A sales finance company buys retail installment contracts from motor vehicle dealers in its home state. Not surprisingly, those contracts reflect the laws of that state. What happens, though, when the buyer named in the contract moves to a state with laws that are different from the company’s home state? Do the laws that originally applied to the transaction still apply, or do the laws of the new state apply?

That was the question addressed in a recent Wisconsin opinion. Here’s what happened.

Chao Kong and Pam Her signed a retail installment sale contract in connection with their purchase of a vehicle in Minnesota. The contract was assigned to Credit Acceptance Corp. and included a choice-of-law provision requiring application of Minnesota law.

Credit Acceptance determined that Kong and Her were in default and sent a notice of right to cure default. When the default was not cured, Credit Acceptance repossessed the vehicle in Wisconsin. Credit Acceptance then brought a deficiency action in Wisconsin to obtain a monetary judgment for the balance of the purchase price of the vehicle.

Kong and Her counterclaimed, alleging violations of the Wisconsin Consumer Act (WCA). The trial court granted judgment in favor of Kong and Her and awarded damages. Unhappy with that result, Credit Acceptance appealed.

Even though the consumer transaction at issue was not made in Wisconsin, the Court of Appeals of Wisconsin found that the WCA applied. Certain provisions of the WCA apply to actions or other proceedings “brought in this state to enforce rights arising from consumer transactions … wherever made.” Therefore, because Credit Acceptance filed the deficiency action in Wisconsin, the court reasoned, it consented to be governed by certain provisions of the WCA.

The appellate court then determined that Kong and Her were not in “default” as that term is defined in the WCA. A “default” under the WCA occurs, in pertinent part, when an amount greater than one full payment remains unpaid for more than 10 days. Because Kong and Her were not yet in default at the time the notice of right to cure default was sent, the court reasoned, Credit Acceptance’s notice was invalid. Because the notice was invalid, Credit Acceptance was not entitled to engage in self-help repossession of the vehicle under the WCA. Under the WCA, no merchant may take possession of a motor vehicle unless the merchant provides notice and gives the customer an opportunity to object and proceed in court.

The appellate court rejected Credit Acceptance’s argument that the WCA did not apply because of the contract’s Minnesota choice-of-law provision. The appellate court determined that such provisions are barred by the WCA. It added that as long as some portion of the WCA applies, no choice-of-law provisions are effective.

Minnesota has no cure notice requirement and no statute (like the one in Wisconsin) has altered the common law definition of “default.” As a result, if Wisconsin law governs the definition of “default,” Credit Acceptance prematurely sent the cure notice. If the Minnesota law governs the definition of “default,” Credit Acceptance timely sent the cure notice. The Wisconsin Court of Appeals held that Wisconsin law, not Minnesota law as the contract stated, governed whether the consumers had defaulted and, thus, Credit Acceptance prematurely sent the cure notice.

Finally, the appellate court found the trial court properly awarded damages under the WCA to Kong and Her. Damages consisted of the vehicle’s market value, the down payment and the payments made pursuant to the credit transaction. The appellate court also found the trial court properly awarded attorney’s fees. However, the appellate court found that Kong and Her were not entitled to statutory damages under a provision of the WCA prohibiting certain debt collection practices.

Wisconsin’s credit laws are based on a modified version of the so-called Uniform Consumer Credit Code, which lawyers refer to as the “U3C.” Several U3C states have provisions, like Wisconsin’s, that purport to apply regardless of where the contract was made.

Does it make sense for Wisconsin law to apply to a transaction that was entered into in another state by parties who might not at the time of contracting have had any notion that one of them might end up, perhaps years later, in Wisconsin? Is it fair to apply Wisconsin law to such a transaction, requiring businesses all over the country to operate with one eye on their home state’s law and another on Wisconsin law? What happened to the concept of “comity,” the deference one state gives to the laws of another state? Isn’t this a perfect example of a case in which Wisconsin law should not be applied?

I guess this one goes in the “Life’s Not Fair” file, which might explain why so few states have laws like Wisconsin’s.

But some do. And there are variations on the facts in this case. Some dealerships are located near state borders and regularly do business with customers in other states, assigning the resulting credit contracts to sales finance companies as mentioned in the beginning of the article. Other dealers who sell their contracts engage in Internet transactions with borrowers from distant states. If a sales finance company services and collects contracts from customers in other states, it would be a good idea to make sure those other states don’t have laws or regulations that require the finance company to do things differently from the way things are done in its home state.


About the author