LRB-4219/4
RJM:kmg:km
1999 - 2000 LEGISLATURE
March 7, 2000 - Introduced by Representatives Urban, Olsen, Vrakas, Ladwig,
Huebsch, Kreibich, Hahn and Musser. Referred to Committee on Assembly
Organization.
AB849,1,3
1An Act to create 409.104 (12m), 421.202 (7m) and chapter 435 of the statutes;
2relating to: regulating rental-purchase companies and granting rule-making
3authority.
Analysis by the Legislative Reference Bureau
Under current law, a consumer credit transaction that is entered into for
personal, family or household purposes is generally subject to the Wisconsin
Consumer Act (consumer act). The consumer act grants consumers certain rights
and remedies and contains notice and disclosure requirements and prohibitions
relating to consumer credit transactions. Currently, a consumer lease that has a
term of more than four months is among the consumer credit transactions that are
subject to the consumer act. 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 bill exempts certain consumer leases from the consumer act and creates
a new chapter for the purpose of regulating these leases and the businesses that rent
property to individuals under these leases. The primary aspects of the bill are as
follows:
Scope
The bill regulates the activities of a rental-purchase company, which is defined
in the bill as any person who regularly provides the use of personal property through
rent-to-own agreements and to whom rental payments are initially payable under
a particular rent-to-own agreement. With certain exceptions, an agreement
qualifies as a rent-to-own agreement under the bill if, among other things, the
rental property is to be used primarily for personal, family or household purposes;
the agreement has an initial term of four months or less and is automatically
renewable with each payment after the initial term; the agreement does not require
the lessee to renew the agreement beyond the initial term; and the agreement
permits, but does not require, the lessee to acquire ownership of the personal
property. Under the bill, a rent-to-own agreement is not subject to any laws relating
to a security interest or lease under the Uniform Commercial Code.
Certain transactions are specifically excluded, however, from the new chapter.
These exclusions include a lease or bailment of personal property that is incidental
to the lease of real property; a credit sale, as defined in the federal consumer credit
protection laws; and a motor vehicle lease.
Administration
The bill requires every rental-purchase company doing business in this state
to register with the department of financial institutions (department) and pay a
registration fee. The bill permits the department to examine the books and records
of a rental-purchase company to determine compliance with the new chapter. The
department may suspend or revoke a rental-purchase company's registration if the
rental-purchase company violates the new chapter and the violation is not isolated
or inadvertent, if the rental-purchase company fails to pay the registration fee or if
the department becomes aware of a fact that would be grounds for the department's
refusal to honor the rental-purchase company's registration. If certain conditions
are satisfied, a rental-purchase company may appeal an order of the department
that suspends or revokes the rental-purchase company's registration.
Provisions of rent-to-own agreements
The bill requires every rent-to-own agreement to contain all of the following
provisions, to the extent applicable:
(1) A description of the rental property.
(2) The cost of purchasing the rental property on the date on which the
rent-to-own agreement is executed.
(3) A statement indicating that it may cost less to purchase the rental property
from a retailer other than the rental-purchase company.
(4) The amount of the periodic rental payment.
(5) The amount of any payment due when the rent-to-own agreement is
executed or the rental property is delivered.
(6) The total dollar amount, total number and timing of all rental payments
necessary to acquire ownership of the rental property.
(7) A statement indicating that the total dollar amount of all rental payments
necessary to acquire ownership does not include other, separately identified, charges
that the rental-purchase company may assess.
(8) A summary of the lessee's early purchase option.
(9) A description of the lessee's responsibility in the event of theft of or damage
to the rental property.
(10) A statement identifying the party that is responsible for service and
maintenance of the rental property and a statement regarding any warranty that
covers the rental property.
(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) A description of the lessee's right to reinstate the rental-purchase
agreement.
(13) A statement indicating that the lessee does not own the rental property
and will not own the property until exercising an early-purchase option or making
all rental payments necessary to acquire ownership.
The bill also prohibits certain provisions from being placed in a rent-to-own
agreement. For example, under the bill, a rent-to-own agreement may not include
a confession of judgment, a provision granting the rental-purchase company a
security interest in property other than the rental property, a provision granting the
rental-purchase company permission to enter the lessee's premises or commit a
breach of the peace in repossessing the rental property, a waiver of any defense or
counterclaim or any provision of the new chapter, a provision requiring rental
payments totaling more than the total dollar amount of all rental payments
necessary to acquire ownership or a provision requiring the purchase of insurance
from the rental-purchase company to insure the rental property. Several of these
prohibitions are similar to prohibitions contained in the consumer act.
Disclosure
All required provisions of a rent-to-own agreement must be clearly and
conspicuously disclosed to the lessee in at least eight-point standard type on the face
of the rent-to-own agreement. As under the consumer act, the bill 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 rent-to-own
agreement. In addition, upon the request of a lessee, a rental-purchase company
must provide the lessee with a receipt for any payment made by the lessee. Under
the consumer act, a payment receipt must be provided without request, unless the
method of payment itself is evidence of payment. With certain exceptions, upon the
request of a lessee, a rental-purchase company must also provide the lessee or a
person designated by the lessee with a copy of the lessee's payment history.
Related transactions
Under the bill, a rental-purchase company must offer an early-purchase
option to a lessee and may offer a liability waiver to a lessee. The terms of a liability
waiver and the fact that the lessee is not required to purchase the waiver must be
disclosed to the lessee in writing. The fee for the liability waiver may not equal more
than 10% of the rental payment due under the rent-to-own agreement.
Marketing activities
With certain exceptions, the bill requires a rental-purchase company to display
a card or tag on or next to any property offered for rent, indicating whether the
property is new or used and indicating the cash price of the property, the amount of
the rental payment and the term over which the rental payment must be made and
the total number and total dollar 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 rent-to-own agreement that refers to the amount of a
payment for any property, and to the right to acquire ownership of that property, also
states that the advertisement is for a rent-to-own agreement and that the lessee
does not acquire ownership of the property if the lessee fails to make all rental
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. The provisions relating to advertising, however, do not
apply to an in-store display or an advertisement published in the yellow pages or
similar business directory. The consumer act does not contain a similar provision
regulating the manner in which consumer credit is marketed, although the
consumer act does prohibit false, misleading and deceptive advertising of certain
products.
Similar to the consumer act, the bill prohibits a rental-purchase company from
inducing an individual to enter into a rent-to-own agreement by giving or offering
to give the individual a rebate or discount in consideration of the individual's giving
the rental-purchase company the names of prospective lessees, if the earning of the
rebate or discount is contingent upon the occurrence of any event that takes place
after the time that the individual enters into the rent-to-own agreement. The bill,
however, specifically allows a rental-purchase company to give or offer to give a
rebate or discount to a current lessee, in consideration of the lessee's giving the
rental-purchase company the names of prospective lessees.
Right to reduced amount of rental payments and right to reinstatement
Under the bill, if a lessee who has paid more than 50% of the total dollar amount
of rental payments necessary to acquire ownership provides the rental-purchase
company with reasonable evidence that the lessee's monthly income is reduced by at
least 25% due to certain specified events, the rental-purchase company must reduce
the amount of each rental payment by the same percentage that the lessee's monthly
income is reduced or by 50%, whichever is less. The events that may trigger a
reduced rental payment are pregnancy, disability, an involuntary job loss or an
involuntary reduction in the amount of hours worked or wages earned by the lessee.
The reduced rental payment must remain in effect until the lessee's monthly income
is no longer reduced, except that the amount of each rental payment may be adjusted
accordingly as the lessee's monthly income increases. A rental-purchase company
may reasonably require continuing evidence of reduced monthly income. In order to
compensate for the reduced amount of the rental payments, a rental-purchase
company may increase the total number of rental payments necessary to acquire
ownership of the rental property. A rental-purchase company may not, however,
increase the total dollar amount of rental payments necessary to acquire ownership,
or the amount of any single rental payment, to greater than the amount initially
disclosed in the rent-to-own agreement. The consumer act does not contain any
similar provisions.
The bill also grants a lessee the right to reinstate a terminated rent-to-own
agreement, as long as the lessee returned the rental property within five days after
termination and not more than 21 days have passed since the return date or, if the
lessee paid at least two-thirds of the total number of rental payments necessary to
acquire ownership, not more than 45 days have passed since the return date. A
rental-purchase company may require the payment of a $5 reinstatement fee, all
past-due rental charges and any applicable late fees as a condition of reinstatement.
Upon reinstatement, a rental-purchase company must provide a lessee with the
same rental property, if available and in the same condition as when it was returned,
or with comparable quality rental property.
Default and right to cure
The bill establishes a notice procedure similar to that contained in the
consumer act that a rental-purchase company may follow if a lessee defaults under
a rent-to-own agreement. The bill defines "default" as a material breach of the
rent-to-own agreement or a failure to return rental property within seven days after
the expiration of the term for which the last payment was made. Before giving a
lessee a notice of default, a rental-purchase company may first request the lessee to
voluntarily surrender the applicable rental property. Under the bill, as under the
consumer act, with certain exceptions, in order to file an action against a lessee
arising out of the lessee's default, a rental-purchase company must give to the lessee
a written notice of the default and of the lessee's right, within 15 days after receiving
the notice, to cure the default. Under the bill, the notice must specify, among other
things, the actions required to cure the default, although, unlike the consumer act,
the bill does not indicate what actions are required or permitted. As in the consumer
act, if the lessee received a similar notice and cured the applicable default at least
twice during the year preceding the current default, the bill permits a
rental-purchase company to file an action without providing the written notice of
default and right to cure as a condition of filing an action.
Collections practices
Under the bill, a rental-purchase company may not do any of the following in
attempting to recover rental property or collect amounts owed under a rent-to-own
agreement:
(1) Use or threaten to use force or violence.
(2) Disclose or threaten to disclose false information relating to the
creditworthiness of the lessee.
(3) Disclose or threaten to disclose a debt that is disputed by the lessee without
disclosing the fact that the debt is disputed.
(4) Harass or threaten the lessee or a relative of the lessee.
(5) Use obscene language in communicating with the lessee or a relative of the
lessee.
(6) Threaten to enforce a right with knowledge that the right does not exist.
