Chapter 138

138.05(3) (3) A contract to make loans or an evidence of indebtedness may provide for a rate of interest or penalty payable upon the principal amount of an extension of a loan or forbearance or upon any amount in default under a loan or forbearance which shall not exceed the rate allowed in sub. (1) (a).

138.05(4) (4) Any person making a loan for which interest is agreed to be paid at a rate exceeding the rate of $10 upon $100 for one year computed upon the declining principal of the loan shall, at or prior to making such loan, deliver to the borrower a statement, which may be incorporated in a copy of the evidence of indebtedness, setting forth all of the terms of the transaction in clear and distinct language, including:

138.05(4)(a) (a) The rate of interest agreed upon in terms either of simple interest computed on the declining principal balance or of the actual interest cost in money, and

138.05(4)(b) (b) A statement that the loan may be prepaid in full or in part and that, if the loan is prepaid in full, the borrower may receive a refund of interest charged.

138.05(5) (5) This section shall not apply to loans to corporations or limited liability companies.

138.05(6) (6) This section does not apply to transactions governed by chs. 421 to 427 and 429 or to discounts described in s. 422.201 (8).

138.05(7) (7) This section does not apply to any loan or forbearance in the amount of $150,000 or more made after May 26, 1978 unless secured by an encumbrance on a one- to four-family dwelling which the borrower uses as his or her principal place of residence. For the purposes of this section, a loan is deemed a loan which is in the amount of $150,000 or more if:

138.05(7)(a) (a) The outstanding principal indebtedness under the loan initially exceeds $150,000; or

138.05(7)(b) (b) The parties to the loan agree that the principal indebtedness may exceed $150,000 at some time during the term of the loan and, when the agreement was made, the principal indebtedness was reasonably expected to exceed $150,000 notwithstanding the fact that less than $150,000 in the aggregate was initially or later advanced.

138.05(8) (8) 

138.05(8)(a) (a) This section does not apply to any loan or forbearance which is made on or after April 6, 1980 and prior to November 1, 1981, or to any refinancing, renewal, extension, modification or prepayment on or after April 6, 1980 and prior to November 1, 1981, of any loan or forbearance, unless it is made by a federally chartered or state-chartered savings and loan association, except this section does apply to forbearances occurring primarily for personal, family or household purposes for which the only charge is a penalty or late charge for nonpayment when due.

138.05(8)(b) (b) This section does not apply to loans made within 2 years after November 1, 1981, if made pursuant to loan commitments made on or after April 6, 1980 and prior to November 1, 1981, unless made by a federally chartered or state-chartered savings and loan association.

138.05(8)(c) (c) This section does not apply to any loan or forbearance which is made on or after November 1, 1981, or to any refinancing, renewal, extension, modification or prepayment on or after November 1, 1981, of any loan or forbearance, except this section does apply to forbearances occurring primarily for personal, family or household purposes for which the only charge is a penalty or late charge for nonpayment when due.

138.05 History History: 1971 c. 239; 1975 c. 407; 1977 c. 401, 444; 1979 c. 10 s. 24; 1979 c. 168; 1981 c. 45; 1993 a. 112; 1995 a. 328, 329; 1997 a. 35.

138.05 Cross-reference Cross-reference: See s. 422.201 regarding finance charges on consumer credit transactions.

138.05 Annotation A roofing and siding contract with a cash price of $2,660 or 60 payments of $61.72 is time-price differential transaction. Mortgage Associates, Inc. v. Siverhus, 63 Wis. 2d 650, 218 N.W.2d 266 (1974).

138.05 Annotation An individual guarantor of a corporate indebtedness cannot interpose the defense of usury if the defense is not available to the corporation as the principal obligor. Sundseth v. Roadmaster Body Corp. 74 Wis. 2d 61, 245 N.W.2d 919 (1976).

138.05 Annotation This section did not apply to a loan to a limited partnership whose 2 general partners were an individual and a corporation. Wild, Inc. v. Citizens Mortgage Inv. Trust, 95 Wis. 2d 430, 290 N.W.2d 567 (Ct. App. 1980).

138.05 Annotation The sale of an interest-bearing note at a discount is not usurious unless it is found to be a cloak or cover for what is in reality a usurious loan. Val Zimmermann Corp. v. Leffingwell, 107 Wis. 2d 86, 318 N.W.2d 781 (1982).

138.05 Annotation This section applies to a loan to a corporation and an individual as coborrowers. Williams v. Security Savings & Loan Ass’n. 120 Wis. 2d 480, 355 N.W.2d 370 (Ct. App. 1984).

138.05 Annotation While a retail seller is not prohibited by s. 138.05 (3), Stats. 1969, from including in a note a provision requiring the payment of 25 percent of the unpaid balance as a fee for collection of the account, such a provision is enforceable only to the extent that it reasonably relates to the actual collection expenses incurred. 59 Atty. Gen. 76.

138.05 Annotation Loan fees that relate to the amount borrowed rather than to identifiable expenses incurred as a result of the particular transaction must be considered as interest for purposes of ch. 138. These loan fees are to be amortized over the contract term of the loan to determine the actual rate. A subsequent voluntary prepayment will not render an otherwise legal rate usurious, subject to sub. (2). 65 Atty. Gen. 67.

138.05 Annotation Charges imposed on the seller of property as a condition of granting a loan to the buyer are includable as interest under this section to the extent that the charges are passed on to the buyer. 68 Atty. Gen. 398.

138.05 Annotation Bona fide commitment fees are not interest under this section. 69 Atty. Gen. 28.

138.05 Annotation A description of the modification of Wisconsin’s usury laws. Brown and Patrick, 65 MLR 309 (1982).

138.051 138.051 Residential mortgage loans.

138.051(1) (1) In this section:

138.051(1)(a) (a) “Contract rate” means the initial rate contracted to be paid on the principal of a loan from time to time.

138.051(1)(b) (b) “Loan” means a loan, other than a loan made by a federally chartered or state-chartered savings and loan association, secured by a first lien real estate mortgage on, or an equivalent security interest in, a one- to 4-family dwelling which the borrower uses as his or her principal place of residence and which is:

138.051(1)(b)1. 1. Made on or after April 6, 1980 and prior to November 1, 1981;

138.051(1)(b)2. 2. Refinanced, renewed, extended or modified on or after April 6, 1980 and prior to November 1, 1981; or

138.051(1)(b)3. 3. Made within 2 years after November 1, 1981, pursuant to a loan commitment made on or after April 6, 1980 and prior to November 1, 1981.

138.051(2) (2) A loan may be prepaid by the borrower at any time in whole or in part without premium or penalty. Upon prepayment of a loan in full by cash, renewal or refinancing, the borrower is entitled to a refund of unearned interest charged determined as follows:

138.051(2)(a) (a) On a loan which is repayable in substantially equal, successive installments at approximately equal intervals of time and the face amount of which includes predetermined interest charges, the amount of such refund shall be as great a proportion of the total interest charged as the sum of the balances scheduled to be outstanding during the full installment periods commencing with the installment date nearest the date of prepayment bears to the sum of the balances scheduled to be outstanding for all installment periods of the loan.

138.051(2)(b) (b) On any other loan, the amount of the refund shall not be less than the difference between the interest charged and interest, at the rate contracted for, computed upon the unpaid principal balance of the loan from time to time outstanding prior to prepayment in full.

138.051(3) (3) For purposes of computing a refund under sub. (2), interest does not include:

138.051(3)(a) (a) Identifiable and separately itemized charges for services incident to the loan if they are bona fide and paid to 3rd parties unrelated to the lender;

138.051(3)(b) (b) Fees, discounts or other sums actually imposed by government national mortgage association, federal national mortgage association, federal home loan mortgage corporation or any other governmentally sponsored or private secondary mortgage market purchaser of a loan from the original lender; and

138.051(3)(c) (c) A loan administration fee charged by a lender, not to exceed 2 percent of the principal amount of any construction loan and one percent of the principal amount of any other loan.

138.051(4) (4) For the purpose of calculating the rate of interest on a loan scheduled to be paid in installments under sub. (2), the parties may agree that any installment paid within 30 days prior to or after the scheduled due date will be considered to have been paid on the due date.

138.051(5) (5) A bank, credit union or savings bank which originates a loan and which requires an escrow to assure the payment of taxes or insurance shall pay interest on the outstanding principal balance of the escrow of not less than 5.25 percent per year. This subsection applies to any refinancing, renewal, extension or modification of the loan on or after November 1, 1981.

138.051(6) (6) Delinquency charges on a loan shall not exceed an amount determined by application of the contract rate to the unpaid amount, including interest accrued and unpaid, until paid or maturity of the obligation, whether by acceleration or otherwise, whichever first occurs. Interest imposed after maturity may not exceed the contract rate applied to the amount due on the date of maturity.

138.051(7) (7) This section does not apply to a loan insured, or committed to be insured, or secured by mortgage or trust deed insured by the U.S. secretary of housing and urban development, insured, guaranteed or committed to be insured or guaranteed under 38 USC 1801 to 1827 or insured or committed to be insured under 7 USC 1921 to 1995.

138.051(8) (8) The contract rate is not subject to rate limitations imposed under this chapter or ss. 218.0101 to 218.0163 or under s. 422.201.

138.051 History History: 1979 c. 168; 1981 c. 45; 1991 a. 221; 1999 a. 31.

138.052 138.052 Residential mortgage loans.

138.052(1) (1) In this section:

138.052(1)(a) (a) “Contract rate” means the rate contracted to be paid from time to time on the principal of a loan.

138.052(1)(b) (b) “Loan” means a loan secured by a first lien real estate mortgage on, or an equivalent security interest in, a one-family to 4-family dwelling which the borrower uses as his or her principal place of residence and which is made, refinanced, renewed, extended or modified on or after November 1, 1981, but does not include a manufactured home transaction as defined in s. 138.056 (1) (bg).

138.052(1)(c) (c) “Loan administration” means a lender’s processing of a loan and includes review, underwriting and evaluation of the loan application, document processing and preparation and administration of the loan closing, but does not include appraisals, inspections, surveys, credit reports or other activities incidental to loan origination and normally taking place outside the office of the lender or performed by 3rd persons.

138.052(1)(d) (d) “Person related to” has the meaning given under s. 421.301 (32) and (33).

138.052(2) (2) 

138.052(2)(a) (a)

138.052(2)(a)1. 1. A loan may be prepaid by the borrower at any time in whole or in part.

138.052(2)(a)2. 2. Except as provided in s. 428.207, the parties may agree that if a prepayment is made within 5 years of the date of the loan, then the lender shall receive an amount not exceeding 60 days’ interest at the contract rate on the amount by which the aggregate principal prepayments for a 12-month period exceeds 20 percent of the original amount of the loan.

138.052(2)(a)3. 3. If a prepayment is made 5 or more years from the date the loan is made, no premium or penalty may be received by the lender. This subdivision applies notwithstanding any refinancing, renewal, extension or modification of the loan.

138.052(2)(b) (b) Upon prepayment of a loan in full by cash, renewal or refinancing, the borrower is entitled to a refund of unearned interest paid. Unearned interest is that portion of any prepaid charge, excluding amounts permitted under sub. (3), multiplied by the number of unexpired payment periods as of the date of prepayment and divided by the total number of payment periods, plus, at the option of the lender, either:

138.052(2)(b)1. 1. The portion of interest which is allocable to all unexpired payment periods as scheduled. Except as otherwise agreed by the parties under sub. (4), a payment period is unexpired if prepayment is made within 15 days after the payment’s due date. The unearned interest is the interest which, assuming all payments are made as scheduled, would be earned for each unexpired payment period by applying to unpaid balances of principal, according to the actuarial method, the contract rate on the date of prepayment. The creditor may decrease the annual interest rate to the next multiple of 0.25 percent.

138.052(2)(b)2. 2. The total interest charge less all prepaid interest charges and the amount determined by applying the contract rate, according to the actuarial method, to the unpaid balances for the actual time those balances were unpaid up to the date of prepayment.

138.052(3) (3) For purposes of computing a refund under sub. (2) (b), interest does not include any of the following:

138.052(3)(a) (a) Identifiable and separately itemized charges for services incident to the loan if they are bona fide and paid to 3rd parties.

138.052(3)(b) (b) Fees, discounts or other sums actually imposed by the government national mortgage association, the federal national mortgage association, the federal home loan mortgage corporation or other governmentally sponsored secondary mortgage market purchaser of the loan or any private secondary mortgage market purchaser of the loan who is not a person related to the original lender.

138.052(3)(c) (c) A loan administration fee charged by a lender, including fees paid to 3rd parties for loan administration services, not exceeding 2 percent of the principal amount of any construction loan and 2 percent of the principal amount of any other loan.

138.052(3)(d) (d) The amount of any prepayment charge authorized under sub. (2) (a) 2. and received.

138.052(3)(e) (e) Loan commitment fees.

138.052(3)(f) (f) Amounts paid to the lender by any person other than the borrower.

138.052(4) (4) For the purpose of calculating the rate of interest under sub. (2) (b), the parties may agree that any installment paid within 30 days prior to or after the scheduled due date is paid on the due date.

138.052(5) (5) 

138.052(5)(a) (a) Except as provided in pars. (am) and (b), a bank, credit union, savings bank, savings and loan association or mortgage banker which originates a loan after January 31, 1983, and before January 1, 1994, and which requires an escrow to assure the payment of taxes or insurance shall pay interest on the outstanding principal balance of the escrow of not less than 5.25 percent per year, unless the escrow funds are held by a 3rd party in a noninterest-bearing account.

138.052(5)(am) (am)

138.052(5)(am)1. 1. Except as provided in par. (b) and unless the escrow funds are held by a 3rd party in a noninterest-bearing account, a bank, credit union, savings bank, savings and loan association or mortgage banker which originates a loan on or after January 1, 1994, and before April 18, 2018, or a loan subject to subd. 3., and which requires an escrow to assure the payment of taxes or insurance shall pay interest on the outstanding principal balance of the escrow at the variable interest rate established under subd. 2.

138.052(5)(am)2. 2.

138.052(5)(am)2.a. a. Annually, the division of banking for banks, savings and loan associations, and savings banks, and the office of credit unions for credit unions, shall determine the interest rate that is the average of the interest rates paid, rounded to the nearest one-hundredth of a percent, on regular passbook deposit accounts by institutions under the division’s or office’s jurisdiction at the close of the last quarterly reporting period that ended at least 30 days before the determination is made.

138.052(5)(am)2.b. b. Within 5 days after the date on which the determination is made, the division of banking shall calculate the average, rounded to the nearest one-hundredth of a percent, of the rates determined by the division of banking and the office of credit unions and report that interest rate to the legislative reference bureau within 5 days after the date on which the determination is made.

138.052(5)(am)2.c. c. The legislative reference bureau shall publish the average rate in the next publication of the Wisconsin administrative register. The published interest rate shall take effect on the first day of the first month following its publication and shall be the interest rate used to calculate interest on escrow accounts that are subject to this subdivision until the next year’s interest rate is published under this subd. 2. c.

138.052(5)(am)3. 3. The interest rate published under subd. 2. c. also applies to loans originated after January 31, 1983, and before January 1, 1994, if an interest rate is not specified in the loan agreement.

138.052(5)(b) (b) The parties may agree to waive payment of all or part of the interest required under par. (a) or (am) if more than 75 percent of the lender’s interest in the loan is sold to a 3rd party who is not a person related to the lender and the escrow funds are held by the 3rd party.

138.052(5m) (5m) 

138.052(5m)(a) (a) In this subsection, “escrow agent” means a person who receives escrow payments on behalf of itself or another person.

138.052(5m)(b) (b)

138.052(5m)(b)1. 1. Except as provided in par. (e), if an escrow is required to assure the payment of property taxes, a bank, credit union, savings bank, savings and loan association or mortgage banker which originates a loan on or after July 1, 1988, shall, before the loan closing, provide the borrower with a written notice clearly stating that the borrower may require the escrow agent to make payments in any manner specified in subd. 3. from the amount escrowed to pay property taxes and the responsibilities of the borrower and escrow agent as provided in subds. 4. and 5.

138.052(5m)(b)2. 2. Except as provided in par. (e), if an escrow is required to assure the payment of property taxes for a loan originated before July 1, 1988, the escrow agent shall send, by November 15, 1988, written notice to the borrower clearly stating that the borrower may require the escrow agent to make payments in any manner specified in subd. 3. from the amount escrowed to pay property taxes and the responsibilities of the borrower and escrow agent as provided in subds. 4. and 5.

138.052(5m)(b)3. 3. Except as provided in par. (e), a borrower may require an escrow agent who receives escrow payments to assure the payment of the borrower’s property taxes to do any of the following, if the borrower notifies the escrow agent as provided in subd. 4. and if the borrower is current in his or her loan payments:

138.052(5m)(b)3.a. a. Except as provided in subd. 3m., by December 20, send to the borrower a check in the amount of the funds held in escrow for the payment of property taxes, made payable to the borrower and the town, city or village treasurer authorized to collect the tax.

138.052(5m)(b)3.b. b. Pay the property taxes by December 31, if the escrow agent has received a tax statement for that property by December 20.

138.052(5m)(b)3.c. c. Pay the property taxes when due.

138.052(5m)(b)3m. 3m. In its sole discretion, an escrow agent may send a check under subd. 3. a. that is made payable only to the borrower.

138.052(5m)(b)4. 4. To require the escrow agent to make payments in any of the manners specified in subd. 3., the borrower shall send, by November 1, written notice to the escrow agent specifying the manner, from the 3 choices under subd. 3., that the borrower wants the escrow agent to make payments. Except as provided in subd. 5. b., once notified, the escrow agent shall annually make payments in that manner unless the borrower is not current in his or her loan payments or unless otherwise notified in writing by the borrower by November 1.

138.052(5m)(b)5. 5.