Bills · 2009-2010 Regular Session

SB 530

regulating consumer small loans, limiting the areas in which a payday lender may operate, granting rule-making authority, and providing a penalty.

Unfamiliar terms? Glossary

What this bill does

Plain-language analysis by the nonpartisan 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.

Fiscal estimates filed by state agencies, as official PDFs