LIMITATIONS ON AGREEMENTS AND PRACTICES
422.401
422.401
Scope. This subchapter applies to consumer credit transactions.
422.401 History
History: 1971 c. 239.
422.402
422.402
Balloon payments prohibited. 422.402(1)
(1) Except as provided in
sub. (1m), no merchant shall enter into an agreement which requires a schedule of payments under which any one payment is not equal or substantially equal to all other payments, or under which the intervals between any consecutive payments differ substantially except as permitted in
sub. (2) or
(3) with respect to a consumer credit transaction other than a transaction which is one of the following:
422.402(1)(b)
(b) Not precomputed and on which the annual percentage rate disclosed under
subch. III is less than 16.5% for a consumer credit sale in which the seller retains a security interest in real estate which is the subject of the sale or any consumer loan, either of which is entered into on or after April 6, 1980, and prior to November 1, 1981, or 12% for any other consumer credit transaction.
422.402(1m)
(1m) No merchant shall enter into an agreement which requires a schedule of payments under which any one payment is not equal or substantially equal to all other payments, or under which the intervals between any consecutive payments differ substantially except as permitted in
sub. (2) or
(3) with respect to a consumer credit transaction other than a transaction which is one of the following:
422.402(1m)(b)
(b) Not precomputed and on which the annual percentage rate disclosed under
subch. III is not more than 18% for a consumer credit sale in which the seller retains a security interest in real estate which is the subject of the sale or any consumer loan, either of which is entered into on or after November 1, 1981, and before November 1, 1984.
422.402(1m)(c)
(c) A transaction primarily for an agricultural purpose.
422.402(2)
(2) The parties may agree to payments that are not substantially equal to other payments or are paid at unequal intervals if:
422.402(2)(a)
(a) The customer's livelihood is dependent upon income that is seasonal or otherwise not regular, such payments are in accordance with the needs of the customer and a notice in substantially the following language is set forth immediately below the customer's signature in 12-point boldface type, or its equivalent as prescribed by the administrator:
WARNING
The amounts of payments or the dates on which they are payable under this agreement are not equal. Do not sign this paper unless you are certain that this payment schedule meets your needs.
422.402(2)(b)
(b) The unequal or irregular payment is part of an agreed down payment received by the creditor contemporaneously with or prior to the consummation of the transaction;
422.402(2)(c)
(c) The unequal or irregular payment is part of an agreed down payment that does not exceed 20% of the cash price, has a due date not later than the due date of the 2nd instalment of the transaction and is excluded from the amount financed upon which the finance charge is computed, and if it is the mutual understanding of the customer and the creditor that such a partial payment will be separately financed the customer has the right to rescind the transaction without penalty if the customer cannot obtain such separate financing;
422.402(2)(d)
(d) The unequal or irregular payment is the final scheduled payment and is less than, or not more than 10% greater than, the average amount of the other scheduled payments, if such other payments are substantially equal; or
422.402(2)(e)
(e) The unequal or irregular payment is the first scheduled payment and results from the inclusion of interest charged for a first instalment period of not more than 45 days or less than 15 days as permitted under
s. 138.09 (7) (c) 2.
422.402(3)
(3) In the event that
sub. (2) (a) applies, the customer shall have the right at any time to refinance the unequal or irregular instalment pursuant to
s. 422.205 for refinancing, except that the rate shall not exceed the rate disclosed in the original transaction pursuant to
subch. III of ch. 422.
422.402(4)
(4) Taking or arranging for the customer to sign an instrument in violation of this section shall be subject to
s. 425.304.
422.402(5)
(5) This section does not apply to a mobile home transaction as defined in
s. 138.056 (1) (c) made on or after November 1, 1981 and before November 1, 1984, if:
422.402(5)(b)
(b) The unequal or irregular payment is the final scheduled payment of the transaction, and the merchant agrees to refinance the final scheduled payment at a rate of interest not in excess of the rate disclosed pursuant to
subch. III of ch. 422 by more than one percent multiplied by the number of 6-month periods in the term of the immediately prior mobile home transaction.
422.402(6)
(6) This section does not apply to consumer credit transactions entered into on or after November 1, 1984.
422.403
422.403
Maximum periods of repayment. 422.403(1)
(1) With respect to a consumer credit transaction other than one pursuant to an open-end credit plan or one pursuant to
s. 138.09, no merchant shall initially schedule payments to be paid in full:
422.403(1)(a)
(a) Over a period of more than 25 months if the total of payments is $700 or less;
422.403(1)(b)
(b) Over a period of more than 37 months if the total of payments is more than $700, but does not exceed $1,400; or
422.403(1)(c)
(c) Over a period of more than 49 months if the total of payments is more than $1,400, but does not exceed $2,000, unless the transaction is for the acquisition of or substantial improvement to real property in which case such period shall not exceed 61 months.
422.403(2)
(2) With respect to a consumer credit transaction other than one pursuant to an open-end credit plan or one pursuant to
s. 138.09, which is for the purpose of an improvement to real property and in which the annual percentage rate disclosed under
subch. III is 15% or less, no merchant may initially schedule payments to be paid in full:
422.403(2)(a)
(a) Over a period of more than 25 months if the total of payments is $300 or less;
422.403(2)(b)
(b) Over a period of more than 48 months if the total of payments is more than $300, but does not exceed $1,000; or
422.403(2)(c)
(c) Over a period of more than 60 months if the total of payments is more than $1,000, but does not exceed $2,000.
422.403(3)
(3) The periods specified in
subs. (1) and
(2) shall commence with the date of first payment or when the finance charge begins to accrue, whichever is earlier.
422.403(4)
(4) This section shall not apply to loans made, guaranteed or funded by federal or state agencies and loans made, guaranteed or funded by nonprofit educational institutions or foundations qualifying under section
501 (c) (3) of the internal revenue code, for purposes of post-high school education.
422.403(4m)
(4m) This section does not apply to loans made by an administrative agency within the executive branch established under
ch. 15.
422.403(5)
(5) Taking or arranging for the customer to sign an instrument in violation of this section is subject to
s. 425.304.
422.404
422.404
Assignment of earnings. 422.404(1)
(1) No merchant shall take or arrange for an assignment of earnings of the customer for payment or as security for payment of an obligation arising out of a consumer transaction unless such assignment is revocable at will by the customer.
422.404(2)
(2) A revocable assignment of earnings made as payment or as security for payment of an obligation arising out of a consumer credit transaction, which would otherwise expire under
s. 241.09, shall be deemed to be renewed for a term not to exceed 6 months if:
422.404(2)(a)
(a) The original authorization contained a conspicuous notice of the customer's right to revoke;
422.404(2)(b)
(b) Prior to expiration, the merchant mails a notice to the customer which conspicuously states that the assignment of earnings is revocable, and that it shall continue to run for not more than 6 additional months, unless the merchant receives notice of revocation; and
422.404 History
History: 1971 c. 239;
1973 c. 3.
422.405
422.405
Authorization to confess judgment prohibited. 422.405(1)(1) No merchant shall take or accept from the customer a warrant or power of attorney or other authorization for the creditor, or other person acting on the creditor's behalf, to confess judgment.
422.405 History
History: 1971 c. 239;
1991 a. 316.
422.406
422.406
Negotiable instruments. 422.406(1)
(1) In a consumer credit sale or lease transaction, no seller or lessor shall take a negotiable instrument (
s. 403.104), other than a check, as evidence of the obligation of the customer.
422.406(2)
(2) In a consumer loan transaction which constitutes an interlocking loan (
s. 422.408), no creditor shall take a negotiable instrument (
s. 403.104), other than a check, as evidence of the obligation of the customer.
422.406(3)
(3) The holder to whom an instrument issued in violation of this section is negotiated, notwithstanding that the holder may otherwise be a holder in due course of such instrument, is subject to all claims and defenses of the customer against the payee, subject to
sub. (4).
422.406(4)
(4) Such holder's liability under this section is limited to:
422.406(4)(a)
(a) The amount owing to the holder on such instrument at the time the holder receives notice of a claim or defense of the customer against such payee; plus
422.406(4)(b)
(b) If the customer has obtained a judgment against such payee and execution with bond is issued within one year after judgment and is returned unsatisfied, the amount paid by the customer to the holder before the holder received notice of the claim or defense of the customer, if such claim is made against the holder within 2 years after such judgment is returned unsatisfied. Any judgment against the payee, other than a default judgment, shall be binding on the holder.
422.406(5)
(5) Taking or arranging for the customer to sign an instrument in violation of this section is subject to
s. 425.304.
422.407
422.407
Defenses assertable against an assignee. 422.407(1)(1) With respect to a consumer credit transaction other than a consumer loan which is not an interlocking consumer loan (
s. 422.408), an assignee of the rights of a creditor is subject to all claims and defenses of the customer against the assignor arising out of the transaction notwithstanding an agreement to the contrary, subject to
sub. (2).
422.407(2)
(2) An agreement by the customer not to assert against an assignee a claim or defense arising from a consumer credit transaction is enforceable only by an assignee not related to the assignor who acquires the customer's contract in good faith and for value, who gives the customer notice of the assignment as provided in
s. 422.409 and who, within 12 months after the mailing of the notice of assignment, has not received notice of the customer's claim or defense. In the event that such assignee further assigns the customer's obligation to another party not related to the original assignor, in good faith and for value, such party may enforce an agreement by the customer not to assert claims or defenses, only to the extent that that party's assignor could do so under this section, and any notice by the customer to the original or subsequent assignees is effective as to such party. Such good faith assignee's liability under this section is limited to:
422.407(2)(a)
(a) The amount owing to the assignee with respect to the consumer credit transaction at the time the assignee received notice of a claim or defense of the customer against the assignor; plus
422.407(2)(b)
(b) If the customer has obtained a judgment against the assignor and execution with bond is issued within one year after judgment and is returned unsatisfied, the amount paid by the customer to the assignee before the assignee received notice of the claim or defense of the customer, if such claim is made against the assignee within 2 years after execution is returned unsatisfied. Any judgment against the assignor, other than a default judgment, shall be binding on the assignee.
422.407(2m)(a)(a) In the event that an assignee, who is related to the assignor or who takes the assignment not in good faith or not for value, further assigns the customer's obligation to a subsequent assignee not related to any prior assignor and who takes the assignment in good faith and for value, such subsequent assignee's liability is limited to that provided for in
sub. (2) if the subsequent assignee's assignor at the time of the assignment to the subsequent assignee gives the notice required in
s. 422.409 (2), subject to
par. (b).
422.407(2m)(b)
(b) The notice given under
s. 422.409 (2) need not name the subsequent assignee. In such cases it shall state that payments may be made to the assignor, and shall otherwise comply with the requirements of
s. 422.409 (2).
422.407(3)
(3) Any assignee does not acquire a customer's contract in good faith within the meaning of
subs. (2) and
(2m) if the assignee has knowledge, including knowledge from his or her course of dealing with other customers of the assignor or from the assignor or the assignee's records, or written notice of violations of
chs. 421 to
427, of conduct of the kind described in
s. 426.108, or of substantial complaints by such other customers that such assignor fails or refuses to perform his or her contracts with such customers and fails to remedy their complaints.
422.407(4)
(4) No term of an agreement may confer upon an assignee greater immunity from claims and defenses of the customer against the assignor than is permitted in this section. No term of an agreement purporting to waive defenses against an assignee is enforceable unless the agreement makes conspicuous reference to this section and to the customer's right to assert such claim or defense against an assignee within 12 months after being furnished a notice of assignment.
422.407(5)
(5) Except where execution with bond is returned unsatisfied under
sub. (2) (b) or where the assignor is in bankruptcy, receivership or other insolvency proceedings or cannot be found within the state, any claims or defenses of the customer under this section can only be asserted as a matter of counterclaim, defense to or set-off against a claim by the assignee.
422.407(6)
(6) Taking or arranging for the customer to sign an instrument in violation of this section is subject to
s. 425.304.
422.407 Annotation
Legislative Council Note, 1973: Sections 39, 40 and 41 revise s. 422.407 so that it accomplishes its intended purpose, which is to enable a good faith assignee of a customer's contract, and his good faith assignees, to enforce an agreement by the customer not to raise claims and defenses against assignees of the contract, once 12 months have passed following the initial good faith assignment.
422.407 Annotation
New s. 422.407 (2m), created by this act, accomplishes the same result in those cases where the first assignment is made to a related assignee, who further assigns the contract to an unrelated good faith assignee. This latter arrangement is not dealt with by present s. 422.407. New (2m) also recognizes existing business patterns in that it allows the related assignee to service an account, although the contract has been further assigned to an unrelated good faith assignee. In these cases the good faith assignee receives the protection of this section, provided the customer has been given the required notice of assignment. [Bill 432-A]
422.408
422.408
Interlocking loans. 422.408(1)(1) The lender in an interlocking consumer loan is subject to the claims and defenses the consumer may have against the seller or lessor in the consumer transaction for which the proceeds of the loan are used, subject to
sub. (3).
422.408(2)
(2) For purposes of this section, a consumer transaction pursuant to a seller credit card shall be deemed to be a consumer loan transaction if the transaction is other than a purchase or lease of goods or services from the issuer of the seller credit card, from a person related to such issuer or from others licensed or franchised to do business solely under the business or trade name or designation of such issuer.
422.408(3)
(3) For purposes of this section, a consumer loan transaction is an "interlocking consumer loan" if the creditor knows or has reason to know that all or a meaningful part of the proceeds of the loan are used to pay all or part of the customer's obligations to the seller or lessor under a consumer sale or lease, and if:
422.408(3)(a)
(a) The lender is a person related to the seller or lessor;
422.408(3)(b)
(b) The lender supplies to the seller or lessor, or the seller or lessor prepares, documents used to evidence the loan, other than sales slips or drafts used to evidence purchases pursuant to an open-end credit plan;
422.408(3)(c)
(c) The lender directly or indirectly pays to the seller or lessor any commission, finder's fee or other similar consideration based upon or measured by the consumer loan;
422.408(3)(d)
(d) The lender has recourse to the seller or lessor for nonpayment of the consumer loan transaction through a guaranty, maintenance of a reserve account or otherwise, but this paragraph shall not apply to transactions pursuant to a credit card issued by a lender not related to the seller or lessor;
422.408(3)(e)
(e) The lender has knowledge, including knowledge from the lender's course of dealing with other customers of the seller or lessor or from the lender's records, or written notice of substantial complaints by such other customers, that such seller or lessor fails or refuses to perform the seller's or lessor's contracts with them and that such merchant fails to remedy such complaints within a reasonable time; or
422.408(3)(f)
(f) The loan exceeds $100, is disbursed directly to the seller or lessor and is made pursuant to a credit card to finance a purchase from a seller's or lessor's place of business in this state, if the seller or lessor has a direct or indirect contractual relationship with the issuer permitting the seller or lessor to honor the credit card.
422.408(4)
(4) To the extent that a lender under an interlocking consumer loan is subject to claims or defenses of the customer against a merchant under this section, the lender's liability is limited to claims or defenses arising from the consumer transaction financed by the proceeds of the loan, and may not exceed that portion of the unpaid balance of the loan at the time the lender has notice of the claim or defense, which the proceeds used to pay all or part of the customer's obligation on which the claim is based bears to the entire amount financed of the loan, unless the customer has obtained a judgment against the merchant and execution thereon has been returned unsatisfied, in which event the lender shall in addition be liable in a similar manner for the proportionate amount paid by the customer to the lender with respect to the interlocking consumer loan before the lender received notice of the claim or defense of the customer.
