Chapter 138

138.055 Annotation Variable rate mortgages: The transition phase. 61 MLR 140.

138.056 138.056 Variable rate loans.

138.056(1) (1) Definitions. In this section:

138.056(1)(a) (a) “Approved index” means any of the following:

138.056(1)(a)2. 2. The monthly average of weekly auction rates on U.S. treasury bills with a maturity of 3 months or 6 months made available by the federal reserve board.

138.056(1)(a)3. 3. The monthly average yield on U.S. treasury securities adjusted to a constant maturity of 1, 2, 3 or 5 years, made available by the federal reserve board.

138.056(1)(a)4. 4. An index readily verifiable by borrowers and beyond the control of an individual lender and approved by:

138.056(1)(a)4.b. b. The office of credit unions, if the lender is a credit union;

138.056(1)(a)4.c. c. The commissioner of insurance, if the lender is an insurance company; or

138.056(1)(a)4.d. d. The division of banking for all other lenders.

138.056(1)(b) (b) “Dwelling” includes a cooperative housing unit and a mobile home or manufactured home.

138.056(1)(bd) (bd) “Manufactured home” has the meaning given in s. 101.91 (2).

138.056(1)(bg) (bg) “Manufactured home transaction” means a consumer credit sale, as defined in s. 421.301 (9), of or a consumer loan, as defined in s. 421.301 (12), secured by a first lien or equivalent security interest in a mobile home or manufactured home.

138.056(1)(bm) (bm) “Mobile home” has the meaning given in s. 101.91 (10).

138.056(1)(d) (d) “Variable rate loan” means a manufactured home transaction or a loan as defined in s. 138.052 (1) (b), the terms of which permits the interest rate to be increased or decreased.

138.056(2) (2) Required terms. Except as provided in sub. (2m), a variable rate loan contract shall:

138.056(2)(a) (a) Provide for a term of not more than 40 years.

138.056(2)(b) (b) Use an approved index if it provides for adjustments to the interest rate corresponding to an index. Subject to sub. (2m), the initial index value shall be the most recently available value of the index prior to the date of closing of the loan. The interest rate at adjustment shall reflect the difference, in reference to the interest rate of the variable rate loan at the date of closing or, if sub. (2m) is applicable, upon expiration of the initial interest rate period, between the initial index value and the index value most recently available as of the date notice of the interest rate adjustment is mailed under sub. (4) except the lender may decrease the interest rate or decline to increase the interest rate at any time. The interest rate shall be decreased to reflect any downward movement of the index except to the extent the decrease offsets increases in the index not implemented as interest rate increases. An increase in the index permitting the lender to increase the interest rate but declined by the lender for any rate adjustment interval may be carried over and applied in succeeding interest rate adjustment intervals to the extent the increase is not offset by subsequent decreases in the index.

138.056(2)(c) (c) Provide for no more than a one percent increase in the interest rate not more than once each 6 months and permit decreases in the interest rate to be made at any time, if it does not provide for adjustments to the interest rate corresponding to an approved index. If an increase is waived, the lender may at any time increase the interest rate to a rate equal to the interest rate if all increases were made at the first opportunity.

138.056(2m) (2m) Discounted initial rate. A variable rate loan contract may include a discounted initial interest rate that is lower than the rate established under sub. (2) (b). Upon expiration of the initial interest rate period, sub. (2) (b) shall apply. For purposes of sub. (2) (b), the initial index value shall be the most recently available value of the index immediately prior to the expiration of the initial interest rate period. This subsection applies to variable rate loan contracts entered into on or after July 3, 2015.

138.056(3) (3) Fees prohibited. No costs or fees may be charged in connection with adjustment to the interest rate of a variable rate loan or an adjustment to the payment, principal balance or term implementing an interest rate adjustment.

138.056(3m) (3m) Prepayment penalties.

138.056(3m)(a) (a) Notwithstanding s. 138.052 (2) (a), and except as provided in s. 428.207, a lender may not include a prepayment penalty in a variable rate loan using an approved index unless all of the following are satisfied:

138.056(3m)(a)1. 1. The lender also makes variable rate loans without prepayment penalties and the lender provides the borrower with a written statement that the lender also makes variable rate loans without prepayment penalties.

138.056(3m)(a)2. 2. At the time of the offer of the variable rate loan, and the borrower acknowledges, in writing, receipt of the statement specified in subd. 1.

138.056(3m)(a)3. 3. The penalty is limited to prepayment that is made within 3 years of the date of the loan.

138.056(3m)(a)4. 4. The prepayment is not made in connection with the sale of a dwelling or manufactured home securing the loan.

138.056(3m)(b) (b) This subsection applies to variable rate loans made, refinanced, renewed, extended, or modified on or after March 25, 2006.

138.056(4) (4) Notice of interest payment changes.

138.056(4)(a) (a) If a change in the interest rate occurs, the lender shall give the borrower notice of the change:

138.056(4)(a)1. 1. At least 15 days before the change if an increase in periodic payments other than the final payment is required.

138.056(4)(a)2. 2. Not later than 30 days after any other change.

138.056(4)(b) (b) The notice shall be mailed to the borrower’s last-known address and shall contain all of the following information:

138.056(4)(b)1. 1. The effective date of the interest rate change.

138.056(4)(b)2. 2. The amount of the interest rate change.

138.056(4)(b)3. 3. The changes in any index which cause the interest rate change.

138.056(4)(b)4. 4. The amount of the contractual monthly principal and interest payments required as a result of the change.

138.056(4)(b)5. 5. The prepayment rights of the borrower.

138.056(4)(c) (c) This subsection does not apply to a loan secured by an equivalent security interest as determined as of the date that the loan is made.

138.056(5) (5) Negative amortization. The principal balance of a variable rate loan may be increased to implement an interest rate adjustment only if within 10 years after the loan is made, and at least every 5 years thereafter, the payment amount is adjusted to a level at least sufficient to amortize the loan at the then existing interest rate and principal balance over the remaining term of the loan. The payment amount shall be maintained at least at that level until subsequently adjusted under this subsection, except that the payment amount shall be decreased to reflect any decrease in the interest rate.

138.056(7) (7) Priority. Any interest accrued or added to the principal of a variable rate loan to implement an interest rate adjustment retains the priority of the original mortgage or equivalent security interest.

138.056(8) (8) Applicability. This section does not apply to any of the following:

138.056(8)(a) (a) A loan or forbearance to a corporation or a limited liability company.

138.056(8)(b) (b) A loan that is primarily for a business purpose or for an agricultural purpose, as defined in s. 421.301 (4).

138.056(8)(c) (c) A reverse mortgage loan, as defined in s. 138.058 (1) (b).

138.056(8)(d) (d) A transaction initially entered into before November 1, 1981.

138.056 History History: 1981 c. 45; 1983 a. 232; 1985 a. 325; 1991 a. 221; 1993 a. 88, 112; 1995 a. 27, 336; 1999 a. 9, 53; 2003 a. 33, 257; 2005 a. 128, 215; 2007 a. 11; 2015 a. 54; 2021 a. 241; 2023 a. 128.

138.056 Cross-reference Cross-reference: See also s. DFI-SB 13.02, Wis. adm. code.

138.057 138.057 Penalties. Any lender who intentionally violates s. 138.053, 138.055 or 138.056 is liable to the borrower for all excess interest collected, plus interest thereon at the rate of 5 percent per year. In addition, the borrower may recover actual damages, including incidental and consequential damages, sustained by reason of the violation.

138.057 History History: 1975 c. 387; 1977 c. 26; 1981 c. 45 s. 51.

138.058 138.058 Reverse mortgage loans.

138.058(1) (1) Definitions. In this section:

138.058(1)(a) (a) “Qualified lender” means a lender approved by the federal department of housing and urban development to enter into a loan insured by the federal government under 12 USC 1715z-20.

138.058(1)(b) (b) “Reverse mortgage loan” means a loan, or an agreement to lend, which is secured by a first mortgage on the borrower’s principal residence, is insured by the federal government under 12 USC 1715z-20 and requires repayment as specified in the loan agreement under any of the following conditions:

138.058(1)(b)1. 1. All the borrowers have died.

138.058(1)(b)2. 2. All the borrowers have sold the residence or conveyed title to the residence.

138.058(1)(b)3. 3. All the borrowers have moved permanently from the residence.

138.058(1)(b)4. 4. Any other condition specified in 12 USC 1715z-20.

138.058(2) (2) Reverse mortgages permitted. A qualified lender may enter into reverse mortgage loans.

138.058(3) (3) Treatment of reverse mortgage loan proceeds by public benefit programs.

138.058(3)(a) (a) Reverse mortgage loan payments made to a borrower shall be treated as proceeds from a loan and not as income for the purpose of determining eligibility and benefits under means-tested programs of aid to individuals.

138.058(3)(b) (b) Undisbursed funds shall be treated as equity in a borrower’s residence and not as proceeds from a loan for the purpose of determining eligibility and benefits under means-tested programs of aid to individuals.

138.058(3)(c) (c) This subsection applies to any law relating to payments, allowances, benefits or services provided on a means-tested basis by this state, including supplemental security income, low-income energy assistance, property tax deferral, medical assistance and general assistance.

138.058 History History: 1993 a. 88.

138.06 138.06 Effect of usury and penalties.

138.06(1) (1) All instruments, contracts or securities providing a rate of interest exceeding the rate allowed in s. 138.05, 138.051 or 138.052 shall be valid and effectual to secure the repayment of the principal amount loaned in excess of $2,000; but no interest may be recovered thereon except upon bottomry and respondentia bonds and contracts.

138.06(2) (2) Any lender or agent of a lender who violates s. 138.05, 138.051 or 138.052 may be fined not less than $25 nor more than $500, or imprisoned not more than 6 months, or both.

138.06(3) (3) Any borrower who paid interest on a loan or forbearance at a rate greater than the rate allowed in s. 138.05, 138.051 or 138.052 may personally or by personal representative recover in an action against the lender or personal representative the amount of interest, principal and charges paid on such loan or forbearance but not more than $2,000 of principal, if the action is brought within the time provided by s. 893.62.

138.06(4) (4) Any borrower to whom a lender or agent of a lender fails to provide the statement required in s. 138.05 (4) with respect to a loan or forbearance may by himself or herself or his or her personal representative recover in an action against the lender or the lender’s personal representative an amount equal to all interest and charges paid upon such loan or forbearance but not less than $50 plus reasonable attorney fees incurred in such action.

138.06(5) (5) Notwithstanding subs. (1) to (4), if any violation of s. 138.05, 138.051 or 138.052 is the result of an unintentional mistake which the lender or agent of the lender corrects upon demand, such unintentional violation shall not affect the enforceability of any provision of the loan contract as so corrected nor shall such violation subject the lender or the agent of the lender to any penalty or forfeiture specified in this section.

138.06(6) (6) In connection with a sale of goods or services on credit or any forbearance arising therefrom prior to October 9, 1970, there shall be no allowance of penalties under this section for violation of s. 138.05, except as to those transactions on which an action has been reduced to a final judgment as of May 12, 1972.

138.06(7) (7) Notwithstanding sub. (6), a seller shall, with respect to a transaction described in sub. (6), refund or credit the amount of interest, to the extent it exceeds the rate permitted by s. 138.05 (1) (a), which was charged in violation of s. 138.05 and paid by a buyer since October 8, 1968, upon individual written demand therefor made on or before March 1, 1973, and signed by such buyer. A seller who fails within a reasonable time after such demand to make such refund or credit of excess interest shall be liable in an individual action in an amount equal to 3 times the amount thereof, together with reasonable attorney fees.

138.06(8) (8) This section does not apply to a loan or forbearance made on or after November 1, 1981.

138.06 History History: 1971 c. 308; 1979 c. 168 s. 21; 1979 c. 323, 355; 1981 c. 45 ss. 4, 51; 1993 a. 482, 490.

138.06 Annotation Sub. (7) is constitutional. Wiener v. J. C. Penney Co. 65 Wis. 2d 139, 222 N.W.2d 149 (1974).

138.06 Annotation Class actions for the recovery of usurious interest charged by revolving credit plans are not precluded by (3). Mussallem v. Diners’ Club, Inc. 69 Wis. 2d 437, 230 N.W.2d 717 (1975).

138.06 Annotation Sub. (6) is constitutional. 60 Atty. Gen. 198.

138.09 138.09 Licensed lenders.

138.09(1a) (1a) This section does not apply to any of the following:

138.09(1a)(a) (a) Banks, savings banks, savings and loan associations, trust companies, credit unions, or any of their affiliates.

138.09(1a)(b) (b) Payday loans made under s. 138.14.

138.09(1a)(c) (c) Providers of earned wage access services required to be licensed under s. 203.03 (1).

Effective date note NOTE: Sub. (1a) (intro.), (a), (b), and (c) are renumbered to sub. (1c) (a) (intro.), 1., 2., and 7. eff. 1-1-25 by 2023 Wis. Acts 131 and 267.

138.09(1c) (1c) 

138.09(1c)(a) (a) This section does not apply to any of the following:

138.09(1c)(a)1. 1. Banks, savings banks, savings and loan associations, trust companies, credit unions, or any of their affiliates.

138.09(1c)(a)2. 2. Payday loans made under s. 138.14.

138.09(1c)(a)3. 3. An individual or entity who, in connection with a securitization, private placement, collateral financing, or other type of investment or financing transaction, lends against or purchases consumer loans or any portion of the outstanding balances of consumer loans, if the following apply:

138.09(1c)(a)3.a. a. The consumer loans are serviced by a licensee under this section, either directly or through a contracted party.