SB396: Bill Text

LRB-3442/1

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2001 - 2002 LEGISLATURE

2001 Senate BILL 396

January 24, 2002 - Introduced by Senators Burke, Erpenbach, Hansen, Risser, Rosenzweig and Wirch, cosponsored by Representatives Richards, Berceau, Huber, J. Lehman, Miller, Musser, Pocan, Ryba, Schneider, Turner and Young. Referred to Committee on Judiciary, Consumer Affairs, and Campaign Finance Reform.

SB396,2,7 An Act to repeal 100.18 (12) and 426.110 (3); to renumber 423.301 and 610.70 (5); to renumber and amend 138.052 (9), 411.103 (1) (e), 421.202 (6) and 429.104 (9); to amend 51.30 (4) (a), 100.18 (11) (b) 2., 100.26 (4), 138.09 (3) (e) 1. a., 146.82 (2) (b), 422.201 (3), 423.302, 425.302 (1) (a), 425.303 (1), 425.304 (1), 426.104 (4) (a) and (b), 426.110 (14), 428.101 (3), 788.01 and 788.015; to repeal and recreate 138.09 (title); and to create 100.18 (10v), 138.052 (9) (b), 138.14, 224.15, 411.103 (1) (e) 1., 411.103 (1) (e) 2., 421.202 (6) (b), 422.308 (2g), 422.308 (2r), 422.422, 423.301 (1) (title), 423.301 (2), 423.301 (3), 428.101 (4), 429.104 (9) (a) 1., 429.104 (9) (a) 2., 429.104 (9) (b) and 610.70 (5) (bc) of the statutes; relating to: the scope of the Wisconsin Consumer Act, the Wisconsin Motor Vehicle Consumer Lease Act, and the law with regard to fraudulent representations and deceptive advertising; liability and required disclosures under the Wisconsin Consumer Act; liability under the Wisconsin Motor Vehicle Consumer Lease Act; the authority of licensed lenders; the regulation of certain motor vehicle dealers, salespersons, and sales finance companies; the regulation of consumer leases under the Uniform Commercial Code; arbitration of controversies arising out of consumer credit transactions; establishing a penalty for unauthorized disclosure of personal medical information by an insurer; deceptive preapproval of open-end credit plans; payday loan providers; liability for unauthorized, remote access to certain depository accounts; and providing a penalty.

Analysis by the Legislative Reference Bureau

Transactions of $50,000 or less

Under current law, a transaction in which a consumer is granted credit in an amount of $25,000 or less and which is entered into for personal, family, or household purposes (consumer credit transaction) is generally subject to the Wisconsin Consumer Act (consumer act). In addition, certain motor vehicle leases that are entered into by a consumer for personal, family, household, or agricultural purposes are subject to the Wisconsin Motor Vehicle Consumer Lease Act (motor vehicle consumer lease act). The consumer act and the motor vehicle consumer lease act provide obligations, remedies, and penalties that current law generally does not require for other transactions. Currently, the consumer act and the motor vehicle consumer lease act apply only to transactions that are in an amount of $25,000 or less.

This bill expands the coverage of the consumer act and the motor vehicle consumer lease act to include transactions that are in an amount of $50,000 or less.

With certain exceptions, the auto dealer statutes currently regulate the activities of motor vehicle dealers, motor vehicle salespersons, and sales finance companies that, among other things, engage in business involving certain motor vehicle consumer leases that are in an amount of $25,000 or less. For example, current law requires these businesses and individuals to obtain a license and imposes requirements relating to agreements entered into before the execution of a motor vehicle lease.

This bill expands the scope of the auto dealer statutes to regulate the activities of motor vehicle dealers, motor vehicle salespersons, and sales finance companies that engage in business involving certain motor vehicle consumer leases that are in an amount of $50,000 or less.

Wisconsin's version of the Uniform Commercial Code treats the parties to a commercial lease differently from the parties to a lease that is entered into for personal, family, or household purposes and that is in an amount of $25,000 or less (consumer lease). For example, a lessee under a consumer lease may recover attorney fees if a court holds that a portion of the lease resulted from the unconscionable conduct of the lessor. This bill expands the applicability of these Uniform Commercial Code provisions to cover a consumer lease that is in an amount of $50,000 or less.

Liability under the consumer act

Current law provides a safe harbor from any penalty under the consumer act or the motor vehicle consumer lease act for any person who acts in conformity with any rule or order of the department of financial institutions (DFI) or any written opinion, interpretation, or statement of DFI. Current law also provides a safe harbor for any person who submits a practice or procedure to DFI in writing that DFI either approves in writing or does not disapprove within 60 days. Currently, these safe harbors apply even if the applicable rule, order, opinion, interpretation, or statement, after the act in question, is amended, rescinded, or determined by judicial or other authority to be invalid.

This bill limits the application of these safe harbors. Under this bill, these safe harbors apply only in the context of an administrative proceeding conducted by DFI or the official or agency having supervisory authority over the person alleged to have committed the violation.

Current law provides different penalties for different violations of the consumer act. For many violations, the merchant who commits the violation is liable to the affected customer in an amount equal to the greater of twice the amount of the finance charge assessed in the transaction, up to a maximum of $1,000, or the customer's actual damages. Under this bill, the merchant is liable for these violations in an amount equal to the greater of twice the amount of the finance charge assessed in the transaction, up to a maximum of $5,000, or the customer's actual damages. For other violations, the merchant is currently liable for actual damages, plus $25 or $100, depending upon the violation. This bill increases these dollar amounts to $500 and $1,000.

Currently, with certain exceptions, the secretary of financial institutions or any customer affected by certain false, misleading, or unconscionable violations of the consumer act or the federal Consumer Credit Protection Act may file a class action lawsuit against the violating merchant for the actual damages resulting from the violations, reasonable attorney fees, and any other relief to which the members of the class are entitled under the consumer act generally. In addition, for certain willful and knowing violations, the merchant may also be liable for up to $100,000 in penalties. This bill increases to $500,000 the maximum amount of penalties available under this type of class action lawsuit.

Currently, a person may maintain a class action for certain violations of the consumer act only if, at least 30 days prior to the alleged violation, an appellate court or applicable rule of DFI has specified that the particular conduct constitutes a violation. This bill repeals this provision.

The changes to the penalties and class action provisions provided under this bill first apply to actions commenced on the day those changes take effect.

Disclosure requirements for open-end credit plans under the consumer act

Currently, a creditor under an open-end credit plan (typically, a credit card) that is within the scope of the consumer act must make certain disclosures with regard to the open-end credit plan. These disclosures include, among other things, information relating to the rate of the finance charge under the plan, any annual fee charged under the plan, and any other charges or fees assessed under the plan.

This bill requires certain creditors to make two additional disclosures. First, if the open-end credit plan includes a fixed introductory rate of finance charge that, after a specified period of time, increases or becomes a variable rate, the creditor must provide the customer with a separate notice to that effect before the customer enters into a transaction under the plan and with each subsequent billing statement, until the rate ceases to increase or becomes variable. The bill specifies the content and format of the notice and the manner in which it must be delivered to the customer.

Second, if the creditor furnishes the customer with a periodic statement that states a minimum monthly payment due under the open-end credit plan, the creditor must include, as part of or along with the periodic statement, a notice indicating the total amount of finance charges the customer would pay if he or she paid off the debt owing under the open-end credit plan as of the date of the statement by making only the minimum monthly payment every month. If the customer is unable to pay off the debt owing under the open-end credit plan by making the minimum monthly payment every month, the notice must indicate that fact.

Arbitration of consumer claims

Currently, the parties to any contract, including a contract that evidences a consumer credit transaction, generally may agree to settle by arbitration any controversy that arises out of the contract or out of the refusal to perform as required under the contract. This bill limits the ability of the parties to a consumer credit transaction to agree in advance to arbitrate a controversy that arises out of the transaction. Under the bill, no agreement between the parties to a consumer credit transaction may require the parties to arbitrate any controversy that arises out of the transaction, or out of a failure to perform as required under the transaction, and that arises after the date of the transaction. However, under the bill, the parties to a consumer credit transaction may agree in writing to submit a controversy to arbitration, if the parties enter into the agreement after the date on which the controversy arises.

Fraudulent representations and deceptive advertising

Under current law, no person may distribute an untrue statement in an advertisement with the intent to induce the public to enter into any contract with the person. In addition to this general prohibition on deceptive advertising, no merchant may advertise any statement or representation with regard to the extension of consumer credit that is false, misleading, or deceptive. The department of agriculture, trade and consumer protection (DATCP) may prosecute a person who distributes deceptive advertising. With certain exceptions, a person who distributes deceptive advertising may be fined not less than $50 nor more than $200. In addition, a person injured by deceptive advertising may sue and generally may recover any pecuniary loss together with reasonable attorney fees. Furthermore, a consumer who enters into a transaction resulting from a misleading statement with regard to the extension of credit may sue to void the transaction, recover amounts paid pursuant to the transaction, and recover reasonable attorney fees.

This bill specifies that certain representations regarding an open-end credit plan are both deceptive advertising and false, misleading, or deceptive statements regarding consumer credit. Under this bill, a merchant may not indicate to a consumer that the merchant has preapproved an extension of credit to the consumer under an open-end credit plan and then extend credit to the consumer under terms that are less financially favorable to the consumer than those indicated. In addition, this bill prohibits a merchant from refusing to extend credit after indicating preapproval of an extension of credit under an open-end credit plan. It is not a defense to a violation of this bill for the merchant to indicate that its preapproval of an extension of credit is subject to the merchant's investigation of the consumer's financial information. However, under this bill it is not a violation for the merchant to extend credit on different terms, or refuse to extend credit, because of an adverse change in the financial circumstances of the consumer.

A violation of these provisions would be subject to a forfeiture of not less than $50 nor more than $200. In addition, this bill retains the private cause of action and the authority of DATCP to prosecute violations in current law.

Currently, the law that generally prohibits fraudulent representations and deceptive advertising does not apply to the insurance business or, in certain circumstances, licensed real estate brokers or salespersons. This bill repeals these exemptions. Thus, under this bill, persons engaged in the business of insurance or real estate are subject to the law that generally prohibits fraudulent representations and deceptive advertising.

Payday loans

Under current law, a lender other than a bank, savings bank, savings and loan association, or credit union generally must obtain a license from the division of banking in DFI in order to assess a finance charge greater than 18%. This type of lender is generally referred to as a "licensed lender." With certain limited exceptions, current law provides no maximum finance charge for a loan entered into by a licensed lender.

Currently, a lender who makes payday loans is typically required to be a licensed lender. In a standard payday loan transaction, the lender accepts a personal check from the borrower, pays the borrower the amount of the check less any applicable finance charge, and agrees to wait a short time, such as two weeks, before depositing the check. Current law does not specifically regulate payday loan transactions.

This bill creates requirements and prohibitions that apply specifically to payday loan transactions. Under this bill, a lender, other than a bank, saving bank, savings and loan association, or credit union, who makes payday loans in the regular course of business (payday loan provider), may not assess fees or interest in a payday loan transaction in an aggregate amount that exceeds 5% of the amount of the payday loan. In addition, a payday loan provider may not make a payday loan with a term of less than 30 days. The bill also requires a payday loan provider to give each borrower copies of educational brochures prepared by DFI regarding the operation and potential costs of payday loans, to make annual reports to the division of banking in DFI, and to annually pay any reasonable filing fee imposed by the division of banking in DFI.

Unauthorized use of ATM card

Currently, DFI rules limit at $50 the liability of a customer of a bank, savings bank, savings and loan association, or credit union (financial institution) for unauthorized use of the customer's automatic teller machine (ATM) card or other means of access to the customer's account through an ATM. This limit may be a lesser amount under these rules if the financial institution is aware of circumstances which lead to the belief that unauthorized access may be obtained. The rules specify that a customer who furnishes another person with an ATM card or other means of access to the customer's account through an ATM is deemed to have authorized the use of that card or means of access, until the customer gives actual notice to the depository institution that further transactions are unauthorized. This bill incorporates these rules into the statutes.

Unauthorized disclosure of medical information by insurer

Current law provides requirements related to the disclosure of personal medical information for use in connection with insurance transactions. An insurer may disclose personal medical information concerning an individual only as provided by the individual's signed disclosure authorization, except for purposes and in situations specified in the statute, such as disclosure for the purpose of pursuing a subrogation claim or to a health care provider for the purpose of verifying insurance coverage. This bill provides that an insurer that discloses personal medical information concerning an individual in a manner that is inconsistent with the requirement under the statute is liable to the individual for actual damages, exemplary (punitive) damages of not more than $25,000, costs, and reasonable actual attorney fees.

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:

SB396, s. 1 Section 1. 51.30 (4) (a) of the statutes is amended to read:

SB396,7,3 51.30 (4) (a) Confidentiality of records. Except as otherwise provided in this chapter and ss. 118.125 (4), 610.70 (3) and (5) (ac), 905.03, and 905.04, all treatment records shall remain confidential and are privileged to the subject individual. Such records may be released only to the persons designated in this chapter or ss. 118.125 (4), 610.70 (3) and (5) (ac), 905.03, and 905.04, or to other designated persons with the informed written consent of the subject individual as provided in this section. This restriction applies to elected officials and to members of boards appointed under s. 51.42 (4) (a) or 51.437 (7) (a).

SB396, s. 2 Section 2. 100.18 (10v) of the statutes is created to read:

SB396,7,5 100.18 (10v) (a) Definitions. In this subsection:

SB396,7,7 1. "Customer" means a person other than an organization who seeks or acquires credit for personal, family, or household purposes.

SB396,7,9 2. "Directly" means in person, by mail or electronic mail addressed to the receiver, or by telephone.

SB396,7,10 3. "Merchant" has the meaning given in s. 421.301 (25).

SB396,7,11 4. "Open-end credit plan" has the meaning given in s. 421.301 (27).