3. Description of the existing policies relevant to the rule, new policies proposed to be included in the rule, and an analysis of policy alternatives:
Section 218.02(7) of the Wisconsin Statutes sets forth policies that the Division must consider in licensing and regulating adjustment service companies, including “protect[ing] debtors from oppressive or deceptive practices,” regulating the “advertising and solicitation of business” by such companies, determining and fixing “the maximum fees or charges that such companies may make,” and “prevent[ing] evasions” of section 218.02. The proposed rule serves these purposes by establishing maximum charges for companies that are subject to the Telemarketing Sales Rule. In addition, by authorizing companies to utilize one or both of the alternative fee structures mandated by that federal rule, the proposed rule also reduces the incentive for such companies to evade the licensing requirements of section 218.02. Their licensure also furthers the ability of the Division to regulate their advertising and other practices, to rectify consumer complaints as they arise, and to protect consumers from oppressive or deceptive practices.
4. Detailed explanation of statutory authority for the rule (including the statutory citation and language):
The Division licenses and regulates adjustment service companies pursuant to section 218.02 of the Wisconsin Statutes. The Division has the authority to “make such rules and require such reports as the division deems necessary for the enforcement of this section,” Wis. Stat. § 218.02(9)(a), and it is required to “determine and fix by general order”—i.e., administrative rule—“the maximum fees or charges that such companies may make.” 5. Estimate of amount of time that state employees will spend developing the rule and of other resources necessary to develop the rule:
200-400 hours.
6. List with description of all entities that may be affected by the proposed rule:
The rule changes would affect adjustment service companies that are engaged in the business of settling debts for consumers and seek to make their services available in Wisconsin. The proposed changes would allow adjustment service companies doing business under the Telemarketing Sale Rule to become licensed with the Division and lawfully offer their services in Wisconsin, subject to the requirements of Wis. Stat. § 218.02 and Wis. Admin. Code ch. DFI-Bkg 73 (including the maximum fee limitations to be established in this rulemaking). Because the proposed rule would not eliminate the fee structures presently available under Wisconsin law, at this time the Division does not anticipate that it would have a material impact on current licensees currently doing business under Wis. Admin. Code ch. DFI-Bkg 73. That said, the Division may consider updates to the current authorized fee structures, as well as the adoption of additional consumer protections consistent with the Telemarketing Sales Rule. 7. Summary and preliminary comparison with any existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule:
As noted in section 2 above, the federal Telemarketing Sales Rule restricts the nature and timing of fees that certain adjustment service companies may charge to customers. In addition, the Telemarketing Sales Rule identifies and prohibits certain deceptive or abusive acts or practices in the sale of debt relief services.
While the federal rule authorizes two alternative fee structures (the “percentage of debt” and “percentage of savings” models described in section 2 above), it does not establish the maximum fees that may be charged. Such caps are generally established on a state-by-state basis by statute or administrative rule:
States that have authorized companies to utilize the “percentage of debt” model subject to fee maximums include: Louisiana (12 percent cap), New Hampshire (10 to 15 percent, depending on the duration of the plan), Michigan (15 percent), Minnesota (15 percent), Washington (15 percent), Delaware (18 percent), Iowa (18 percent), Idaho (20 percent), Montana (20 percent), and Virginia (20 percent).
States that have authorized companies to utilize the “percentage of savings” model subject to fee maximums include: Connecticut (10 percent), Illinois (15 percent), Maine (15 percent), Iowa (30 percent), Minnesota (30 percent), North Dakota (30 percent), Rhode Island (30 percent), and Virginia (30 percent).
In addition, Oregon has authorized a “hybrid” fee structure, allowing companies to charge fees totaling up to 15 percent of the enrolled debt plus up to 7.5 percent of the savings achieved.
Other states either prohibit for-profit debt settlement services, impose fee structures that predated the Telemarketing Sales Rule, or do not establish a fixed maximum percentage that such companies may charge under a “percentage of debt” or “percentage of savings” model.
8. Anticipated economic impact of implementing the rule (note if the rule is likely to have a significant economic impact on small businesses):
As noted in section 6 above, the proposed rule seeks to authorize additional fee structures that align with the requirements of the Telemarketing Sales Rule, but it would not eliminate or reduce the maximum fees that current licensees may charge under existing fee structures authorized by Wis. Admin. Code ch. DFI-Bkg 73. For that reason, the Division does not anticipate the proposed rule would materially impact existing licensees. For consumers, updating Wis. Admin. Code ch. DFI-Bkg 73 to allow alternative fee structures subject to fee caps is likely to increase the number of licensees offering debt settlement services, better ensure that such companies will address consumer complaints (because their license may be at risk if they do not), and better safeguard them from being charged unreasonable fees for the services provided. Contact Person:
Matthew Lynch
Chief Legal Counsel
Wisconsin Department of Financial Institutions
PO Box 8861
Madison, WI 53708-8861
