There are several methods a consumer can use to finance the purchase of an automobile in Wisconsin. A consumer can pay cash for the automobile, obtain a loan from a third-party lender, such as a bank or credit union, or finance the purchase directly through the auto dealer.
Wisconsin auto dealers who directly finance the purchase of an automobile are required to use a legal instrument called a retail installment sales contract. A retail installment sales contract, oftentimes referred to as a “RISC,” is a contract in which the price of an automobile is payable in one or more installments over a period of time and in which the seller has either retained title to the automobile or has taken a security interest in the automobile.
Many Wisconsin auto dealers use a specific document called “Motor Vehicle Consumer Simple Interest Installment Sale and Security Agreement,” which is just a particular type of retail installment sales contract, to finance automobiles.
Wisconsin auto dealers who finance the purchase of automobiles using retail installment sales contracts are both the seller and the creditor on the sales transaction. Almost all auto dealers attempt to sell or assign a retail installment sales contract to another financial entity, usually identified by name in the contract itself—once a sales transaction has been finalized. Auto dealers who finance the purchase of automobiles, along with the third-party financial entities they assign the contracts to, are considered “sales finance companies” under Wisconsin law.
In Wisconsin, automobile retail installment sales contracts are governed by two statutes—Wis. Stat. §§ 218.0142 and 218.0143—and one administrative rule—Wis. Admin. Code § DFI-Bkg. 76.09. This article will identify the legal requirements set forth in those statutes and administrative rule.
I. Wis. Stat. § 218.0142—Wisconsin Installment Sales
Wis. Stat. § 218.0142 applies only to transactions where the automobile is to be used for the purchaser’s personal, family or household use. The statute does not apply to transactions where the automobile is to be used primarily for business or commercial purposes.
A. Wisconsin Retail Installment Sales Contract Writing Requirements
Every retail installment sale must be put in writing. The writing must contain all of the agreements between the parties and must be signed by the purchaser.
Prior to or concurrent with any installment sale, the auto dealer must deliver a written statement, or contract, to the purchaser which includes a description of all of the following:
- The automobile sold to the purchaser
- The cash price
- The amount of any down payment
- A description of any trade-in vehicle
- The amount credited to the purchaser for any trade-in vehicle
- The cost to the purchaser of any insurance
- The amount financed
- The finance charge
- The amount of any other charge and an identification of the purpose of the charge
- The total of payments due
- The terms of payment of the total of payments due
- The amount and date of each payment necessary to pay the total
- A summary of any insurance coverage effected
If a written order is taken from a prospective purchaser in connection with any installment sale, the contract must be given to the purchaser prior to or concurrent with the signing of the order by the purchaser.
An auto dealer who fails to deliver the contract to the purchaser containing all of the required information related to an installment sale is barred from recovering any finance charge. Any assignee of the auto dealer who—at the time of the assignment—had knowledge that the auto dealer failed to deliver the contract to the purchaser containing all of the required information related to an installment sale, is also barred from recovering any finance charge.
The auto dealer must provide the purchaser with a copy of the retail installment sales contract and any note given in connection with the contract at the time the purchaser signs the contract. The purchaser’s copy of the contract must contain the signature of the seller which is identical with the signature on the original contract.
No retail installment sales contract shall be signed in blank except that a detailed description of the automobile, including the serial number or other identifying marks of the automobile sold which are not available at the time of the contract signing, may be filled in before final delivery of the automobile.
B. Sales Finance Company Requirements
Wis. Stat. § 218.0101(34) defines “sales finance company” as any person, firm or corporation engaging in the business of acquiring by purchase or by loan on the security thereof, or otherwise, retail installment sales contracts or consumer leases from retail sellers or lessors in Wisconsin.
Sales finance companies include any automobile dealer who sells or leases any automobile on an installment contract or consumer lease or acquires any retail installment contracts in the dealer’s retail sales or leases of automobiles.
Within 30 days of acquiring any retail installment sales contract from an automobile dealer, every sales finance company must do all of the following:
- Mail or deliver to the automobile purchaser a written notice that the sales finance company acquired the retail installment sales contract from the automobile dealer
- Mail the automobile purchaser a statement describing the particulars of the retail installment sales contract price required to be stated by the automobile dealer—including the amount of the finance charge
- If insurance is provided by the sales finance company—send the automobile purchaser an insurance policy clearly setting forth the exact nature of the insurance coverage and the amount of the premiums
If the auto dealer does not assign the contract to another entity, it may combine the information noted directly above with the information required to be provided in the retail installment sales contract.
Pursuant to Wis. Stat. § 218.0116(1)(g), an auto dealer’s license may be denied, suspended or revoked for selling a retail installment sales contract to a company that is not licensed as a sales finance company by the Wisconsin Department of Financial Institutions.
Any purchaser of an automobile under a retail installment sales contract who is a Wisconsin resident at the time of purchase has a valid defense in any action or proceeding at law to enforce the contract by any sales finance company that is not licensed and which has purchased or otherwise acquired the contract—if the finance company has willfully failed or refused to mail the statutorily required information, identified above, to the purchaser.
Any purchaser of an automobile under a retail installment sales contract who is a Wisconsin resident at the time of purchase has a valid defense against the recovery of the principal, finance charge and other fees included in the contract—in any action or proceeding at law to enforce the contract by any person who has purchased or otherwise acquired the contract—if both of the following are true:
- The person who acquired the contract failed or refused prior to the purchase or acquisition to be licensed as a sales finance company under Wisconsin law
- The person who acquired the contract is engaged in business—in whole or in part—as a sales finance company
Any transaction that constitutes a “consumer transaction” or a “consumer credit transaction” is also subject to the protections set forth in Wis. Chapters 421-427, otherwise known as the Wisconsin Consumer Act.
II. Wis. Stat. § 218.0143—Notice of Insurance to Buyers Under Retail Installment Sales Contracts
Wis. Stat. § 218.0143 requires auto dealers who finance the purchase of automobiles using a retail installment sales contract that provides for insurance coverage—or where a charge is made for insurance coverage—to do one of the following:
- Ensure that the insurance policy includes public liability coverage protecting the automobile driver against damages resulting from the negligent use of the automobile
- Notify the purchaser, in writing, at the time of making the retail installment sales contract, that the automobile is not covered by public liability insurance protecting the driver against damages resulting from the negligent use of the automobile
If the auto dealer decides to do the latter, it must obtain—on a form separate from the retail installment sales contract—the signed acknowledgment of the purchaser that he or she has been notified that the contract does not include public liability insurance protecting the driver against damages resulting from the negligent use of the automobile.
III. Wis. Admin. Code § DFI-Bkg 76—Sales Finance Companies
With the exception of one section pertaining to insurance premium rebates, Wis. Admin. Code § DFI-Bkg 76 applies only to retail installment sales contracts that are “consumer credit transactions” as that term is defined by Wis. Stat. § 421.301(10) of the Wisconsin Consumer Act.
A “consumer credit transaction” is defined as:
[A] consumer transaction between a merchant and a customer in which real or personal property, services or money is acquired on credit and the customer’s obligation is payable in installments or for which credit a finance charge is or may be imposed, whether such transaction is pursuant to an open−end credit plan or is a transaction involving other than open−end credit.
The Wisconsin Consumer Act, in turn, only applies to consumer credit transactions where the amount financed is $25,000 or less. So, even though most automobile retail installment sales contracts will meet the definition of consumer credit transaction, not all will be covered by the Wisconsin Consumer Act—due to the amount financed being greater than $25,000.
A. Charges, Prepayments and Insurance Proceeds
Automobile dealers may only contract for and receive delinquency and deferral charges in accordance with the requirements of the Wisconsin Consumer Act and regulations issued by the Wisconsin Department of Financial Institutions.
An automobile purchaser may prepay a retail installment sales contract in full or part at any time without penalty. The unearned portion of the finance charge must be returned to the purchaser or credited to the outstanding balance of the purchaser’s account. An auto dealer may contract for and receive a minimum finance charge as provided by the Wisconsin Consumer Act, except for instances where a purchaser refinances a retail installment sales contract.
A sales finance company, upon payment in full of any retail installment sales contract by the proceeds of credit insurance—if its representative sold the credit insurance—must refund to the purchaser or purchaser’s estate the amount of any unearned insurance premium. If the sales finance company’s representative did not sell the credit insurance, the company must notify the insurance agent of the date of prepayment and direct any refund be made to the customer or customer’s estate.
B. Record Requirements
A sales finance company must keep the following records in connection with each transaction evidenced by a retail installment sales contract: a copy of each retail installment sales contract, each credit disclosure statement, the name of the assignee to whom each contract is transferred, and information related to any credit insurance sold by the sales finance company.
A sales finance company must also retain a copy of each notice of right to cure default sent by the company, each document evidencing receipt of surrender of any automobile, and all records related to the sale of the automobile.
A sales finance company must maintain a written record related to each retail installment sales contract. For open accounts, the record must include the date of the transaction, account number, name and address of the purchaser, cash price, down payment, amount of any additional charge, amount financed, finance charge, total payments, first installment due date, and repayment schedule.
The record for open accounts must also include the annual percentage rate, a description of the automobile, an identification of whether the automobile was new or used, an identification of any delinquency or deferral charges collected, the name of each credit and property insurer, and the insurance certificate or policy number.
For paid, or closed, accounts, a sales finance company must maintain, in addition to all of the information required for open accounts, the following: the date the account is paid in full, whether the account balance or any proceeds were paid from credit insurance proceeds, the amount of the refund of unearned charges separately itemized, and the amount, date and check number of any overpayment or rebate payment.
All of the records required to be maintained by Wis. Admin. Code § DFI-Bkg 76 must be kept for at least 2 years after consummation of the transaction or one year after the last payment—whichever is later—and must be accessible by reference to the name of the customer.