarketing Sale Rule requires telemarketer-sold debt relief services to utilize one of two alternative fee structures, while leaving it to the states to determine which structures are permissible and the maximum fees that such companies may charge their residents. Fee caps are generally established on a state-by-state basis by statute or administrative rule:
States that have authorized companies to utilize the “percentage of debt” model subject to fee maximums include: Louisiana (12 percent cap), New Hampshire (10 to 15 percent, depending on the duration of the plan), Michigan (15 percent), Minnesota (15 percent), Washington (15 percent), Delaware (18 percent), Iowa (18 percent), Idaho (20 percent), Montana (20 percent), and Virginia (20 percent).
States that have authorized companies to utilize the “percentage of savings” model subject to fee maximums include: Connecticut (10 percent), Illinois (15 percent), Maine (15 percent), Iowa (30 percent), Minnesota (30 percent), North Dakota (30 percent), Rhode Island (30 percent), and Virginia (30 percent).
In addition, Oregon has authorized a “hybrid” fee structure, allowing companies to charge fees totaling up to 15 percent of the enrolled debt plus up to 7.5 percent of the savings achieved.
Other states either prohibit for-profit debt settlement services, impose fee structures that are different than those required by the Telemarketing Sales Rule, or do not establish a fixed maximum percentage that such companies may charge under a “percentage of debt” or “percentage of savings” model.
9. Summary of factual data and analytical methodologies:
The proposed rules are based on (1) the Department’s experience in administering and enforcing section 218.02 of the Wisconsin Statutes and its accompanying regulations; (2) the Department’s knowledge of the rules, practices, and experiences of regulators in other states and federal agencies in administering and enforcing statutes and rules applicable to the business of adjustment service companies; and (3) written comments and feedback provided to the Department in connection with the July 20, 2023 preliminary public hearing for this rule.
10. Analysis and supporting documents used to determine effect on small business:
