Wisconsin Consumer Act Trumps Choice-of-Law Contract Provision, Appeals
By Joe Forward, Legal Writer,
State Bar of Wisconsin
Aug. 22, 2012
– A Wisconsin couple who bought a car in Minnesota – and
signed the contract there – is still protected by the Wisconsin
Consumer Act, a state appeals court recently ruled.
In February 2008, Chao Kong and Pam Her purchased a vehicle in St.
Paul, Minn., with a $1,200 down payment, and Credit Acceptance
Corporation agreed to finance the rest of the purchase price. The couple
made five consecutive late payments, and failed to make the payment due
on August 22.
A month and two days later, on September 24, Credit Acceptance sent the
couple a “notice of right to cure default.” Under the
purchase contract, a “default” allowed the financer to
accelerate payments and repossess the car after providing any notice
required by law.
The couple failed to cure, and Credit Acceptance repossessed the
vehicle. Credit Acceptance then filed a deficiency action in Wisconsin,
seeking the balance of the vehicle’s purchase price. The couple
counterclaimed, asserting a violation of the Wisconsin Consumer Act
A circuit court dismissed the deficiency action and awarded damages to
the couple. Specifically, the court awarded nearly $2,000 for car
payments made, $1,200 for the down payment, $5,800 for the
vehicle’s value, and $1,000 in statutory damages under the
state’s consumer act, plus attorney fees.
Acceptance Corporation v. Kong, 2011AP476 (August 14, 2012), a
three-judge panel for the District III Wisconsin Court of Appeals
largely affirmed, upholding both the deficiency dismissal and damages
judgments. However, the appeals court ruled that statutory damages were
Defaults in Wisconsin
Under the Wis. Stat. section 425.104(1),
merchants can’t commence deficiency actions “unless the
merchant believes the customer to be in default … and then only
upon the expiration of 15 days after a notice is given.” Under
according to the appeals court, a “default” occurs
“when an amount greater than one full payment remains unpaid for
more than 10 days.”
In other words, merchants can’t file deficiency actions unless a
merchant believes a consumer is in default. A consumer is not in default
unless an amount greater than one full payment is delinquent
and more than 10 days have passed. And the merchant, once the consumer
is in default, must give the consumer notice and the right to cure, then
wait 15 days before filing an action for deficiency.
Merchants can’t repossess goods without following the notice
Credit Acceptance sent its notice of right to cure default a month and
two days after Kong and Her failed to meet the August 22 due date. But
it was not until the Sept. 22 deadline that the couple’s balance
exceeded one full payment, the appeals court explained. Thus,
Credit Acceptance’s notice of right to cure, sent on September 24,
was premature because the couple was not yet in default under the
“Because the notice was invalid, Credit Acceptance was not
entitled to engage in self-help repossession of the vehicle,”
wrote Judge Mark Mangerson. “Nonjudicial enforcement is sharply
circumscribed by 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.”
Credit Acceptance argued that the WCA’s definition of
“default” did not apply. Specifically, Credit Acceptance
said section 425.103(2) allows a default to be defined “under any
Unlike the 10-day safe harbor that Wisconsin law gives consumers before
a default occurs, the purchase contract stated that a default occurred
if a payment was not made when due.
The choice-of-law provision demanded that Minnesota law apply, Credit
Acceptance argued, and Minnesota law does not require notice to a
consumer before a creditor repossesses goods.
The appeals court quickly rejected that argument as frivolous.
“As long as some portion of the WCA is applicable, no choice-of
law-provisions are effective,” Judge Mangerson wrote.
The court explained that Credit Acceptance subjected itself to the WCA
when it brought suit for deficiency in Wisconsin. Specifically, Wis.
Stat. section 421.201(5)
states that the WCA may apply to actions “brought in this state to
enforce rights arising from consumer transactions … wherever
The court upheld the circuit courts damages award, but ruled that the
statutory award of $1,000 for prohibited debt collection practices was
“[B]eyond imposing the statutory penalty, the circuit
court’s written orders do not specify in what prohibited debt
collection practice Credit Acceptance engaged,” Mangerson wrote.
“Kong and Her, for their part, have not offered any explanation or
defense of the court’s $1,000 statutory damages award.”