Exclusion of Commitments to Lend in Excess of $25,000 from the Wisconsin Consumer Act
History: Created 4-1-77, Amended 6-25-81, Amended 10-17-83
Extensions of credit may include express commitments under which the borrower may obtain a series of advances up to a stated amount. Sec. 421.202(6), Wis. Stats., excludes from the Wisconsin Consumer Act consumer credit transactions in which the amount financed exceeds $25,000. An amount financed includes, in a consumer loan, the amount receivable by or payable to the customer. This exemption excludes from the Wisconsin Consumer Act an express written commitment to advance loan proceeds to a borrower for personal, family, household or agricultural purposes in which the amount financed exceeds $25,000.
Some lenders, as part of the commitment, may retain the ability to review each request or draw and to refuse to make any particular advance. The use of review procedures to withhold additional advances from an otherwise qualified borrower or committing to lend in excess of $25,000 with no intention of so doing is a breach of this obligation and evidences an intention to circumvent the Act. Therefore, to qualify, a commitment must not only bind the lender by the terms of the agreement to loan the customer in excess of $25,000, but must also limit by its express terms those circumstances in which additional advances will be refused to those situations which evidence:
- the borrower's default for nonpayment;
- the borrower's default for failure to observe a covenant of the transaction, breach of which materially impairs the condition, value or protection of or the lender's right in any collateral securing the loan or materially impairs the customer's ability to pay amounts due under the loan;
- loan requests which exceed the borrower's line of credit or the amount of remaining credit available;
- discovery that the information provided by the borrower in connection with the commitment was false or fraudulent in any material respect;
- upon discovery of a materially adverse change in the borrower's financial condition; or,
- termination of the plan on a date specified in the agreement.
The exemption described in this Interpretation will not be affected by the termination of real estate secured credit plans, which, absent termination, would within 60 days become subject to the right of rescission requirements of the federal Truth-In-Lending Act.