Legislative Council Note, 1973: [As to sub. (1) (c)] Allows creditors to treat so-called “mortgage redemption insurance" as an additional charge. This is insurance written on long-term obligations, such as mortgages, which would not qualify as credit insurance, as that term is defined, because of its longer term. The effect of this amendment is to allow premiums for such insurance to be treated as additional charges, similar to insurance defined as “credit insurance", as long as the amount and term does not exceed the outstanding balance and term of the indebtedness.
[As to sub. (2) (b) (intro.)] Broadens the range of real estate transactions in which specified additional charges may be made. As the section reads prior to the above amendment, only the creditor holding a first mortgage or equivalent security interest may pass on these incidental charges, which include such items as title examination or title insurance fees, and fees for deed preparation, notarizing documents and appraisals to the extent that they are customarily borne by the customer in a cash transaction. The problem which arises from this approach is that these costs are incurred by other creditors in real estate transactions, but these creditors are unable to treat them in the same manner as the first mortgage; i.e., pass them on to the customer. The change made by this section is designed to insure equal treatment of purchase money creditors, regardless of the priority of their security interest, creditors refinancing a first mortgage and creditors financing substantial improvements of real property. [Bill 432-A]
Delinquency charges. 422.203(1)(1)
With respect to a consumer credit transaction other than one pursuant to an open-end credit plan, the parties may agree to a delinquency charge on any installment not paid in full on or before the 10th day after its scheduled or deferred due date in an amount not to exceed $10 or 5 percent of the unpaid amount of the installment, whichever is less.
No delinquency charge may be collected on an installment which is paid in full on or before the 10th day after its scheduled or deferred due date even though an earlier maturing installment or a delinquency charge on an earlier installment may not have been paid in full. For purposes of this subsection payments are applied first to current installments and then to delinquent installments.
A delinquency charge under sub. (1)
may be collected only once on an installment however long it remains in default. A delinquency charge may not be collected for a late installment if, with respect to that installment, there has been a deferral.
With respect to a consumer credit transaction, interest after the final scheduled maturity date may not exceed the greater of either 12 percent per year or the annual rate of finance charge assessed on that transaction if the transaction is entered into on or after April 6, 1980 and prior to November 1, 1981, and may not exceed the maximum rate permitted by s. 138.05 (1) (a)
, if the transaction is entered into prior to April 6, 1980, but if such interest is charged no delinquency charge may be taken on the final scheduled installment.
With respect to a consumer credit transaction, interest after the final scheduled maturity date shall not exceed the greater of either 12 percent per year or the annual rate of finance charge assessed on that transaction if the transaction is entered into on or after November 1, 1981, but if interest is charged no delinquency charge may be taken on the final scheduled installment.
A fee that is required in order to allow the reinstatement of payments after a default is a delinquency charge. Burny v. Thorn, 944 F. Supp. 762
With respect to a precomputed consumer credit transaction, the parties may at any time agree in writing to a deferral of all or part of one or more unpaid installments, and the creditor may make and collect a charge but:
With respect to a precomputed transaction which is scheduled to be repaid in substantially equal successive installments at approximately equal intervals, if the deferral is made as of an installment due date and the payment dates for all wholly unpaid installments are deferred for one or more full installment periods and the maturity is extended for a corresponding period, the deferral charge shall not exceed the portion of the precomputed finance charge attributable to the final installment of the original schedule of payments multiplied by the total number of installments to be deferred and by the number of full installment periods in the deferment period; or
If the deferral is not made pursuant to par. (a)
the deferral charge shall not exceed the rate previously disclosed to the customer pursuant to the provisions on disclosure in subch. III
, applied to the amount or amounts deferred for the period of deferral calculated without regard to differences in the lengths of months, but proportionally for a part of a month, counting each day as one-thirtieth of a month.
A deferral charge may be collected at the time it is assessed or at any time thereafter.
The deferment period is that period of time in which no payment is required or made by reason of the deferral.
Any payment received at the time of the deferment may be applied first to the deferral charge and the remainder, if any, to the unpaid balance of the transaction, but if such payment is sufficient to pay, in addition to the appropriate delinquency charge, any installment which is in default, it shall be first so applied, and such installment shall not then be deferred or subject to the deferral charge.
No installment on which a delinquency charge has been collected shall be deferred or included in the computation of the deferral unless such delinquency charge is refunded to the customer or credited to the deferral charge.
In addition to the deferral charge, the merchant may make appropriate additional charges as provided in s. 422.202
. The amount of such charges which is not paid in cash may be added to the amount deferred for the purpose of calculating the deferral.
In addition to any requirements of form established by the administrator, a deferral agreement shall meet all of the following requirements:
The agreement shall be in writing and signed by the customer.
The agreement shall incorporate by reference the transaction to which the deferral applies.
The agreement shall state each installment or part thereof in the amount to be deferred, the date or dates originally payable and either the date or dates agreed to become payable for the payment of the amounts deferred or the periods of deferral.
The agreement shall clearly set forth the dollar amount of the charge for each installment to be deferred and the total dollar amount to be paid by the customer for the deferral.
This subsection does not apply to deferral charges made under sub. (8)
The parties may agree in writing at the time of a precomputed consumer transaction, refinancing or consolidation that if an installment is not paid within 30 days after its due date, the creditor at any time may unilaterally grant a deferral and make charges as provided in this section if a notice is sent to the customer at least 10 days prior to deferral advising the customer of the total dollar amount of the deferral charge and the periods of deferral, but such deferral shall not be allowed if the customer has a valid claim or defense against the creditor for the payment not made. Only one such unilateral deferral on a consumer credit transaction may be made during any 12-month period.
No deferral charge may be made for a period after the date that the creditor elects to accelerate the maturity of the agreement.
See also s. DFI-WCA 1.281
, Wis. adm. code.
Legislative Council Note, 1973: Clarifies the meaning of ss. 422.204 (5) and (6). The reference in sub. (5) to “partial payment" is phrased in a manner which infers that part of an installment cannot be deferred. However, this is not the case; see s. 422.204 (1) (intro.), which clearly allows the deferment of part of an installment. This change also has a minor substantive effect—the deferral charge on the deferment of part of an installment will always have to be calculated using the rate of finance charge previously disclosed to the buyer [s. 422.204 (1) (b)], rather than possibly refunding the partial payment and calculating the deferral charge using the “unit" method [s. 422.204 (1) (a)] if the transaction otherwise qualifies for such treatment.
The cross-reference language added in sub. (6) has the effect of specifying with greater exactitude those additional charges allowable in a deferral situation. [Bill 432-A]
Finance charge on refinancing. 422.205(1)(1)
With respect to a consumer credit transaction other than one pursuant to an open-end credit plan, the merchant may by agreement with the customer refinance the unpaid balance and may bargain for and receive a finance charge based on the amount financed resulting from the refinancing at a rate not exceeding that permitted in s. 422.201
For the purpose of determining the finance charge permitted in refinancing, the amount financed resulting from the refinancing shall constitute the total of the following:
The amount which the customer would have been required to pay upon prepayment pursuant to the provisions on rebate upon prepayment under s. 422.209
on the date of refinancing, except that for the purpose of computing this amount no minimum finance charge under s. 422.201 (9)
shall be allowed; and
Appropriate additional charges under s. 422.202
, included for the period of refinancing.
The maximum period for payments resulting from refinancing under this section shall not exceed the periods provided in s. 422.403
commencing with the date of refinancing, but the outstanding balances for the purposes of that section shall be based on the amount financed resulting from such refinancing.
History: 1971 c. 239
; 1979 c. 10
Finance charge on consolidation. 422.206(1)(1)
If a customer owes an unpaid balance to a creditor with respect to a consumer credit transaction and becomes obligated on another consumer credit transaction or desires to enter into another consumer credit transaction with the same creditor, the parties may agree to a consolidation resulting in a single schedule of payments.
The unpaid balance with respect to the previous transaction shall be determined under s. 422.205
and the amount financed resulting therefrom shall be consolidated by adding to it the amount financed with respect to the subsequent transaction. The creditor may contract for and receive a finance charge based on the aggregate amount financed resulting from consolidation at a rate not exceeding that permitted by s. 422.201
The maximum period for payments resulting from consolidation under this section shall not exceed the periods provided for in s. 422.403
commencing with the date of consolidation but the outstanding balances for the purposes of that section shall be based on the amount of the consolidated outstanding balance.
History: 1971 c. 239
Advances to perform agreements of customer. 422.207(1)(1)
With respect to a consumer credit transaction the parties may, to the extent not prohibited by chs. 421
, agree that the customer will perform certain duties with respect to preserving or insuring collateral or goods subject to a motor vehicle consumer lease, if such duties are reasonable in relation to the risk of loss of or damage to the collateral or goods. If the customer fails to so perform the creditor may, if authorized by the agreement, pay for the performance of such duties on behalf of the customer. The amount paid may be added to the unpaid balance of the customer's obligation, if, in the absence of performance, the merchant has made all expenditures on behalf of the customer in good faith and in a commercially reasonable manner and the merchant has given the customer written notice of the nonperformance and reasonable opportunity after such notice to so perform.
Within a reasonable time after advancing any sums pursuant to sub. (1)
, the merchant shall state to the customer in writing the amount of the sums advanced, any charges with respect to this amount and any revised payment schedule and, if the duties of the customer performed by the merchant pertain to insurance, a brief description of the insurance paid for including the type and amount of coverages.
A finance charge may be made for sums advanced pursuant to sub. (1)
at a rate not exceeding the rate stated to the customer pursuant to the provisions on disclosure in subch. III
, or if no disclosure is required then at the annual rate of finance charge assessed on that transaction. With respect to an open-end credit plan the amount of the advance may be added to the unpaid balance of the account and the merchant may make a finance charge not exceeding that permitted by s. 422.201
See also s. DFI-WCA 1.30
, Wis. adm. code.
Right to prepay.
Subject to s. 422.209
and, with respect to a motor vehicle consumer lease, s. 429.207
, the customer may prepay in full or in any part, at any time without penalty, the unpaid balance of any consumer credit transaction other than a transaction secured by a first lien mortgage or equivalent security interest on real estate with an original term of 10 years or more and on which the annual percentage rate disclosed pursuant to subch. III
is 10 percent or less.
History: 1971 c. 239
; 1995 a. 329
Rebate on prepayment. 422.209(1)(1)
Except as provided in sub. (1m)
, upon prepayment in full of the unpaid balance of a precomputed consumer credit transaction, refinancing or consolidation, an amount not less than the unearned portion of the finance charge calculated according to this section shall be rebated to the customer. If the total of all rebates, refunds and credits to be paid to the customer under chs. 421
is less than $1, no rebate need be made.
In the event of prepayment under sub. (1)
, a merchant may retain a loan administration fee that meets all of the following conditions:
The loan administration fee does not exceed 2 percent of the amount financed in the precomputed consumer credit transaction, refinancing or consolidation.
The loan administration fee is for a consumer loan that is secured primarily by an interest in real property or in a mobile home, as defined in s. 101.91 (10)
, or in a manufactured home, as defined in s. 101.91 (2)
Notwithstanding par. (a)
, if a merchant retains any portion of a loan administration fee charged on a loan that is prepaid from the proceeds of a new loan made by the same merchant within 6 months after the prior loan, then the merchant shall reduce any loan administration fee on the new loan by the amount of the loan administration fee on the prior loan that was retained by the merchant.
The unearned portion of the precomputed finance charge on consumer credit transactions repayable in substantially equal successive installments at approximately equal intervals shall be equal to at least that portion of the finance charge which the sums of the installment balances of the obligation scheduled to be outstanding after the installment date nearest the date of prepayment bears to the sum of all installment balances originally scheduled to be outstanding under the obligation. For the purpose of determining the installment date nearest the date of prepayment when payments are monthly, any prepayment made on or before the 15th day following an installment due date shall be deemed to have been made as of the installment due date, and if prepayment occurs on or after the 16th day it shall be deemed to have been made on the succeeding installment due date. This method of calculating rebates may be referred to as the “rule of 78" or “sum of the digits" method. This paragraph applies to all of the following:
Consumer credit transactions entered into before November 1, 1981.
Consumer credit transactions having initial terms of less than 49 months entered into on or after November 1, 1981 and before August 1, 1987.
Consumer credit transactions in which the amount financed is less than $5,000, which have initial terms of less than 37 months and which are entered into on or after August 1, 1987.
The unearned portion of the finance charge on consumer credit transactions described in par. (c)
is, at the option of the creditor, either of the following:
The portion of the finance charge which is allocable to all unexpired payment periods as scheduled or deferred. A payment period is unexpired if prepayment is made within 15 days after the payment's due date. The unearned finance charge is the finance charge which, assuming all payments are made as scheduled or deferred, would be earned for each unexpired payment period by applying to unpaid balances of principal, according to the actuarial method, the annual percentage rate disclosed to the customer under subch. III
. The creditor may decrease the annual interest rate to the next multiple of 0.25 percent.
The finance charge less the amount determined by applying the annual percentage rate disclosed to the customer under subch. III
, according to the actuarial method, to the unpaid balances for the actual time those balances were unpaid up to the date of prepayment.
Consumer credit transactions which have terms of 49 months or more and which are entered into after November 1, 1981 and before August 1, 1987.
Consumer credit transactions in which the amount financed is $5,000 or more and which are entered into on or after August 1, 1987.
Consumer credit transactions in which the amount financed is less than $5,000, which have initial terms of 37 months or more and which are entered into on or after August 1, 1987.
With respect to other precomputed consumer credit transactions, the administrator may prescribe by rule the refund formula consistent with sub. (2) (a)
taking into account the irregularity of installment amounts and due dates.
Except as provided in par. (b)
, the unearned portion of a deferral charge is the deferral charge multiplied by the number of unexpired payment periods as of the date of prepayment and divided by the total number of installments deferred.
If the unearned finance charge is calculated under sub. (2) (b)
, the deferral charge shall be refunded in full.
This section does not preclude the collection or retention by the creditor of delinquency charges under s. 422.203
for delinquencies or payments due prior to prepayment.
If the maturity of the obligation is accelerated for any reason and judgment is obtained, the customer is entitled to the same rebate as if payment in full had been made on the date judgment is entered against the customer.
For purpose of this section, the finance charge in a manufactured home transaction as defined in s. 138.056 (1) (bg)
does not include 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.
Agricultural credit transactions. 422.210(1)(1)
Permissible finance charges and fees.
With respect to a credit transaction that it is primarily for an agricultural purpose, a creditor may not charge, collect or receive any finance charge or fee unless the charge or fee is clearly disclosed in writing to the customer and that is agreed to by the creditor and the customer.