AB954: Bill Text

LRB-5166/1

TNF&KSH:kmg:jlb

1995 - 1996 LEGISLATURE

1995 Assembly BILL 954

February 26, 1996 - Introduced by Representatives Freese, Green, Gunderson, Kaufert, F. Lasee, Meyer, Travis, Vrakas, Albers, Ainsworth, Foti, Gard, Hutchison, Jensen, Kreibich, Kreuser, Ladwig, Lehman, Nass, Olsen, Otte and Seratti, cosponsored by Senators Rude, Shibilski, Darling, Grobschmidt, Huelsman, Petak, C. Potter, Welch, Wineke, Breske, Clausing, Cowles, Drzewiecki, Farrow, George, Risser, Schultz and Zien. Referred to Committee on Financial Institutions.

AB954,2,3 An Act to repeal 218.01 (6) (b) 1. to 8., 218.01 (6) (bm) and (bn), 218.01 (6) (j) and 422.201 (4); to renumber 218.01 (2) (bb); to renumber and amend 218.01 (6) (b) (intro.) and 422.201 (12m); to amend 218.01 (1) (n) 1. and 2., 218.01 (1) (p), 218.01 (1) (v), 218.01 (1a), 218.01 (2) (b), 218.01 (2) (d) 8. b., 218.01 (2) (dr), 218.01 (2) (h) 2., 218.01 (2) (k) 3., 218.01 (2) (k) 5., 218.01 (3) (a) 5., 218.01 (3) (a) 6., 218.01 (3) (a) 8., 218.01 (3) (a) 9., 218.01 (3) (a) 10., 218.01 (3) (a) 13., 218.01 (3) (a) 14., 218.01 (3) (a) 18., 218.01 (3) (a) 19., 218.01 (3) (a) 20., 218.01 (3) (a) 21., 218.01 (3) (a) 25., 218.01 (3) (a) 29., 218.01 (3) (bf) 1., 218.01 (5) (a), 218.01 (6) (bp), 218.01 (6) (d), 218.01 (7b), 218.01 (9) (b), 344.51 (title), 344.51 (1), 344.51 (2), 421.103 (2), 421.201 (5), 421.202 (6), 421.202 (7), 421.202 (8), 421.301 (20) (intro.), 421.301 (35), 422.201 (7) (intro.) and (a), 422.201 (8), (9) and (12), 422.207 (1), 422.207 (3), 422.208, 422.303 (3) (intro.), 422.413 (1), 422.417 (2), 424.201 (1) and (2), 425.106 (1) (intro.) and 425.107 (4); and to create 218.01 (1) (ar), 218.01 (1) (ct), 218.01 (1) (ji), 218.01 (1) (jj), 218.01 (1) (jk), 218.01 (1) (o) 5., 218.01 (1) (pw), 218.01 (1) (qm), 218.01 (2) (bb) 2., 218.01 (6x), 421.103 (5), 421.202 (9), 421.301 (25m), 421.301 (43m), 422.201 (12m) (a), 422.202 (1) (e), 422.303 (3m), 424.201 (3) and chapter 429 of the statutes; relating to: the leasing of motor vehicles, motor vehicle consumer leases, prelease agreements, financial responsibility for domestic rented or leased vehicles and providing a penalty.

Analysis by the Legislative Reference Bureau

This bill makes a number of changes to state law relating to the leasing of motor vehicles by consumers.

Motor vehicle consumer leases

The bill defines a motor vehicle consumer lease as a lease with a total lease obligation not exceeding $25,000 for the right of possession and use of a motor vehicle for a period of more than 4 months by a consumer primarily for personal, family, household or agricultural purposes. The consumer lease may permit, but does not require, the consumer to become the owner of the motor vehicle at the end of the lease period.

The changes to state law relating to motor vehicle consumer leases may be cited as the Wisconsin motor vehicle consumer lease act and include all of the following:

1. The bill requires all motor vehicle consumer leases to be in writing and signed by the lessee (consumer) and the lessor (the person leasing the motor vehicle to the consumer). The bill requires that a lessor make certain disclosures to a consumer before entering into the motor vehicle consumer lease. The disclosures must include all of the following information: a) that the consumer has no ownership rights in the vehicle unless the lease permits the consumer to purchase the vehicle upon lease termination and the consumer exercises this option and purchases the vehicle; b) all fees and charges applicable to the lease, including that there may be a charge for early termination of the lease; c) if the lease does not provide any liability insurance for bodily injury or property damage with respect to the leased vehicle, notice that no such liability insurance is included in the lease; d) the "capitalized cost" under the lease and an explanation of the term (basically, the price of the vehicle used for calculating the periodic lease payments); e) any "capitalized cost reduction" under the lease (basically, any trade-in allowance plus any downpayment); f) "the adjusted capitalized cost" under the lease and an explanation of the term (capitalized cost minus the capitalized cost reduction); g) the "residual value" of the vehicle (basically, the estimated fair market value at lease expiration); h) the standards to be used in determining the excess wear and damage to the leased vehicle for which the consumer may be held liable; i) if applicable, that the lease contains a separate charge for waiver of any or all of the "gap amount" and that, in lieu of this charge, the consumer may purchase insurance insuring the consumer for any or all of the gap amount; and j) any other disclosure required by the federal consumer leasing act. The bill defines "gap amount" to mean the difference between the amount in the lease to be paid by the consumer to the lessor in the event of total loss or destruction of the vehicle and any moneys received by the lessor with respect to the vehicle from insurance proceeds or any other person.

If the consumer lease is renegotiated or extended for more than 6 months, these disclosures must be made at the time of the renegotiation or extension.

2. A motor vehicle consumer lease may not contain a penalty, for nonacceptance of the vehicle by the consumer, that is greater than 5% of the capitalized cost of the vehicle.

3. The bill permits a consumer to purchase a liability insurance policy for bodily injury and property damage with respect to operation of the leased vehicle from an insurer acceptable to the lessor. In lieu of such purchase, the motor vehicle consumer lease may include a charge payable to the lessor by the consumer for an insurance premium in connection with an applicable liability insurance policy.

4. The bill permits the consumer to terminate the motor vehicle consumer lease at any time. The bill establishes requirements that govern the calculation of the consumer's obligations to the lessor upon early termination of the lease. A lessor, upon request of a consumer, is required to prepare and give to the consumer a written statement of the projected early termination obligations of the consumer. No charge may be imposed or collected for the first statement in any 12-month period, but a reasonable charge, not exceeding $20 per statement, may be imposed and collected for each subsequent statement in a 12-month period.

5. The motor vehicle consumer lease may provide that the consumer is responsible for the gap amount and a consumer may, but is not required to, obtain gap protection from the lessor. "Gap protection" is defined to mean a charge under the consumer lease whereby the lessor agrees to waive the gap amount or have a person other than the consumer be liable for the gap amount. A lessor's waiver of holding the consumer liable for the gap amount may be conditioned upon receipt of applicable insurance proceeds or of other payments from the consumer.

6. The bill establishes a mechanism for the assessment of excess wear and damage to the leased vehicle for which a consumer may be obligated to pay an excess wear and damage charge. No such charge may be imposed or collected if the consumer exercises an option to purchase the vehicle upon lease termination.

The bill specifies the conditions and disclosures required for an inspection of the leased vehicle for excess wear and damage. In lieu of an inspection after termination of the lease, the motor vehicle consumer lease may require a pretermination inspection, which shall be conducted not earlier than 15 days before the termination date set forth in the lease.

After a pretermination inspection or inspection after termination of the lease, the consumer may, under specified conditions and at his or her own expense, obtain a counter-inspection for excess wear and damage by a mutually agreed upon inspector. With limited exceptions, the counter-inspection is conclusive as to the consumer's excess wear and damage obligations under the lease, except for any excess wear and damage that occurred after the counter-inspection or for excess wear and damage that was obscured or concealed. A consumer does not default on a motor vehicle consumer lease for failing to obtain a pretermination inspection or counter-inspection.

7. No motor vehicle consumer lease creates a security interest in any real or personal property of the consumer, except for any security deposit, advance lease payment or other prepayment; any right of setoff; or in any security interest in the leased vehicle or in any proceeds, refunds for cancellation or any other rights of the consumer with respect to the consumer lease.

8. The bill contains provisions governing the refund of an advance payment or the return of a trade-in vehicle if the consumer lease application is not approved.

9. The bill provides that any person who violates any provision of the Wisconsin motor vehicle consumer lease act is liable to the consumer. The amount of the liability is $100 and actual damages sustained by the consumer as a result of the violation, including any incidental and consequential damages.

This liability provision does not apply to failure of a lessor to substantially comply with the provisions of the act relating to excess wear and damage, in which case the exclusive remedy is a waiver of the lessor's right to collect all contested excess wear and damage charges from the consumer.

Prelease agreement

The bill governs prelease agreements. A "prelease agreement" is defined to mean an agreement to enter into a motor vehicle consumer lease. The agreement must be in writing and signed by both parties.

A prospective lessor must make certain disclosures to the prospective consumer before entering into a prelease agreement. These disclosures must include most of the disclosures pertaining to a motor vehicle consumer lease and a statement that includes a notice that the prelease agreement is binding and obligates the consumer to enter into a motor vehicle consumer lease with the prospective lessor when the vehicle to be leased is available and ready for delivery.

The bill permits a prospective lessor to cancel the prelease agreement within 10 business days of entering into the agreement if the prospective consumer is unable to obtain credit approval of an applicable sales finance company, and the prelease agreement contains notice to the prospective consumer of this cancellation right.

A prelease agreement may not contain a penalty, for nonacceptance of the vehicle by the prospective consumer, that is greater than 5% of the capitalized cost of the vehicle.

Other provisions

Other provisions of the bill make changes to state law relating to the leasing of motor vehicles. These changes include all of the following:

1. Under current law, a person may not rent or lease a motor vehicle unless a bond or liability insurance policy is filed with the department of transportation (DOT). The bill provides that the bondsman or liability insurer (and not the renter or lessor of the vehicle) is liable for damages caused by the negligent operation of the leased vehicle. If no liability policy is filed with DOT, the renter or lessor may be held personally liable for damages, but only in an amount up to the limits that apply whenever proof of financial responsibility is required. These limits are $25,000 for injury or death to one person in any one accident, $50,000 for injury or death to 2 or more persons and $10,000 for damage to property. The bill does not affect the right or ability to recover damages from the person whose negligent operation of the rented or leased vehicle caused the injury or damage.

2. The bill extends the definitions of "motor vehicle dealer", "motor vehicle salesperson" and "sales finance company" to cover motor vehicle consumer leases and the leasing of motor vehicles. In addition, various provisions relating to the denial, suspension or revocation of a license of a motor vehicle dealer, motor vehicle salesperson or sales finance company extend to prelease agreements and the leasing of motor vehicles.

3. The bill requires a sales finance company to provide and maintain in force a bond or irrevocable letter of credit of not less than $25,000. The bond or credit must be executed in the name of the state for the benefit of the state and any person who sustains a loss because of an act of the sales finance company that would constitute grounds for the suspension or revocation of the sales finance company's license.

4. Under current law, a minor must have the advance consent of a custodial parent of the minor or, if neither parent has custody, the person having custody of the minor, before the minor may purchase a motor vehicle. A statement signed by the parent or other custodian of the minor must be submitted to the seller of the motor vehicle. Any person who sells a motor vehicle to a minor with knowledge of this fact without obtaining the statement may be fined not more than $200 or imprisoned for not more than 6 months or both.

The bill extends this requirement and penalty for a violation to motor vehicle consumer leases.

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:

AB954, s. 1 Section 1. 218.01 (1) (ar) of the statutes is created to read:

AB954,5,2 218.01 (1) (ar) "Capitalized cost" has the meaning given in s. 429.104 (5).

AB954, s. 2 Section 2. 218.01 (1) (ct) of the statutes is created to read:

AB954,5,4 218.01 (1) (ct) "Consumer lease" has the meaning given in s. 429.104 (9).

AB954, s. 3 Section 3. 218.01 (1) (ji) of the statutes is created to read:

AB954,5,7 218.01 (1) (ji) "Lease" or "leasing" means, with respect to a lessor, to enter into or offer to enter into a consumer lease with a lessee.

AB954, s. 4 Section 4. 218.01 (1) (jj) of the statutes is created to read:

AB954,5,9 218.01 (1) (jj) "Lessee" has the meaning given in s. 429.104 (17).

AB954, s. 5 Section 5. 218.01 (1) (jk) of the statutes is created to read:

AB954,6,2 218.01 (1) (jk) "Lessor" means a person who leases a motor vehicle to a lessee under a consumer lease, but does not include an assignee of a consumer lease.

AB954, s. 6 Section 6. 218.01 (1) (n) 1. and 2. of the statutes are amended to read: