AB587: Bill Text

LRB-2483/1

MDK:wlj:rs

2005 - 2006 LEGISLATURE

2005 Assembly BILL 587

August 2, 2005 - Introduced by Representatives Stone, Huebsch, Gronemus, J. Fitzgerald, Hahn, Townsend, Honadel, Pettis, Vrakas, Kleefisch, Kreibich, Gunderson, Vos, Albers, Krawczyk, Ott, Jeskewitz, Ainsworth, Loeffelholz, Montgomery, Davis and Freese, cosponsored by Senators Brown, Plale, Schultz, Kapanke, Risser, Darling, S. Fitzgerald, Kanavas, Zien, Breske and Olsen. Referred to Committee on State Affairs.

AB587,2,2 An Act to amend 220.02 (2) (b), 220.02 (3), 421.301 (7) (intro.), 421.301 (9), 421.301 (10), 421.301 (11), 421.301 (12), 421.301 (20) (intro.), 421.301 (21), 421.301 (34), 421.301 (40), 423.201 (2), 423.301, 423.302, 423.401 (1), 425.102, 425.107 (1), 425.107 (3) (intro.), 425.107 (3) (a), 425.107 (3) (b), 425.107 (3) (c), 425.107 (3) (d), 425.107 (3) (e), 425.107 (3) (f), 425.107 (3) (g), 425.107 (3) (h), 425.107 (5), 425.301 (1), 426.102 (1), 426.108 (intro.), 426.108 (5), 426.108 (6), 426.108 (7), 426.108 (8), 426.110 (2) (intro.), 426.110 (2) (a), 426.110 (2) (b), 426.110 (2) (c), 426.110 (14), 426.201 (1) (a), 426.202 (1m) (c) and 427.102; to repeal and recreate 422.102; and to create subchapter XI of chapter 218 [precedes 218.60], 409.109 (4) (n), 421.301 (37t), 421.301 (37u), 421.301 (37v), subchapter VI of chapter 422 [precedes 422.601], 425.312 and 426.201 (2m) (b) 3. of the statutes; relating to: regulation of rental-purchase agreements and granting rule-making authority.

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.

As discussed below, this bill amends the consumer act to create requirements that specifically apply to certain consumer leases that the bill defines as rental-purchase agreements.

Scope

The bill regulates the activities of a rental-purchase company, which is defined in the bill as a person engaged in the business of entering into rental-purchase agreements or acquiring or servicing rental-purchase agreements that are entered into in this state. With certain exceptions, an agreement qualifies as a rental-purchase agreement under the bill if, among other things, the rental property is to be used primarily for personal, family, or household purposes; the rental property is not a motor vehicle; 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 rental property. Under the bill, a rental-purchase agreement is not subject to any laws relating to a security interest under the Uniform Commercial Code.

Administration

The bill requires a person that operates a rental-purchase company to obtain a license and registration from the division of banking in the Department of Financial Institutions (division), pay annual license and registration fees, and make annual reports to the division. A license is not assignable and must be posted in a conspicuous place at the location of the rental-purchase company. The bill permits the division to examine the books and records of a rental-purchase company to determine compliance with the bill's requirements. In addition, the bill specifically authorizes the division to issue orders and conduct investigations and examinations. The division may suspend or revoke a rental-purchase company's license if, among other things, the rental-purchase company violates the bill's requirements, 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. Also, the bill prohibits a person granted a license from changing the place of business of the rental-purchase company without the prior approval of the division.

Rental-purchase agreements

The bill requires every rental-purchase agreement to contain certain provisions, including the following, to the extent applicable:

1. A description of the rental property.

2. The price at which the rental-purchase company would sell the property, if paid in full on the date on which the rental-purchase agreement is executed. The bill refers to this price as the "cash price" of the rental property.

3. A statement indicating that the rental property may be available at a lower cost from another retailer.

4. The total amount of the rental payments necessary to acquire ownership of the property.

5. The difference between the amount described under item 4 and the cash price of the rental property.

6. The amount of any payment due when the rental-purchase agreement is executed or the rental property is delivered.

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. The total amount of all charges necessary to acquire ownership of the rental property.

10. A summary of the lessee's early-purchase option.

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

12. 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.

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

14. A description of the lessee's right to reinstate the rental-purchase agreement.

15. 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 the inclusion of certain provisions in a rental-purchase agreement. The prohibited provisions include the following: (1) a confession of judgment; (2) a provision granting the rental-purchase company a security interest in property other than the rental property; (3) 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; (4) a waiver of any defense or counterclaim or any provision of the bill's requirements; (5) a provision requiring rental payments totaling more than the total dollar amount of all rental payments necessary to acquire ownership; (6) a provision requiring the lessee to purchase insurance from the rental-purchase company to insure the rental property; and (7) a provision requiring the lessee to pay attorney fees. Several of these prohibitions are similar to prohibitions contained in the consumer act.

The bill imposes other requirements on rental-purchase agreements, including the following: (1) the bill limits the cash price of the rental property to no more than twice the amount paid by the rental-purchase company to the wholesaler or manufacturer; (2) the bill limits total charges for rental services and all required fees or charges, except for taxes, in a transaction to no more than the cash price of the rental property; and (3) the bill regulates the amount and timing of late fees that may be charged to a lessee.

Disclosures

All required provisions of a rental-purchase agreement must be clearly and conspicuously disclosed to the lessee on the face of the rental-purchase agreement in at least eight-point standard type, except for certain provisions that must be disclosed in at least ten-point boldface type. 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 rental-purchase 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 the lessee designates 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 bill includes a formula for determining the maximum that may be charged for early purchase. 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 percent of the rental payment due under the rental-purchase agreement. The bill permits a lessee to cancel a liability waiver at the end of any rental term.

Marketing and advertising

The bill provides that advertising for rental-purchase agreements is subject to the consumer act's prohibitions and remedies regarding false, misleading, or deceptive advertising. The bill also creates requirements for advertising rental-purchase agreements. 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 rental-purchase agreement that refers to the amount of a payment for a specific item of property also states that the advertisement is for a rental-purchase 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 bill also 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, a lessee has the right to reinstate a terminated rental-purchase agreement, as long as the lessee returned the rental property within seven days after termination and not more than 60 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 120 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, the rental payment for the next term, 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 that a rental-purchase company must, with certain exceptions, follow if a lessee defaults under a rental-purchase agreement. The bill defines "default" as either (1) a breach of the rental-purchase agreement that materially impairs the condition, value, or protection of the rental property, or (2) 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 surrender voluntarily the applicable rental property. Before filing 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. The notice must specify, among other things, the actions required to cure the default. If the lessee received a similar notice and cured the applicable default at least twice during the year preceding the current default, the bill allows a rental-purchase company to file an action without providing the written notice.

Collection practices

Under the bill, rental-purchase companies are subject to the same prohibitions regarding collection practices that apply to other consumer transactions under the consumer act. As a result, rental-purchase companies are prohibited from doing the following in attempting to recover rental property or collect amounts owed under a rental-purchase agreement:

1. Using or threatening to use force or violence.

2. Disclosing or threatening to disclose false information relating to the creditworthiness of the lessee.

3. Harassing or threatening the lessee or a relative of the lessee.

4. Using obscene language in communicating with the lessee or a relative of the lessee.

5. Using a communication that falsely simulates legal, judicial, or governmental process.

6. Threatening 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.

7. Threatening criminal prosecution.

8. With certain exceptions, communicating with the lessee's employer.

9. Engaging in other specified conduct.

Unconscionable conduct

The bill requires the division to promulgate rules that prohibit conduct that the division declares to be unconscionable regarding rental-purchase agreements. In promulgating the rules, the division must consider factors under current law that the division must consider for declaring conduct to be unconscionable in consumer credit transactions. The bill also allows a court to void a provision of a rental-purchase agreement that the court finds to be unconscionable. This authority is similar to a court's authority under current law with respect to consumer credit transactions, except that if a rental-purchase company complies with the bill's limits on cash prices, a court may not find that the price of goods under a rental-purchase agreement is unconscionable.

Penalties and remedies

A rental-purchase company that willfully and knowingly violates the bill's requirements is subject to a fine of not more than $2,000, which is the penalty under current law that applies to willful and knowing violations of the consumer act.

The bill also generally provides that a rental-purchase company that violates the bill's requirements is liable to a lessee damaged as a result of the violation for the amount of actual damages sustained as a result of the violation, including incidental and consequential damages, as well as for the costs of the action and reasonable attorney fees. In addition, the lessee is entitled to recover an amount equal to 25 percent of the total amount of payments necessary to acquire ownership under the rental-purchase agreement. This additional recovery is subject to a $100 minimum and a $1,000 maximum. However, if a rental-purchase company includes a prohibited provision in a rental-purchase agreement, these remedies do not apply. Instead, the rental-purchase company must surrender to the lessee the rental property and any amounts paid under the rental-purchase agreement.

The bill also provides that class actions based on violations of the bill are, with one exception, subject to the same requirements that apply to class actions for violations of the consumer act under current law. The exception is that, for certain willful and knowing violations of the bill's requirements, the total liability of a rental-purchase company is subject to a limit of $500,000 (plus costs and attorney fees), instead of the $100,000 limit (plus costs and attorneys fees) that applies under current law.

For further information see the state and local 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:

AB587, s. 1 Section 1. Subchapter XI of chapter 218 [precedes 218.60] of the statutes is created to read:

AB587,7,3 chapter 218

AB587,7,4 Subchapter XI

AB587,7,5 rental-purchase companies