LRB-2483/1
MDK:wlj:rs
2005 - 2006 LEGISLATURE
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
1An Act to amend 220.02 (2) (b), 220.02 (3), 421.301 (7) (intro.), 421.301 (9),
2421.301 (10), 421.301 (11), 421.301 (12), 421.301 (20) (intro.), 421.301 (21),
3421.301 (34), 421.301 (40), 423.201 (2), 423.301, 423.302, 423.401 (1), 425.102,
4425.107 (1), 425.107 (3) (intro.), 425.107 (3) (a), 425.107 (3) (b), 425.107 (3) (c),
5425.107 (3) (d), 425.107 (3) (e), 425.107 (3) (f), 425.107 (3) (g), 425.107 (3) (h),
6425.107 (5), 425.301 (1), 426.102 (1), 426.108 (intro.), 426.108 (5), 426.108 (6),
7426.108 (7), 426.108 (8), 426.110 (2) (intro.), 426.110 (2) (a), 426.110 (2) (b),
8426.110 (2) (c), 426.110 (14), 426.201 (1) (a), 426.202 (1m) (c) and 427.102;
to
9repeal and recreate 422.102; and
to create subchapter XI of chapter 218
10[precedes 218.60], 409.109 (4) (n), 421.301 (37t), 421.301 (37u), 421.301 (37v),
11subchapter VI of chapter 422 [precedes 422.601], 425.312 and 426.201 (2m) (b)
13. of the statutes;
relating to: regulation of rental-purchase agreements and
2granting 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