In November 2023, S.B. 668 was introduced in the Wisconsin Senate. S.B. 668 would make sweeping changes to the state laws governing financial service providers. The bill creates a pathway for the Wisconsin Department of Financial Institutions (DFI) to expand use of the Nationwide Multistate Licensing System and Registry (NMLS) across license types, modernizes money transmission laws, and revises the regulation of consumer lenders, collection agencies, check sellers, payday lenders, community currencies exchanges, sales finance companies, adjustment service companies, and insurance premium companies. The bill was read and referred to the Committee on Shared Revenue, Elections and Consumer Protection and a public hearing was held on December 19, 2023.
The 113 page bill further proposes broad changes to financial services licenses as summarized below. Financial service providers operating in Wisconsin should review the bill and contact their legislative representative or one of the bill sponsors to provide input prior to enactment. Ballard’s licensing team can help providers understand how these proposed changes may impact their business operations or help you file for licenses in the NMLS.
Expanded Use of NMLS
Current law limits the DFI’s use of NMLS to mortgage loan originators, mortgage bankers and mortgage brokers. This bill requires DFI to utilize the NMLS with respect to the licensing and regulation of financial services providers, including requiring applicants and licensees to provide information directly to the NMLS and to comply with application and reporting deadlines established by the NMLS. Specifically, the bill requires use of the NMLS system for consumer lenders, money transmitters, collection agencies, payday lenders, community currencies exchanges (check cashers), sales finance companies (companies that acquire motor vehicle installment sales contracts or consumer leases originated by a motor vehicle dealer), adjustment service companies, and insurance premium companies. The expanded use of NMLS is meant to standardize the license renewal process and renewal period for licensed financial services providers.
Money Transmitters and Check Sellers
The bill repeals provisions of current law governing the licensing and regulation of sellers of checks, and replaces them with provisions governing the licensing and regulation of money transmitters, titled the Model Money Transmission Modernization Law, which seeks to implement the Conference of State Bank Supervisors’ Model Money Transmission Modernization Act. The bill incorporates common exceptions, including exceptions for federally insured financial institutions, government agencies, registered securities broker-dealers, agents of a payee that collect and process payments on behalf of the payee if certain conditions are satisfied, electronic funds transfers of governmental benefits by government contractors, employees and authorized delegates of licensed money transmitters if certain conditions are satisfied, and any other person exempted by DFI, as long as the exempt person does not engage in money transmission outside the scope of the exemption. The bill defines money transmission and payment instrument as follows:
- Money transmission means “selling or issuing payment instruments to a person located in this state; selling or issuing stored value to a person located in this state; or receiving money for transmission from a person located in this state.” Money transmission specifically includes payroll processing services that are not performed by the employer (“receiving money for transmission pursuant to a contract with a person to deliver wages or salaries, make payment of payroll taxes to state and federal agencies, make payments relating to employee benefit plans, or make distributions of other authorized deductions from wages or salaries”).
- Payment instrument means “a written or electronic check, money order, traveler’s check, or other written or electronic instrument for the transmission or payment of money or monetary value, whether or not negotiable.” Payment instrument does not include (i) stored value or any instrument that is redeemable by the issuer only for goods or services provided by the issuer or its affiliate or franchisees of the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value or (ii) any instrument that is not sold to the public and is issued and distributed as part of a loyalty, rewards, or promotional program.
The bill’s money transmitter licensing requirements include, among other things:
- Requiring applicants to submit applications and other information through the NMLS;
- Requiring a person or entity seeking control of a money transmitter to apply for a license and meet other conditions;
- Allowing a licensee to conduct business through an authorized delegate, which is a person designated by a licensed money transmitter to engage in money transmission on behalf of the licensed money transmitter; and
- Requiring certain business practices with regards to money transmission, sending receipts, refunding money in some circumstances, submitting audited financials, and maintaining a surety bond, the required net worth and a minimum amount of investments.
Further, the bill provides DFI with various powers relating to the regulation of money transmitters, including investigatory and enforcement powers, including the authority to examine its books, accounts, or records and those of its authorized delegates, and the authority to take possession of an insolvent licensed money transmitter under specified circumstances.
Under current law, a lender (other than a bank, savings bank, savings and loan association, credit union, or any of its affiliates) generally must obtain a license from DFI to assess a finance charge for a consumer loan that is greater than 18% per year. The bill makes numerous changes related to the licensing and regulation of consumer lenders, including the following:
- Defines consumer loan for purposes of licensed lenders (“a loan made by any person to a customer that is payable in installments or for which a finance charge is or may be imposed, and includes transactions pursuant to an open-end credit plan, as defined in s. 421.301(27), other than a seller credit card, as defined in s. 421.301 (41)”);
- Applies to any person who takes an assignment for sale, in whole or in part, of a consumer loan with a finance charge in excess of 18% per year, without regard to whether the loan was originally made by a financial institution; but does not apply to collection agencies, payment processors, and certain persons involved in investment or financing transactions;
- Specifies the activities that require a person to be licensed as a licensed lender: making a consumer loan that has a finance charge in excess of 18% per year; taking an assignment of a consumer loan in which a customer is assessed a finance charge in excess of 18% per year; or directly collecting payments from or enforcing rights against a customer relating to a consumer loan in which a customer is assessed a finance charge in excess of 18% per year;
- Eliminates provisions related to consumer loan interest rates that apply to certain loans entered into before August 1, 1987 and the requirement that all loans must be consummated at the licensed location; and
- Requires a licensed lender to keep its loan records separate and distinct from the records of any other business of the licensed lender.
The bill makes numerous changes to the collection agency license provisions, including, among other things:
- Removes the requirement that an individual collector hold a license separate from the license of the collection agency that employs the collector;
- Excludes licensed mortgage bankers and credit unions from collection agency regulation;
- Requires that a separate license be maintained for each business location;
- Expands the reasons for DFI may suspend or revoke a license to include where the collection agency has violated DFI’s rules related to collection agencies, and the collection agency has made a material misstatement, or knowingly omitted a material fact, in an application for a license or in information furnished to DFI or the NMLS;
- Specifies the timing to deposit funds in trust account within 48 hours and submit funds to creditors on the last day of the month following the close of the month during which the collection was effected;
- Permits the use of unsigned collection notices;
- Amends various provisions related to assessing fees to creditors for returning accounts, record retention, identification of trusts accounts, use of “doing business as” names, compliance with federal and state laws, and contracting requirements.
We will continue to monitor the progress of this bill and blog further if the bill is enacted.