LRB-4891/1
RJM:wlj&hmh:jf
2001 - 2002 LEGISLATURE
February 28, 2002 - Introduced by Senators M. Meyer, Shibilski, Moen, Kanavas,
Zien, S. Fitzgerald, Roessler and Huelsman, cosponsored by Representatives
Urban, Huebsch, Kreibich, Vrakas, Montgomery, J. Fitzgerald, M. Lehman,
Musser, Ott, Stone, Plale, Jeskewitz, Gunderson, Balow, Hahn, Rhoades,
Turner, Petrowski, Olsen, Lassa and Starzyk. Referred to Committee on
Judiciary, Consumer Affairs, and Campaign Finance Reform.
SB473,1,5
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) The total of all charges likely to be paid by the lessee to acquire ownership,
as well as a comparison of that total with the cost of purchasing the rental property
on the date on which the rent-to-own agreement is entered into. The agreement
must also contain a notice relating to this comparison.
(9) An itemization and description of any other charges or fees the
rental-purchase company may charge the lessee.
(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 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.
