SB 694

Under current law, a person must be licensed by the Division of Banking

(division) in the Department of Financial Institutions to originate or service a payday

loan involving a Wisconsin resident. Current law does not impose a limit on the

interest that a payday loan licensee may charge, before the maturity date, on a

payday loan, but current law limits the interest that may be charged after the

maturity date, when the loan is not paid in full by this maturity date, to 2.75 percent

per month.

This bill limits the interest rate that a payday loan licensee may charge, before

the maturity date, on a payday loan to an annual percentage rate of 36 percent. A

payday loan on which a greater rate of interest is charged is not enforceable.

Under current law, a lender other than a bank, savings bank, savings and loan

association, credit union, or its affiliate (financial institution) generally must obtain

a license from the division to assess a finance charge for a consumer loan that is

greater than 18 percent. This type of lender is generally referred to as a "licensed

lender." A "consumer loan" is a loan made to an individual for personal, family, or

household purposes that is payable in installments or for which a finance charge may

be imposed and includes most transactions under an open-end credit plan such as

most credit card debt. A "finance charge" is the sum of all charges payable by the

customer as an incident to or condition of the extension of credit, including interest

and other costs and fees to the extent not specifically designated by statute as

permissible charges of the creditor. Consumer loans are largely regulated under the

Wisconsin Consumer Act. With certain limited exceptions, current law provides no

maximum interest rate or finance charge for a consumer loan, including those made

by a licensed lender.

This bill expands the class of creditors that are considered "licensed lenders"

and are subject to the licensing requirements as such. Under the bill, a lender, other

than a financial institution, that makes consumer loans exceeding $5,000 in

principal amount must also obtain a license from the division and is a licensed lender.

The bill also prohibits a licensed lender from charging an annual percentage

rate of interest greater than 36 percent. However, this maximum interest rate does

not apply to an open-end credit plan, including most credit card debt, or to a

consumer loan secured by a first lien security interest in a mobile home or

manufactured home. The bill also does not affect the maximum interest rate under

current law of 12 percent per year for consumer loans after their final scheduled

maturity date. If a licensed lender violates the 36 percent interest limitation, the

loan is not enforceable.