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

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.