Wis. Admin. Code § Trans. 139.055 is the Wisconsin administrative rule regulating financing contingencies in automobile purchase contracts. The rule addresses three specific topics:
- Dealer-arranged financing
- Purchaser-arranged financing
- Fees on void contracts
Dealer-arranged financing is where a prospective purchaser agrees to let an auto dealer attempt to secure financing (i.e., obtain a loan)—usually from a third-party lending institution—on behalf of the prospective purchaser in order to finance the purchase of the automobile.
Dealer-arranged financing comes in two forms:
- Where the purchase contract is contingent upon the dealer providing financing on terms disclosed to the purchaser in advance of the execution of the purchase contract
- Where the purchase contract is contingent on the dealer arranging financing that is acceptable to the purchaser
In the first form, an auto dealer attempts to secure financing on the specific terms the prospective purchaser agreed to in advance of signing the contract. In the second form, an auto dealer attempts to secure financing on terms to which the prospective purchaser has the option—at a later date—of either accepting or declining.
Purchaser-arranged financing is where a prospective purchaser attempts to obtain a loan in order to finance the purchase of the automobile. In this form, the auto dealer plays no role related to obtaining financing.
This article will briefly discuss the legal framework pertaining to dealer-arranged financing, purchaser-arranged financing, as well as fees on purchase contracts which are rescinded under Wis. Admin. Code § Trans. 139.055.
I. Dealer-Arranged Financing
The section of Wis. Admin. Code § Trans. 139.055 addressing dealer-arranged financing is divided into two subsections: Notice to Consumer Regarding Ineligibility for Financing and Establishing Credit Terms Between the Contract Date and Delivery Date for a Vehicle. Each will be addressed in turn.
A. Notice to Consumer Regarding Ineligibility for Financing
If an automobile purchase contract is contingent upon the dealer providing financing on terms disclosed to the purchaser in advance of the execution of the purchase contract, the contract must provide that—if the dealer is unable to provide financing on such terms—the contract shall be rescinded if the dealer provides notice to the purchaser within 14 days of the contract date that the automobile dealer financing is not available.
If the dealer fails to provide the notice within 14 days of the purchase contract date, the purchaser may elect to carry out the contract and the automobile dealer must—within 28 days of the contract date—finance the purchase of the automobile on the terms specified in the contract and deliver the automobile in the manner specified in the contract.
If the dealer delivers—that is, gives possession of—the automobile to the purchaser, the dealer must finance the automobile at the terms previously disclosed to the purchaser. In other words, once the dealer delivers the automobile to the purchaser, the purchase contract and financing terms are final and binding on both the dealer and the purchaser.
B. Establishing Credit Terms Between the Contract Date and Delivery Date for a Vehicle
With respect to an automobile purchase contract that is contingent on the dealer arranging financing that is acceptable to the purchaser, the dealer may—subsequent to the purchase contract date and prior to the purchaser accepting delivery of the automobile—provide the purchaser with notice that the dealer has arranged financing for the automobile for which the purchaser is qualified.
If a transaction is a consumer transaction, the notice must include all of the disclosures of the terms of the arranged financing that are required by the Truth In Lending Act, 15 U.S.C. §§ 1601 et seq., including the amount financed, the annual interest rate, the total principal and interest payments, and the monthly interest and principal payment due over the course of the loan.
If a transaction is a consumer credit transaction covered by the Wisconsin Consumer Act, the notice must also include all of the disclosures set forth in Wis. Chapter 422, the Wisconsin law applicable specifically to consumer credit transactions.
The notice must state that the purchaser has 7 days to accept or reject the proposed financing.
- If the purchaser accepts the proposed financing, the financing contingency of the purchase contract shall be deemed satisfied and the dealer is bound to provide financing on the terms set forth in the notice
- If the purchaser rejects the proposed financing—but waives the financing contingency—the financing contingency shall be deemed waived and the purchaser is bound to the purchase contract without regard to whether the purchaser is able to secure financing
- If the purchaser fails to respond to the notice within 7 days or rejects the proposed financing—and does not waive the financing contingency—the contract is rescinded
II. Purchaser-Arranged Financing
A purchase contract that is contingent on a purchaser arranging financing is rescinded if the purchaser does not provide evidence to the dealer that the purchaser has arranged acceptable financing for the purchase of the automobile, such as a loan commitment letter, within the time established by the parties in the contract.
III. Fees on Void Contracts
A Wisconsin automobile dealer may not charge a fee or penalty to the purchaser in connection with a purchase contract that is rescinded under the above provisions.