LRB-3442/1
RJM:jld:pg
2001 - 2002 LEGISLATURE
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
1An Act to repeal 100.18 (12) and 426.110 (3);
to renumber 423.301 and 610.70
2(5);
to renumber and amend 138.052 (9), 411.103 (1) (e), 421.202 (6) and
3429.104 (9);
to amend 51.30 (4) (a), 100.18 (11) (b) 2., 100.26 (4), 138.09 (3) (e)
41. a., 146.82 (2) (b), 422.201 (3), 423.302, 425.302 (1) (a), 425.303 (1), 425.304
5(1), 426.104 (4) (a) and (b), 426.110 (14), 428.101 (3), 788.01 and 788.015;
to
6repeal and recreate 138.09 (title); and
to create 100.18 (10v), 138.052 (9) (b),
7138.14, 224.15, 411.103 (1) (e) 1., 411.103 (1) (e) 2., 421.202 (6) (b), 422.308 (2g),
8422.308 (2r), 422.422, 423.301 (1) (title), 423.301 (2), 423.301 (3), 428.101 (4),
9429.104 (9) (a) 1., 429.104 (9) (a) 2., 429.104 (9) (b) and 610.70 (5) (bc) of the
10statutes;
relating to: the scope of the Wisconsin Consumer Act, the Wisconsin
11Motor Vehicle Consumer Lease Act, and the law with regard to fraudulent
12representations and deceptive advertising; liability and required disclosures
13under the Wisconsin Consumer Act; liability under the Wisconsin Motor
14Vehicle Consumer Lease Act; the authority of licensed lenders; the regulation
1of certain motor vehicle dealers, salespersons, and sales finance companies; the
2regulation of consumer leases under the Uniform Commercial Code;
3arbitration of controversies arising out of consumer credit transactions;
4establishing a penalty for unauthorized disclosure of personal medical
5information by an insurer; deceptive preapproval of open-end credit plans;
6payday loan providers; liability for unauthorized, remote access to certain
7depository 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
1Section
1. 51.30 (4) (a) of the statutes is amended to read:
SB396,7,32
51.30
(4) (a)
Confidentiality of records. Except as otherwise provided in this
3chapter and ss. 118.125 (4), 610.70 (3) and (5)
(ac), 905.03
, and 905.04, all treatment
4records shall remain confidential and are privileged to the subject individual. Such
5records may be released only to the persons designated in this chapter or ss. 118.125
6(4), 610.70 (3) and (5)
(ac), 905.03
, and 905.04, or to other designated persons with
1the informed written consent of the subject individual as provided in this section.
2This restriction applies to elected officials and to members of boards appointed under
3s. 51.42 (4) (a) or 51.437 (7) (a).
SB396, s. 2
4Section
2. 100.18 (10v) of the statutes is created to read:
SB396,7,55
100.18
(10v) (a)
Definitions. In this subsection:
SB396,7,76
1. "Customer" means a person other than an organization who seeks or
7acquires credit for personal, family, or household purposes.
SB396,7,98
2. "Directly" means in person, by mail or electronic mail addressed to the
9receiver, or by telephone.
SB396,7,1010
3. "Merchant" has the meaning given in s. 421.301 (25).
SB396,7,1111
4. "Open-end credit plan" has the meaning given in s. 421.301 (27).
SB396,7,1212
5. "Organization" has the meaning given in s. 421.301 (28).
SB396,7,1913
(b)
Deceptive preapproved rates, terms, or conditions. 1. It is deceptive
14advertising for a merchant to directly communicate to a customer, or cause to be
15directly communicated to a customer, that the merchant has preapproved an
16extension of credit to the customer under an open-end credit plan and then,
17pursuant to the customer's response to the communication, to make an extension of
18credit to the customer under an open-end credit plan with rates, terms, or conditions
19that are less financially favorable to the customer than those communicated.
SB396,7,2320
2. Except as provided under subd. 3., it is not a defense to a violation of subd.
211. that the merchant's preapproval of an extension of credit to the customer is made
22subject to the merchant's review of the customer's financial information, credit
23worthiness, credit standing, or credit capacity.
SB396,8,424
3. Subdivision 1. does not apply to an extension of credit under an open-end
25credit plan with different rates, terms, or conditions than those communicated to the
1customer, if the difference in rates, terms, or conditions resulted from an adverse
2change in the financial circumstances of the customer between the date on which the
3merchant communicates preapproval and the date on which the merchant makes the
4extension of credit.
SB396,8,95
(c)
Deceptive preapproval. 1. It is deceptive advertising for a merchant to refuse
6to extend credit to a customer under an open-end credit plan if the customer requests
7the extension of credit in response to a direct communication from the merchant, or
8a direct communication caused by the merchant, indicating that the merchant, has
9preapproved the extension of credit to the customer under an open-end credit plan.
SB396,8,1310
2. Except as provided under subd. 3., it is not a defense to a violation of subd.
111. that the merchant's preapproval of an extension of credit to the customer is made
12subject to the merchant's review of the customer's financial information, credit
13worthiness, credit standing, or credit capacity.
SB396,8,1814
3. Subdivision 1. does not apply to a refusal to extend credit under an open-end
15credit plan, if the refusal resulted from an adverse change in the financial
16circumstances of the customer between the date on which the merchant
17communicates preapproval and the date on which the merchant refuses to extend
18credit.
SB396, s. 3
19Section
3. 100.18 (11) (b) 2. of the statutes is amended to read:
SB396,9,520
100.18
(11) (b) 2. Any person suffering pecuniary loss because of a violation of
21this section by any other person may sue in any court of competent jurisdiction and
22shall recover such pecuniary loss, together with costs, including reasonable attorney
23fees
, except that no attorney fees may be recovered from a person licensed under ch.
24452 while that person is engaged in real estate practice, as defined in s. 452.01 (6).
25Any person suffering pecuniary loss because of a violation by any other person of any
1injunction issued under this section may sue for damages therefor in any court of
2competent jurisdiction and shall recover twice the amount of such pecuniary loss,
3together with costs, including reasonable attorney fees
, except that no attorney fees
4may be recovered from a person licensed under ch. 452 while that person is engaged
5in real estate practice, as defined in s. 452.01 (6).
SB396, s. 4
6Section
4. 100.18 (12) of the statutes is repealed.
SB396, s. 5
7Section
5. 100.26 (4) of the statutes is amended to read:
SB396,9,108
100.26
(4) Any person who violates s. 100.18 (1) to (8)
or, (10)
, or (10v) or
9100.182 is subject to a civil forfeiture of not less than $50 nor more than $200 for each
10violation.
SB396, s. 6
11Section
6. 138.052 (9) of the statutes is renumbered 138.052 (9) (a) and
12amended to read:
SB396,9,1813
138.052
(9) (a) Chapters 421 to 428 do not apply to the refinancing,
14modification, extension, renewal
, or assumption of a loan which had an original
15principal balance in excess of $25,000 if the unpaid principal balance of the loan has
16been reduced to $25,000 or less
and the refinancing, modification, extension,
17renewal, or assumption takes place before the effective date of this paragraph ....
18[revisor inserts date].
SB396, s. 7
19Section
7. 138.052 (9) (b) of the statutes is created to read:
SB396,9,2520
138.052
(9) (b) Chapters 421 to 428 do not apply to the refinancing,
21modification, extension, renewal, or assumption of a loan which had an original
22principal balance in excess of $50,000 if the unpaid principal balance of the loan has
23been reduced to $50,000 or less and the refinancing, modification, extension,
24renewal, or assumption takes place on or after the effective date of this paragraph
25.... [revisor inserts date].
SB396, s. 8
1Section
8. 138.09 (title) of the statutes is repealed and recreated to read:
SB396,10,2
2138.09 (title)
Licensed lenders.
SB396, s. 9
3Section
9. 138.09 (3) (e) 1. a. of the statutes is amended to read:
SB396,10,94
138.09
(3) (e) 1. a. A business engaged in making loans for business or
5agricultural purposes
or, loans before the effective date of this subdivision 1. a. ....
6[revisor inserts date], exceeding $25,000 in principal amount,
or loans on or after the
7effective date of this subdivision 1. a. .... [revisor inserts date], exceeding $50,000 in
8principal amount, except that all such loans having terms of 49 months or more are
9subject to sub. (7) (gm) 2. or 4.
SB396, s. 10
10Section
10. 138.14 of the statutes is created to read:
SB396,10,11
11138.14 Payday loan providers. (1) Definitions. In this section: