Payday Loan Legislation
Updated: May 15, 2008
Three bills were introduced in the Wisconsin Legislature during the 2007-08 legislative session that aimed to regulate the otherwise unsupervised business of providing payday loans. Currently, payday loan providers simply register with the Department of Financial Institutions (DFI) because they administer loans that have an interest rate higher than 18%. These loans, in which borrowers in essence receive an advance on their paychecks from lenders who charge extremely high interest rates (often well over 500% APR) are becoming increasingly prevalent.
The bills were introduced by Representatives Thomas Nelson (D-Kaukauna), Andy Jorgensen (D-Fort Atkinson), and Josh Zepnick (D-Milwaukee). All have been referred to the Assembly Committee on Financial Institutions, which is chaired by Representative Scott Newcomer (R-Delafield). Below are brief summaries of the bills
Assembly Bill 211
AB 211 was introduced by Representative Nelson on March 27th, 2007. The bill would have changed the licensing requirements already established by the Department of Financial Institutions so that a lender would have to register based on the amount of a loan, rather than the finance charge. Under the bill, a lender other than a financial institution must have obtained a license if the lender makes a consumer loan of $5,000 or less.
The bill also prohibited a lender who is so licensed from assessing a finance charge on a consumer loan that exceeds 36 percent per year. A limit on interest rates is critical for consumer advocates, and AB 211 is the only bill this session that would have imposed such a limit. The bill also created a definition for "finance charge," which included all cost elements associated with an extension of credit, including fees, service charges, renewal charges, credit insurance premiums, the cost of any ancillary product sold with an extension of credit, and any other charge or premium. A person who violates the prohibition is subject to a fine of not more than $500, imprisonment for not more than six months, or both.
AB 211 has died in the Assembly without having received a hearing.
For the complete history and a link to the bill draft, please click on the link below. http://www.legis.state.wi.us/2007/data/AB211hst.html
Assembly Bill 511
AB 511 was introduced by Representative Jorgensen on September 20th, 2007. The bill focused on increasing disclosure requirements for consumer information and imposing government reporting requirements. AB 511 would have required a payday loan provider, at least 15 minutes before entering into a payday loan with an applicant, to: 1) disclose to the applicant the total amount of all fees and costs, in dollars, and the annual percentage rate (APR), to be paid by the applicant assuming that the loan is paid in full at the end of the loan term; and 2) provide to the applicant a copy of certain written informational materials. The payday loan provider would have had to retain, for at least three years after the origination date of the payday loan, a record of compliance with these requirements.
The bill also required each payday loan provider to file annual reports and pay a report filing fee. The report had to cover the payday loan provider's business in the preceding calendar year. The report must have also contained specified information, aggregated for all customers, including: 1) the number of payday loans originated, the number of payday loans rolled over, and the average number of times a rolled over payday loan was rolled over; 2) the average total fees, including costs and penalties, and average APR, for all payday loans of the payday loan provider, categorized by loans that were not rolled over and loans that were rolled over; 3) the number of payday loans resulting in the customer's default; and 4) the number of payday loans on which the customer's payment method was dishonored for insufficient funds and the average fees, including costs and penalties, charged to customers due to these insufficient funds accounts.
AB 511 has died in the Assembly without having received a hearing.
For the complete history and a link to the bill draft, please click on the link below.
http://www.legis.state.wi.us/2007/data/AB511hst.html
Assembly Bill 574
AB 574 was introduced by Representative Zepnick on November 13th, 2007. This bill would limit a consumer's ability to "rollover" a payday loan. The bill defined "rollover" as the refinancing, renewal, amendment, or extension of a payday loan. Rollovers are one of the most troubling aspects of payday loans. When consumers cannot repay a loan, they keep paying the interest charge over and over again, leading to extremely high costs for financing the original payday loan. Under the bill, a payday loan provider would have been able to enter into no more than one rollover of a consumer's payday loan and, before entering into such a rollover, the consumer must make payment, applied to the existing payday loan, that reduces the outstanding balance on the existing payday loan by at least 50 percent.
In addition, under the bill, payday loan providers couldn’t have made a payday loan in a principal amount that exceeds $800 or 50 percent of the applicant's next paycheck, whichever is greater. The bill also prohibited DFI, or any other state agency, from establishing or maintaining a database of individuals who enter into payday loans.
AB 574 has died in the Assembly without having received a hearing.
For the complete history and a link to the bill draft, please click on the link below.
http://www.legis.state.wi.us/2007/data/AB574hst.html