LRB-2573/2
RJM:wlj:kjf
2001 - 2002 LEGISLATURE
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 1An Act to amend chapter 218 (title), 220.02 (2) (b) and 220.02 (3); and to create
2subchapter XI of chapter 218 [precedes 218.61], 409.104 (12m) and 421.202
3(7m) of the statutes; relating to: regulating rental-purchase companies,
4providing an exemption from emergency rule procedures, granting
5rule-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 1Section 1. Chapter 218 (title) of the statutes is amended to read:
AB393,7,72 CHAPTER 218
3 FINANCE COMPANIES, AUTO
4 DEALERS, ADJUSTMENT COMPANIES
5 and
, collection agencies,
6rental-purchase companies, and
7 rent-to-own agreements
AB393, s. 2 8Section 2. Subchapter XI of chapter 218 [precedes 218.61] of the statutes is
9created to read:
AB393,7,1010 CHAPTER 218
AB393,8,3
1Subchapter XI
2 Rental-purchase companies and
3 Rent-to-own agreements
AB393,8,4 4218.61 Definitions. In this subchapter:
AB393,8,6 5(1) "Division" means the division of banking in the department of financial
6institutions.
AB393,8,8 7(2) "Lessee" means an individual who rents personal property under a
8rent-to-own agreement.
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