SB 832

This bill redefines a payday loan and makes other changes related to the

regulation of payday loans.

Under current law, a person other than a financial institution or its affiliate

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. A

“payday loan" is defined as a transaction between an individual with an account at

a financial establishment and another person (payday lender) in which the payday

lender agrees to accept a check or electronic fund transfer (EFT) authorization from

the individual, to delay negotiating the check or initiating the EFT for a period of

time, and to extend a loan to the individual for a term of 90 days or less. Current law

imposes various requirements and restrictions on payday loans and licensed payday

lenders. For example, a payday lender may not make a payday loan that results in

the customer having an outstanding liability in principal, interest, and fees on all

payday loans held at the same time by the customer of more than $1,500 or 35 percent

of the customer's gross monthly income, whichever is less. A payday lender must also

provide to an applicant certain information before entering into a payday loan,

including disclosing fees and costs and the loan's annual percentage rate and

providing written materials prepared by the division.

This bill eliminates the foregoing definition of a payday loan and instead

defines a payday loan as a loan to which all of the following apply: 1) the loan's

maturity date is not more than six months after the loan's origination date; 2) the

loan agreement requires the loan to be repaid in equal periodic payments over the

course of the loan; and 3) the loan is not secured by real property or other collateral.

The bill prohibits a payday lender from making or offering to make a payday loan

having a maturity date less than 90 days after the loan's origination date.

The bill also imposes the following requirements on payday loans in addition

to current law requirements:

1. Under the loan agreement, a portion of each periodic payment by the

customer must be applied to loan principal and the percentage of the payment

applied to principal must be the same for all periodic payments made by the customer

on the payday loan.

2. Before entering into a payday loan, a payday lender must undertake a

reasonable underwriting process to verify the applicant's ability to repay the payday

loan. The payday lender may not make a payday loan in an amount that exceeds the

amount the applicant is capable of repaying, as determined by the payday lender's

underwriting process, or the maximum amount established under current law (as

described above), whichever is less.

3. Before entering into a payday loan, a payday lender must disclose to the

applicant, in a clear and conspicuous manner, the payment plan and the amount of

interest that will be paid over the course of the loan. The payday lender must also