SB530: Bill Text

SB530,1,7 An Act to amend 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 59.69 (4h), 62.23 (7) (hi), 138.09 (1a), 138.09 (3) (e) 1. g. and 138.14 of the statutes; relating to: regulating consumer small loans, limiting the areas in which a payday lender may operate, granting rule-making authority, 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 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, s. 1 Section 1. 49.857 (1) (d) 12. of the statutes, as affected by 2009 Wisconsin Act 2, is amended to read:

SB530,4,5 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, s. 2 Section 2. 59.69 (4h) of the statutes is created to read:

SB530,4,7 59.69 (4h) Payday lenders. (a) Definitions. In this subsection:

SB530,4,8 1. "Consumer small loan" has the meaning given in s. 138.14 (1) (c).

SB530,4,9 2. "Licensee" has the meaning given in s. 138.14 (1) (i).

SB530,4,11 3. "Payday lender" means a business, owned by a licensee, that makes consumer small loans.

SB530,5,2 (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:

SB530,5,4 1. The payday lender would be located within 1,500 feet of another payday lender.

SB530,5,6 2. The payday lender would be located within 150 feet of a single-family or 2-family residential zoning district.

SB530,5,8 (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).

SB530,5,10 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).

SB530,5,13 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 continues to apply and the county may enforce the ordinance.

SB530, s. 3 Section 3. 62.23 (7) (hi) of the statutes is created to read:

SB530,5,15 62.23 (7) (hi) Payday lenders. 1. In this paragraph:

SB530,5,16 a. "Consumer small loan" has the meaning given in s. 138.14 (1) (c).

SB530,5,17 b. "Licensee" has the meaning given in s. 138.14 (1) (i).

SB530,5,19 c. "Payday lender" means a business, owned by a licensee, that makes consumer small loans.

SB530,5,22 2. Except as provided in subds. 3. and 4., 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:

SB530,5,24 a. The payday lender would be located within 1,500 feet of another payday lender.

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

SB530,6,4 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.

SB530,6,7 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 continues to apply and the city may enforce the ordinance.

SB530, s. 4 Section 4. 73.0301 (1) (d) 6. of the statutes, as affected by 2009 Wisconsin Act 2, is amended to read:

SB530,6,13 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, s. 5 Section 5. 138.04 of the statutes is amended to read:

SB530,6,20 138.04 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, s. 6 Section 6. 138.09 (1a) of the statutes is created to read:

SB530,6,22 138.09 (1a) This section does not apply to any of the following:

SB530,6,24 (a) Banks, savings banks, savings and loan associations, trust companies, credit unions, or any of their affiliates.

SB530,6,25 (b) Consumer small loans made under s. 138.14.

SB530, s. 7 Section 7. 138.09 (1m) (a) of the statutes is amended to read:

SB530,7,12 138.09 (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, s. 8 Section 8. 138.09 (3) (e) 1. g. of the statutes is created to read:

SB530,7,14 138.09 (3) (e) 1. g. A consumer small loan licensee under s. 138.14.

SB530, s. 9 Section 9. 138.09 (3) (f) of the statutes is amended to read:

SB530,8,2 138.09 (3) (f) Every licensee shall make an annual report to the division for each calendar year on or before March 15 of the following year. The report shall cover include business transacted by the licensee under the provisions of this section and shall give all reasonable and relevant information that the division may require. The reports shall be made upon forms furnished in the form and manner prescribed by the division and shall be signed and verified by the oath or affirmation of the licensee if an individual, one of the partners if a partnership, a member or manager if a limited liability company or an officer of the corporation or association if a corporation or association. Any licensee operating under this section shall keep the records affecting loans made pursuant to this section separate and distinct from the records of any other business of the licensee.

SB530, s. 10 Section 10. 138.10 (2m) of the statutes is amended to read:

SB530,8,6 138.10 (2m) Pawnbroking by licensed lenders. The division of banking may promulgate rules regulating the conduct of pawnbroking by persons licensed under s. 138.09 or 138.14.

SB530, s. 11 Section 11. 138.10 (15) of the statutes is amended to read:

SB530,8,9 138.10 (15) Exception. This section does not apply to any person that is licensed under s. 138.09 or 138.14.

SB530, s. 12 Section 12. 138.14 of the statutes is created to read:

SB530,8,11 138.14 Consumer small loans. (1) Definitions. In this section:

SB530,8,14 (a) "Affiliate" means, with respect to a person, another person who owns or controls, is owned or controlled by, or is under common ownership or control with, such person. In this paragraph "control" means any of the following:

SB530,8,17 1. For a corporation, direct or indirect ownership of, or the right to control, 10 percent or more of the voting shares of the corporation, or the ability of a person to elect a majority of the directors or otherwise effect a change in policy.

SB530,8,19 2. For any entity other than a corporation, the ability to change the active or passive principals of the organization.

SB530,8,20 (b) "Check" has the meaning given in s. 403.104 (6).

SB530,8,23 (c) "Consumer small loan" means 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.

SB530,8,24 (d) "Database" means the statewide database described in sub. (14).

SB530,9,3 (e) "Database provider" means a 3rd-party provider with whom the department contracts to operate the database or, if the division elects to operate the database, the division.

SB530,9,4 (f) "Department" means the department of financial institutions.

SB530,9,5 (g) "Division" means the division of banking.

SB530,9,6 (h) "General order" means an order that is not a special order.

SB530,9,8 (i) "Licensee" means a person holding a license issued by the division under sub. (5).

SB530,9,10 (j) "Maturity date" means the date specified when originating a consumer small loan on which the loan is required to be paid in full.

SB530,9,11 (k) "Special order" means an order against a person.

SB530,9,18 (2) License required. A person may not originate or service a consumer small loan involving a Wisconsin resident without first having obtained from the division a license under sub. (5) for each place of business at which the person originates or services consumer small loans involving Wisconsin residents. Such a license is required for, and this section applies to, all consumer small loans made to a Wisconsin resident, regardless of whether the loan is made by face-to-face contact, mail, telephone, Internet, or any other means.

SB530,9,20 (3) Exemptions. This section does not apply to banks, savings banks, savings and loan associations, trust companies, credit unions, or any of their affiliates.

SB530,9,23 (4) Applications; fees; bond. (a) 1. Application for licenses under sub. (5) shall be made to the division in writing in the form and manner prescribed by the division and shall include all of the following:

SB530,9,25 a. Except as provided in subd. 3., if the applicant is an individual, the applicant's social security number.

SB530,10,2 b. If the applicant is not an individual, the applicant's federal employer identification number.

SB530,10,4 2. The division may not disclose any information received under subd. 1. a. or b. to any person except as follows:

SB530,10,7 a. The division may disclose information under subd. 1. a. or b. to the department of revenue for the sole purpose of requesting certifications under s. 73.0301.

SB530,10,10 b. The division may disclose information under subd. 1. a. to the department of workforce development in accordance with a memorandum of understanding under s. 49.857.