AB393: Bill Text

LRB-2573/2

RJM:wlj:kjf

2001 - 2002 LEGISLATURE

2001 Assembly BILL 393

May 14, 2001 - Introduced by Representatives Urban, Huebsch, Olsen, Vrakas, Starzyk, Kreibich, Montgomery, Plouff, Plale, J. Fitzgerald, Miller, Hahn, Musser, Wade, M. Lehman, Gunderson, Turner, Petrowski, Lassa, Ott and Stone, cosponsored by Senators M. Meyer, S. Fitzgerald and Rosenzweig. Referred to Committee on Financial Institutions.

AB393,1,5 An Act to amend chapter 218 (title), 220.02 (2) (b) and 220.02 (3); and to create subchapter XI of chapter 218 [precedes 218.61], 409.104 (12m) and 421.202 (7m) of the statutes; relating to: regulating rental-purchase companies, providing an exemption from emergency rule procedures, granting rule-making authority, and providing a penalty.

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 subchapter of the statutes 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 engaged in the business of entering into rent-to-own agreements or acquiring or servicing rent-to-own agreements. 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 subchapter. 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 obtain a license from the division of banking in the department of financial institutions (division), pay an annual license fee, and make annual reports to the division. The bill permits the division to examine the books and records of a rental-purchase company to determine compliance with the new subchapter. The division may suspend or revoke a rental-purchase company's registration if, among other things, the rental-purchase company violates the new subchapter, the rental-purchase company fails to pay the license fee, or the division becomes aware of a fact that would be grounds for refusing to grant the rental-purchase company a license. If certain conditions are satisfied, a rental-purchase company may appeal an order of the division that suspends or revokes the rental-purchase company's license.

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) The total dollar amount and an itemization of all taxes, liability damage waiver fees, fees for optional services, processing and application fees, and delivery charges that the lessee would incur if the lessee were to rent the property until the lessee acquires ownership.

(8) An itemization and description of any other charges or fees the rental-purchase company may charge the lessee.

(9) A summary of the lessee's early-purchase option.

(10) A description of the lessee's responsibility in the event of theft of or damage to the rental property.

(11) A statement indicating that, with certain exceptions, the rental-purchase company is required to service the rental property to maintain it in good working condition.

(12) A statement that the lessee may terminate the rental-purchase agreement at any time, without penalty, by surrendering the rental property in good repair.

(13) A description of the lessee's right to reinstate the rental-purchase agreement.

(14) 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 subchapter, a provision requiring rental payments totaling more than the total dollar amount of all rental payments necessary to acquire ownership, a provision requiring the lessee to purchase insurance from the rental-purchase company to insure the rental property, or a provision requiring the lessee to pay attorney fees. 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. The lessee's payment obligations must be evidenced by a single, dated instrument that includes the signatures of the rental-purchase company and lessee. 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, a rental-purchase company must provide the lessee with a receipt for any payment made by the lessee in cash, or upon request, for any other type 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. The rental-purchase company may charge a fee if a lessee or designated person requests more than one copy in any 12-month period.

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. The bill permits a lessee to cancel a liability waiver at the end of any rental term.

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 a specific item of 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. 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, 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.

(7) Use a communication that falsely simulates legal, judicial, or governmental process.

(8) Threaten to file an action against the lessee, unless the action is of a type that the rental-purchase company files in the regular course of business or unless the rental-purchase company intends to file the action.

(9) With certain exceptions, disclose or threaten to disclose to a person other than the lessee or the lessee's spouse information affecting the lessee's reputation, with knowledge or reason to know that the person to whom the disclosure is made does not have a legitimate business need for the information.

In addition, a rental-purchase company may not threaten criminal prosecution except that the rental-purchase company may inform the lessee of the criminal prohibition against theft and the penalties for violating that prohibition. A rental-purchase company also may not communicate with a lessee's employer, except to verify employment status or earnings, to determine whether the employer has established a debt counseling procedure or to give effect to an assignment of earnings. Similar provisions regarding debt collection are also contained in the consumer act.

Obligation of good faith

Every agreement and duty regulated or established under the bill must be executed or performed in good faith, consistent with reasonable standards of fair dealing.

Penalties, remedies, defenses, and statute of limitations

Depending upon the violation, a rental-purchase company that violates the new subchapter may be required to forfeit up to $100 per violation or may be subjected to a $1,000 fine and imprisonment for up to six months. In addition, with certain exceptions, a rental-purchase company that violates the new subchapter is liable to a lessee damaged as a result of the violation for the greater of $100; the amount of actual damages sustained as a result of the violation, including incidental and consequential damages; or an amount equal to 25% of the total amount of payments due in one month under the lessee's rent-to-own agreement, up to $1,000. A rental-purchase company is also liable for the costs of the action and reasonable attorney fees. If, however, a rental-purchase company includes a prohibited provision in a rent-to-own agreement, these remedies do not apply. In this case, the rental-purchase company must surrender to the lessee the rental property and any amounts paid under the rent-to-own agreement. With certain limited exceptions, multiple violations in connection with the same rent-to-own agreement only entitle the lessee to a single recovery. The bill also caps the total liability of a rental-purchase company under a class action at $100,000 plus costs and reasonable attorney fees.

The bill establishes two defenses to a rental-purchase company's liability for any violation of the subchapter. First, a rental-purchase company is not liable for any violation resulting from an error of the rental-purchase company if, within 60 days after discovering the error, the rental-purchase company notifies the lessee of the error and makes necessary adjustments to correct the error. Second, a rental-purchase company is not liable for any violation that the rental-purchase company shows, by a preponderance of the evidence, was unintentional and resulted from a bona fide error that the rental-purchase company has acted to correct and that took place notwithstanding the maintenance of procedures reasonably adopted to avoid the error. The bill specifies that a bona fide error includes a clerical error, an error in making calculations, and an error due to computer malfunction or computer programming or a printing error. The consumer act does not contain similar defenses.

An action brought by a lessee for a violation of the new subchapter must be commenced within one year after the date of the violation, two years after the date on which the rent-to-own agreement was entered into, or one year after the date of the last payment, whichever is later. This statute of limitations is generally the same as the statute of limitations under the consumer act.

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:

AB393, s. 1 Section 1. Chapter 218 (title) of the statutes is amended to read:

AB393,7,7 CHAPTER 218 FINANCE COMPANIES, AUTO DEALERS, ADJUSTMENT COMPANIES and, collection agencies, rental-purchase companies, and rent-to-own agreements

AB393, s. 2 Section 2. Subchapter XI of chapter 218 [precedes 218.61] of the statutes is created to read:

AB393,7,10 CHAPTER 218

AB393,8,3 Subchapter XI Rental-purchase companies and Rent-to-own agreements

AB393,8,4 218.61 Definitions. In this subchapter:

AB393,8,6 (1) "Division" means the division of banking in the department of financial institutions.

AB393,8,8 (2) "Lessee" means an individual who rents personal property under a rent-to-own agreement.