AB715: Bill Text

Analysis by the Legislative Reference Bureau

This bill regulates lease-purchase, or rent-to-own, agreements. The bill defines a lease-purchase agreement as an agreement for the use of personal property (other than an automobile) by a consumer for personal or household purposes. A lease-purchase agreement has an initial term of 4 months or less, is automatically renewable with additional periodic payments and permits, but does not require, the consumer to become the owner of the personal property at the end of the agreement.

Licensing requirements

Under the bill, a person may not engage in business as a lease-purchase company without first obtaining a license from the division of banking (division). Each license shall state the address of the office from which business is to be conducted and the name of the lease-purchase company. A separate license is required for each office from or at which lease-purchase agreements are consummated. The division may issue more than one license to a lease-purchase company upon compliance with the licensing requirements as to each license. The license expires on December 31 annually, without regard to when it was issued. The bill requires a lease-purchase company to pay a fee of $300 with the initial application and a fee of $300 annually thereafter. The license must be posted in the office or store of the lease-purchase company and may be assigned or transferred after filing an amended application and bond with the division and after payment of a $25 license transfer fee.

The bill requires a lease-purchase company to provide and maintain in force a continuing bond of not less than $5,000. The bond must be executed in the name of the state for the benefit of the state and any person who sustains a loss because of a violation of the provisions of this bill by a lease-purchase company. If, as a result of an examination of the books and records of the company, the division determines the bond is insufficient, the division may request any additional bond amount sufficient to protect the public's interests.

The division may, after notice and reasonable opportunity for a hearing, suspend or revoke a lease-purchase company license if the company has violated requirements under the bill and the division determines that the violation justifies the suspension or revocation of the license, if the division becomes aware that any fact or condition exists which, if it had existed at the time of the original license application, would have warranted a refusal to issue the license, or if the lease-purchase company has failed to pay the annual license fee or maintain the required bond. The bill provides for an appeal to the consumer credit review board of an order suspending or revoking a license.

The bill requires a lease-purchase company to keep such books and records in the place of business as in the opinion of the division will enable the division to determine compliance with the provisions of the bill. The records relating to a lease-purchase agreement must be kept for at least 2 years after the lease-purchase agreement is terminated. The bill permits the division to examine the books and records of any lease-purchase company, and the costs of the examination must be paid by the lease-purchase company within 30 days after receiving a bill for the examination fees from the division.

Disclosure and contract requirements

Under the bill, a lease-purchase company is required to make various written disclosures to the consumer before entering into a lease-purchase agreement. The disclosures include:

1. The total number of periodic payments and the total dollar amount of those payments necessary to acquire ownership of the personal property subject to the agreement.

2. The consumer's right to purchase the property, including the price if the consumer buys the property under an early-purchase option.

3. The consumer's right to terminate the lease-purchase agreement and right to reinstate the agreement if the consumer voluntarily ends the agreement or fails to make a payment.

4. All fees or charges applicable to the lease-purchase agreement.

Under the bill, a lease-purchase company is required to disseminate to consumers copies of a consumer education pamphlet prepared and provided by the division. The pamphlet is required to include information on the consumer's right to reinstatement created under this bill, information assisting the consumer in interpreting the disclosures required under this bill, information on filing with the division complaints regarding possible violations of the bill and information on the civil liability of lease-purchase companies to consumers for violations of the provisions of this bill.

A lease-purchase agreement may not include:

1. A confession of judgment, or a written authority by the consumer that the lease-purchase company may have a judgment entered against the consumer if the consumer fails to make a payment required under the agreement.

2. A wage assignment.

3. A waiver of any claim or defense.

4. A security interest in any property other than the personal property that is the subject of the agreement.

5. A provision authorizing "self-help" repossession of the property that is the subject of the agreement.

Under the bill, if a consumer fails to make a timely periodic payment the consumer may reinstate the lease-purchase agreement without losing any rights under the agreement by paying the periodic payment and any late fee or other applicable charges. This payment must be made within 5 days after the date on which the payment was due if the consumer pays on a monthly basis, or within 2 days if the consumer pays on a more frequent instalment basis. In addition, if the consumer voluntarily surrenders the personal property, the consumer has the right to reinstate the lease-purchase agreement within 21 days or 45 days, depending on the total dollar amount of payments that the consumer made under the agreement before surrendering the property.

Other provisions

The bill also requires an advertisement for a lease-purchase agreement to include the number of payments needed to acquire ownership and to describe the advertised transaction as a lease-purchase agreement if the advertisement refers to the dollar amount of a periodic payment and refers to the consumer's right to acquire ownership of the advertised item.

Under the bill, a lease-purchase company that violates this chapter is liable to a consumer damaged as a result of that violation. In the case of a class action, the amount of the liability is determined by the court, with no minimum recovery as to each member of the class, plus the costs of the action and reasonable attorney fees. The bill limits the total recovery in any class action or series of class actions arising out of the same violation to $500,000 or 1% of the net worth of the lease-purchase company, whichever is less, plus the costs of the action and reasonable attorney fees. For other actions, liability is equal to the costs of the action and reasonable attorney fees plus the greater of: 1) the actual damages sustained by the consumer as a result of the violation; or 2) 25% of the total payments necessary to acquire ownership of the personal property leased under the lease-purchase agreement, but not less than $100 nor more than $1,000. Multiple violations in connection with a single lease-purchase agreement are treated as a single violation. The bill also contains provisions addressing liability when more than one lease-purchase company or more than one consumer is a party to a lease-purchase agreement.

The bill explicitly exempts a lease-purchase agreement from coverage under the uniform commercial code leases and secured transactions chapters and the Wisconsin consumer act. Presently, the Wisconsin consumer act applies to lease-purchase agreements under the holding in Palacios v. ABC TV and Stereo Rental, 123 Wis. 2d 79 (Ct. App. 1985).

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

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

AB715, s. 1 Section 1. 409.104 (12m) of the statutes is created to read:

AB715,4,3 409.104 (12m) To a transfer of an interest under a lease-purchase agreement under ch. 430; or

AB715, s. 2 Section 2. 421.202 (7) of the statutes is amended to read:

AB715,4,5 421.202 (7) Transactions subject to ch. 428; or

AB715, s. 3 Section 3. 421.202 (7m) of the statutes is created to read:

AB715,4,7 421.202 (7m) A lease-purchase agreement under ch. 430; or

AB715, s. 4 Section 4. 421.301 (9) of the statutes is amended to read:

AB715,4,18 421.301 (9) "Consumer credit sale" means a sale of goods, services or an interest in land to a customer on credit where the debt is payable in instalments or a finance charge is imposed and includes any agreement in the form of a bailment of goods or lease of goods or real property if the bailee or lessee pays or agrees to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the goods or real property involved and it is agreed that the bailee or lessee will become, or for no other or a nominal consideration has the option to become, the owner of the goods or real property upon full compliance with the terms of the agreement. "Consumer credit sale" does not include a lease-purchase agreement under ch. 430.

AB715, s. 5 Section 5. 421.301 (10) of the statutes is amended to read:

AB715,5,6 421.301 (10) "Consumer credit transaction" means a consumer transaction between a merchant and a customer in which real or personal property, services or money is acquired on credit and the customer's obligation is payable in instalments or for which credit a finance charge is or may be imposed, whether such transaction is pursuant to an open-end credit plan or is a transaction involving other than open-end credit. The term includes consumer credit sales, consumer loans, consumer leases and transactions pursuant to open-end credit plans. "Consumer credit transaction" does not include a lease-purchase agreement under ch. 430.

AB715, s. 6 Section 6. 421.301 (11) of the statutes is amended to read:

AB715,5,10 421.301 (11) "Consumer lease" means a lease of goods which a merchant makes to a customer for a term exceeding 4 months. "Consumer lease" does not include a lease-purchase agreement under ch. 430.

AB715, s. 7 Section 7. 423.201 of the statutes is amended to read:

AB715,5,25 423.201 Definition. "Consumer approval transaction" means a consumer transaction other than a sale or lease or listing for sale of real property, a sale of goods at auction, the sale or lease of goods for an agricultural purpose or a loan made to finance the sale of goods at auction for an agricultural purpose 1) which is initiated by face-to-face solicitation away from a regular place of business of the merchant or by mail or telephone solicitation directed to the particular customer and 2) which is consummated or in which the customer's offer to contract or other writing evidencing the transaction is received by the merchant away from a regular place of business of the merchant and involves the extension of credit or is a cash transaction in which the amount the customer pays exceeds $25. "Consumer approval transaction" shall in no event include a catalog sale which is not accompanied by any other solicitation or a consumer loan conducted and consummated entirely by mail. "Consumer approval transaction" does not include a lease-purchase agreement under ch. 430.

AB715, s. 8 Section 8. Chapter 430 of the statutes is created to read:

AB715,6,3 Chapter 430 Lease-purchase agreements

AB715,6,4 430.101 Definitions. In this chapter:

AB715,6,6 (1) "Consumer" means a natural person who leases personal property under a lease-purchase agreement.

AB715,6,8 (2) "Consummation" means the time when a consumer becomes contractually obligated on a lease-purchase agreement.

AB715,6,9 (3) "Division" means the division of banking.

AB715,6,11 (4) "Lease-purchase agreement" means an agreement that satisfies all of the conditions under s. 430.103.

AB715,6,13 (5) "Lease-purchase company" means a person who originates or acquires, or attempts to originate or acquire, lease-purchase agreements initiated in this state.

AB715,6,16 430.102 Scope. (1) Inapplicability of other laws. Lease-purchase agreements that comply with this chapter are not governed by the laws relating to any of the following:

AB715,6,17 (a) A consumer approval transaction, as defined in s. 423.201.

AB715,6,18 (b) A consumer credit sale, as defined in s. 421.301 (9).

AB715,6,19 (c) A consumer credit transaction, as defined in s. 421.301 (10).

AB715,6,20 (d) A consumer lease, as defined in s. 421.301 (11).

AB715,6,21 (e) A security interest, as defined in s. 401.201 (37).

AB715,6,22 (f) A lease, as defined in s. 411.103 (1) (j).

AB715,6,23 (2) Exclusions. This chapter does not apply to any of the following:

AB715,7,2 (a) A lease agreement that permits the consumer to become the owner of the property and that is primarily for business, commercial or agricultural purposes, or that is made with a governmental body, as defined in s. 895.52 (1) (a), or with an organization.

AB715,7,3 (b) A lease of a safe deposit box.

AB715,7,6 (c) A lease or bailment of personal property which is incidental to the lease of real property, and which provides that the consumer has no option to purchase the leased property.

AB715,7,7 (d) A lease of an automobile.

AB715,7,9 (e) A lease, bailment or agreement that is a credit sale, as defined in 15 USC 1602 (g).

AB715,7,10 (f) A lease or bailment that is a consumer lease, as defined in 15 USC 1667 (1).

AB715,7,13 430.103 Lease-purchase conditions. Except as provided in s. 430.102 (2), an agreement for the use of personal property by a natural person is a lease-purchase agreement if all of the following conditions are met:

AB715,7,15 (1) The personal property is to be used primarily for personal, family or household purposes.

AB715,7,17 (2) The agreement has an initial term of 4 months or less and is automatically renewable with each payment after the initial term.

AB715,7,19 (3) The agreement does not obligate or require the consumer to continue leasing or using the property beyond the initial term.

AB715,7,21 (4) The agreement permits the consumer to become the owner of the personal property.

AB715,8,5 430.201 Licensing of lease-purchase companies. (1) License requirements. No person may engage in business as a lease-purchase company without first obtaining a license from the division. Each license shall state the address of the office from which business is to be conducted and the name of the lease-purchase company. A separate license is required for each office from or at which lease-purchase agreements are consummated. The division may issue more than one license to a lease-purchase company upon compliance with this section as to each license. The license shall expire December 31 annually, without regard to when it was issued.

AB715,8,8 (2) Applications. Application for a license under sub. (1) shall be made to the division in writing, under oath, on a form prescribed by the division. The application shall contain all of the following information:

AB715,8,11 (a) The name of the lease-purchase company and, if the lease-purchase company is doing business under an assumed name, the name in which business is transacted.

AB715,8,13 (b) The address and telephone number of the office or store at which lease-purchase agreements are made.

AB715,8,15 (c) The address and telephone number of the lease-purchase company's principal office, if different than indicated under par. (b).

AB715,8,16 (d) The name, personal address and telephone number of the following:

AB715,8,17 1. If the lease-purchase company is a sole proprietorship, the owner.

AB715,8,18 2. If the lease-purchase company is a partnership, each partner.

AB715,8,19 3. If the lease-purchase company is a corporation or association, each officer.

AB715,8,21 4. If the lease-purchase company is a limited liability company, each manager and each member.

AB715,8,23 (e) The name and address of the registered agent upon whom service of process may be made in this state.

AB715,8,25 (3) Fees. (a) A lease-purchase company licensed sub. (1) shall pay to the division all of the following license fees:

AB715,9,1 1. With the initial license application, $300.

AB715,9,3 2. On or before December 1 annually after the year in which the initial license application fee was paid, $300.

AB715,9,6 (b) At the same time a lease-purchase company pays a fee under par. (a), the lease-purchase company shall file with the division the bond required under sub. (4) and such other relevant information as the division may require.

AB715,9,15 (4) Bond requirements. A licensee or an applicant for a license under this section shall provide and maintain in force a continuing bond of not less than $5,000. The bond shall be executed in the name of the state for the benefit of the state and any person who sustains a loss because of a violation of this chapter by a lease-purchase company. If, as a result of an examination under s. 430.202, the division determines that the bond is insufficient, the division may request any additional bond amount considered sufficient to protect the public's interests. The additional bond amount shall be provided within 10 days after the request by the division.

AB715,9,17 (5) Posting of license. The license shall be kept conspicuously posted in the office or store of the licensee.

AB715,9,20 (6) Assignment or transfer of license. The license may be transferred or assigned after filing an amended application and bond with the division and after payment of a $25 license transfer fee.

AB715,9,24 430.202 Books and records; examination. (1) Books and records. A lease-purchase company shall keep such books and records in the place of business as in the opinion of the division will enable the division to determine whether the lease-purchase company is in compliance with this chapter. The lease-purchase company shall preserve such records for at least 2 years after the date on which the lease-purchase agreement is terminated.