Amendment SSA2-SB637

LRBs0275/1

ARG:ahe/emw/wlj

2017 - 2018 LEGISLATURE

SENATE SUBSTITUTE AMENDMENT 2, TO SENATE BILL 637

March 15, 2018 - Offered by Committee on Agriculture, Small Business and Tourism.

SB637-SSA2,1,3 An Act to create 409.109 (4) (n), chapter 420 and 421.202 (11) of the statutes; relating to: regulation of rental-purchase agreements and granting rule-making authority.

Analysis by the Legislative Reference Bureau

This substitute amendment creates requirements that specifically apply to rental-purchase agreements, imposes requirements on rental-purchase companies, and exempts rental-purchase companies and rental-purchase agreements from the Wisconsin Consumer Act (consumer act).

Under current law, a consumer credit transaction that is entered into for personal, family, or household purposes is generally subject to the consumer act. The consumer act grants consumers certain rights and remedies and contains notice and disclosure requirements and prohibitions relating to consumer credit transactions, including credit sales and consumer leases that have a term of more than four months. In addition, the consumer act applies to any other consumer lease, if the lessee pays or agrees to pay at least an amount that is substantially equal to the value of the leased property and if the lessee will become, or for not more than a nominal additional payment has the option to become, the owner of the leased property.

This substitute amendment defines a “rental-purchase agreement" as an agreement between a rental-purchase company and a lessee for the use of rental property if all of the following apply: 1) the rental property is of the type typically used for personal, family, or household purposes; 2) the agreement has an initial term of four months or less and is renewable with each payment after the initial term; 3) the agreement does not obligate or require the lessee to renew the agreement beyond the initial term; and 4) the agreement permits, but does not obligate, the lessee to acquire ownership of the rental property. For purposes of a rental-purchase agreement, “rental property" does not include motor vehicles. A “rental-purchase company" is defined as a person engaged in the business of entering into rental-purchase agreements in this state or acquiring rental-purchase agreements that are entered into in this state, but does not include a person only in the business of renting musical instruments used in schools.

Under the substitute amendment, every rental-purchase agreement must contain certain provisions, including the following, to the extent applicable:

1. A description of the rental property.

2. The cash price of the rental property.

3. The total amount of the rental payments necessary to acquire ownership of the property.

4. The difference between the amount described under item 3., above, and the cash price of the rental property.

5. The total amount of the initial payment due when the rental-purchase agreement is executed or the rental property is delivered.

6. The rental payment necessary to renew the rental-purchase agreement.

7. An itemized description of any other charges or fees the rental-purchase company may charge upon the occurrence of a contingency specified in the rental-purchase agreement, as well as certain other charges and fees.

8. A statement of, and information related to, the lessee's early-purchase option.

9. A statement of the lessee's responsibility in the event of theft of or damage to the rental property.

10. A statement that, with certain exceptions, the rental-purchase company is required to service the rental property and maintain it in good working condition.

11. A statement that the lessee may terminate the rental-purchase agreement at any time, without penalty, by surrendering the rental property in good repair.

12. An explanation of the lessee's right to reinstate the rental-purchase agreement.

13. A statement that the lessee will not own the rental property until the lessee exercises an early-purchase option or makes all payments necessary to acquire ownership.

All required provisions of a rental-purchase agreement must be clearly and conspicuously disclosed to the lessee in the rental-purchase agreement in at least eight-point standard type, except for certain provisions that must be disclosed in at least ten-point boldface type. The substitute amendment also requires the rental-purchase company to provide the lessee, or one lessee if there are multiple lessees under the same agreement, with a copy of the executed rental-purchase agreement. The substitute amendment also includes certain disclosure requirements for property subject to a rental-purchase agreement if the property is not displayed or offered at a physical location that derives 50 percent or more of its revenues from rental-purchase agreements.

The substitute amendment also prohibits the inclusion of certain provisions in a rental-purchase agreement. The prohibited provisions include the following: 1) a confession of judgment; 2) a provision granting the rental-purchase company permission to enter the lessee's residence or commit a breach of the peace in repossessing the rental property; 3) a waiver of any defense or counterclaim or any provision of the substitute amendment's requirements; 4) a provision requiring rental payments totaling more than the total dollar amount of all rental payments necessary to acquire ownership; and 5) a provision requiring the lessee to purchase insurance from the rental-purchase company to insure the rental property. The substitute amendment also prohibits a rental-purchase company from charging a lessee a late fee and from charging a lessee an insufficient funds fee or credit card charge-back fee greater than $15.

The substitute amendment allows a rental-purchase company and lessee to contract for, and allows the rental-purchase company to charge a fee for, a liability damage waiver, but the fee may not exceed 10 percent of the periodic rental payment. The substitute amendment imposes various requirements with respect to such a liability damage waiver and specifies that the waiver is not insurance.

Under the substitute amendment, a lessee may reinstate a rental-purchase agreement that has ended without losing any rights or options previously acquired if all of the following apply: 1) the lessee voluntarily returned or surrendered the rental property within seven days after the expiration of the rental-purchase agreement; and 2) not more than 365 days have passed after the date on which the rental-purchase agreement ended. As a condition of reinstatement, the rental-purchase company may require the payment of all past-due rental charges, the rental payment for the next term, and a reinstatement fee not to exceed $5 or $8, depending on the circumstances. Upon reinstatement, the rental-purchase company must provide the lessee with the same rental property or with substitute property of comparable quality and condition.

Under the substitute amendment, a rental-purchase company must provide the lessee with a receipt for any payment made by the lessee in cash, or upon request, for any other type of payment. With certain exceptions, upon the request of a lessee, a rental-purchase company must also provide the lessee or a person the lessee designates with a copy of the lessee's payment history. The rental-purchase company may charge a fee if a lessee or designated person requests more than one copy in any 12-month period.

The substitute amendment creates requirements for advertising rental-purchase transactions. With certain exceptions, the substitute amendment requires a rental-purchase company to display a card or tag on or next to any rental-purchase property offered for rent, indicating whether the property is new or used and indicating the cash price of the property, the amount and timing of the rental payments, and the total number and total amount of all rental payments necessary to acquire ownership of the property. In addition, a rental-purchase company must ensure that an advertisement for a rental-purchase agreement that refers to the amount of a payment for a specific item of property also states that the advertisement is for a rental-purchase agreement and that the lessee does not acquire ownership of the property if the lessee fails to make all payments necessary to acquire ownership. The advertisement must also include the total number and total dollar amount of all rental payments necessary to acquire ownership of the property.

Under the substitute amendment, a rental-purchase company that violates any of the provisions of the substitute amendment, or any applicable rule or order of the Department of Financial Institutions, pertaining to a lessee is liable to the lessee in an amount equal to the greater of the following: 1) the actual damages sustained by the lessee as a result of the violation; 2) if the action is not brought as a class action, 25 percent of the total payments necessary for the lessee to acquire ownership of the rental property, but not less than $100 nor more than $1,000; or 3) if the action is brought as a class action, the amount the court determines to be appropriate. However, there are three limitations on such an award of damages. First, a rental-purchase company is not liable for any violation if the rental-purchase company shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error, and the rental-purchase company maintained procedures reasonably adapted to avoid such an error. Second, a rental-purchase company is not liable for any violation if the rental-purchase company notifies the consumer of its noncompliance and corrects the noncompliance within 45 days. Third, in a class action or series of class actions, the total recovery by all lessees arising out of the same violation may not be more than the lesser of $500,000 or 1 percent of the net worth of the rental-purchase company. If a court awards any monetary amount of damages to a lessee, the rental-purchase company is also liable to the lessee for the costs of the action and reasonable attorney fees.

Under the substitute amendment, within 30 days after commencing business in this state, a rental-purchase company must file with DFI a notice that includes each location where the rental-purchase company conducts rental-purchase operations in this state. The rental-purchase company must thereafter annually file with DFI a list of locations where the rental-purchase company conducts rental-purchase operations in this state and must pay an annual fee based on the number of locations but not to exceed a maximum of $2,500.

With some limitations, the substitute amendment allows DFI to promulgate rules necessary to administer and enforce the requirements of the substitute amendment. Although DFI may by rule develop a model rental-purchase agreement, DFI may not require its use, although use of the form creates a conclusive presumption of compliance with certain provisions of the substitute amendment. DFI's rules may not establish requirements for rental-purchase agreements beyond those established in the substitute amendment and may not include provisions that are more restrictive than those in the substitute amendment.

Under the substitute amendment, rental-purchase agreements entered into by rental-purchase companies that have provided notice to DFI are not subject to the consumer act or to the security interest provisions of UCC Article 9.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB637-SSA2,1 Section 1 . 409.109 (4) (n) of the statutes is created to read:

SB637-SSA2,5,4 409.109 (4) (n) Rental-purchase agreements entered into by a rental-purchase company that has provided notice to the department of financial institutions under ch. 420.

SB637-SSA2,2 Section 2 . Chapter 420 of the statutes is created to read:

SB637-SSA2,5,6 CHAPTER 420

SB637-SSA2,5,7 RENTAL-PURCHASE COMPANIES

SB637-SSA2,5,8 420.01 Definitions. In this chapter:

SB637-SSA2,5,12 (1) “Cash price" means the price at which a rental-purchase company would sell rental property to the lessee of the rental property if the lessee were to pay for the rental property in full on the date on which the rental-purchase agreement is executed.

SB637-SSA2,5,14 (2) “Charge-back fee” means a charge or fee for a payment that is denied or dishonored by a credit card provider.

SB637-SSA2,5,15 (3) “Department" means the department of financial institutions.

SB637-SSA2,5,18 (4) “Displayed or offered primarily for rental-purchase,” with respect to rental property, means rental property displayed or offered at a physical location that derives 50 percent or more of its revenues from rental-purchase agreements.

SB637-SSA2,5,20 (5) “Insufficient funds fee” means a charge or fee for the return of a check, electronic funds transfer, or other payment instrument that is denied or dishonored.

SB637-SSA2,6,2 (6) “Rental property" means property rented under a rental-purchase agreement but does not include any motor vehicle, as defined in s. 340.01 (35).

SB637-SSA2,6,5 (7) “Rental-purchase agreement" means an agreement between a rental-purchase company and a lessee for the use of rental property if all of the following apply:

SB637-SSA2,6,7 (a) The rental property is of the type typically used for personal, family, or household purposes.