Vol. 80, No. 2, February 2007
n April 13, 2006, Wisconsin's motor vehicle repossession law changed in a significant way when provisions took effect that allow creditors to repossess motor vehicles without judicial process. This article reviews changes in the repossession law and provides an overview of some of the problems these changes create for consumers, creditors, lawyers, and the courts. In addition, this article briefly discusses how the changes in the repossession law are emblematic of the slow but steady erosion of consumer rights previously enshrined in the Wisconsin Consumer Act.
A scenario. To illustrate the significance of the changes in the repossession law, assume you are a general practitioner representing individuals in a variety of areas, including handling the occasional consumer protection case. You have a working knowledge of Wisconsin's law of repossession, enough to know that the law does not take kindly to so-called "self-help repossession," that is, repossession without a court order. One day, a potential client, a single mother of three young children, comes to your office claiming the used car she bought was repossessed from her driveway early that same morning. She had fallen behind in her car payments after being laid off from her job. She received a letter a few weeks ago from the financing company but ignored it because it contained lots of "legal words" and she was preoccupied with looking for work while raising her three kids. She insists that she never received notice of a court hearing or a post-hearing judgment. That she would have paid attention to.
You start to think your new client may have a very solid case of illegal self-help repossession, which would entitle her to significant damages: the return of her car (or its value at the time of repossession if it was resold) and reimbursement of all of her payments to date, plus her attorney fees.1 She leaves your office with a decidedly lighter step than when she arrived. You start to research the most recent version of the Wisconsin Consumer Act, and your heart sinks. You call her an hour later and tell her that she probably does not have a case, her car is most likely gone forever, and if she owes more than $1,000 on the vehicle, she may be liable for a deficiency judgment.2
This scenario is not far-fetched, given recent changes in Wisconsin's long-standing repossession law.
Kelly Anderson is a second year student at the U.W. Law School. Steve Meili (New York Univ. 1983) is a clinical professor and director at the U.W. Consumer Law Clinic.
The Old Law
Since its enactment in 1973, and until it was changed in April 2006, the Wisconsin Consumer Act (WCA) prohibited creditors from repossessing collateral or goods without first obtaining a court order, unless the consumer voluntarily surrendered or abandoned the goods.3 Requiring judicial process before repossession provided consumers with necessary due process protections and was consistent with one of the explicitly enumerated purposes of the WCA, namely "to protect consumers against unfair, deceptive, false, misleading and unconscionable practices by merchants."4 Consumers thus were afforded the opportunity to contest their alleged indebtedness, the validity of the underlying contract, or the creditor's debt collection practices in court. Absent a judicial forum, these legitimate defenses to repossession would rarely be brought. Moreover, consumers, creditors and society in general benefited from the use of judicial process because of the reduced likelihood of violent confrontations that sometimes accompanied self-help repossessions.5 Until April 2006, the creditor's representative or a law enforcement officer typically carried a judgment or court order in hand when appearing at a consumer's residence to repossess property. The court's imprimatur made an orderly repossession more likely.
As noted above, one exception to the ban on self-help repossession was the voluntary surrender of the merchandise. However, the standard for a "voluntary" surrender was extremely high, in keeping with the WCA's mandate that the statute be "liberally construed and applied to promote [its] underlying purposes and policies."6 Thus, a surrender of property was not considered voluntary if it was made after a request or demand or after any threat, statement, or notice to the consumer that the creditor intended to take possession.7 For example, in one case, the Wisconsin Supreme Court held that the plaintiff did not voluntarily surrender his car when the plaintiff's wife refused to give her keys to the dealership and the plaintiff's personal possessions were in the car at the time of the repossession.8 In addition, a consumer's surrender was not considered voluntary if the creditor committed any debt collection violations under the WCA or failed to inform the consumer of the right to a hearing.9
In addition, even if a creditor otherwise complied with the law, a repossession nevertheless was invalid if the creditor breached the peace while repossessing the merchandise.10 As with voluntary surrender, breach of peace has been liberally interpreted to protect consumers. Thus, the Wisconsin Court of Appeals has held that a verbal objection to repossession by the debtor or his fiancé, family, or friends constitutes a breach of the peace.11
Creditors generally obeyed the old repossession law because the penalties for violating it were severe: if a creditor repossessed merchandise in violation of the WCA (that is, without judicial process, without a voluntary surrender, or with a breach of the peace), the consumer was entitled to: 1) regain possession of the merchandise with no further obligation to pay; 2) reimbursement for all payments made up to the point of the repossession; and 3) costs and attorney fees.12 In addition, if the creditor had resold the merchandise by the time the consumer successfully challenged the unlawful repossession (thus making return of the merchandise to the consumer impossible), the consumer was entitled to the value of the merchandise at the time of the repossession.13
The New Law: Implications for Creditors and Consumers
The consumer protections described above have been significantly weakened by amendments to the WCA enacted in April 2006. The biggest change is that creditors are no longer required to obtain a court order before repossessing a motor vehicle.14 Instead, the creditor must mail the consumer a notice (the "Repossession Notice") containing:
- the name, address, and telephone number of the creditor, a brief identification of the consumer credit transaction, and a brief description of the collateral or goods;
- a statement that, as a result of the consumer's default, the creditor may have a right to repossess the goods without further notice or court proceedings;
- a statement that, if the consumer is not in default or objects to the creditor's right to take possession of the collateral or goods, the consumer may, no later than 15 days after the creditor has given the notice, demand that the creditor proceed in court by notifying the creditor in writing; and
- a statement that if the creditor proceeds in court, the consumer may be required to pay court costs and attorney fees.15
After receiving the required Repossession Notice, if the consumer objects to the creditor's right to repossess the vehicle, the consumer has 15 days to make a written demand that the creditor begin court proceedings to repossess the vehicle.16 If the creditor's Repossession Notice is sent via registered or certified mail, it is presumed to have been received by the consumer.17 If 15 days pass with no demand from the consumer for a court proceeding, the creditor may repossess the vehicle without further notice.18
The new law has significant implications for consumers and creditors. First, this amendment overturns Wisconsin's long-standing law of repossession and some of the underlying premises of the WCA. For example, under the old law the creditor was required to prove in court that the consumer was in default and that it otherwise had the right to repossess the vehicle. This requirement was in keeping with the WCA's overall recognition that creditors are more knowledgeable and sophisticated in marketplace affairs than are consumers.19 Now, the consumer either must ask to be sued by the creditor or begin an affirmative action against the creditor to establish that the consumer is not in default or that the proposed repossession is otherwise improper. Apart from the obvious social truism that few people will ever ask to be sued for any purpose, this change marks a fundamental shift in the WCA's longstanding balance between the creditor and consumer.
Second, under the new law, creditors are allowed to unilaterally determine that a consumer is in default. Unless a consumer consents to be sued, or chooses to bring an affirmative action against the creditor, the consumer is provided no forum in which to raise concerns regarding the validity of the underlying debt, abusive debt collection practices, and the legality of the underlying contract. In essence, the judicial function of determining the validity of a debt has been transferred to the creditor instead of an unbiased neutral party.
Third, the new law greatly expands the scope of "voluntary surrender." In the past, a voluntary surrender had to be truly voluntary; that is, not in response to any kind of a demand or request by the creditor. Now, the law not only authorizes, but requires such a demand for surrender, leaving it up to the consumer to resist that demand by asking to be taken to court. If the consumer does not receive, understand, or otherwise respond to the demand, the consumer is presumed to have voluntarily surrendered the vehicle. Voluntary surrender was once the exception to the prohibition against self-help repossession, but the amendments to the WCA will most likely make "voluntary surrender" the rule.
Fourth, the new law requires creditors to include in the Repossession Notice a statement that "if the merchant proceeds in court, the customer may be required to pay court costs and attorney fees."20 This requirement seems inconsistent with Wis. Stat. section 422.411 (another section of the WCA), which provides that "with respect to a consumer credit transaction no term of a writing may provide for the payment by the customer of attorney fees."21 The purpose of such prohibitions is to prevent the chilling effect that a threat of attorney fees might have on a consumer's assertion of legal rights.22 This is particularly true in the context of statutes like the WCA that are designed to encourage the private enforcement of individual consumer rights.23 A notice about the possible assessment of attorney fees (which doesn't even indicate that such fees are recoverable only if the creditor prevails) will no doubt make it even more unlikely that a debtor will choose to assert his or her rights.
Fifth, the amendments significantly reduce the damages consumers may recover for violations of the repossession law in the motor vehicle context. Although the longstanding remedy for unlawful repossession (return of the vehicle without obligation to pay more, refund of previous payments, and attorney fees) remains in the statutes,24 the remedy likely will be available only in two situations: when the creditor repossesses the vehicle 1) after failing to send the requisite notice to the debtor, or 2) while breaching the peace. Presumably, a consumer is entitled to make post-repossession challenges regarding the alleged indebtedness, the validity of the underlying contract, or the creditor's debt collection practices, but the consumer's remedies in such situations likely are limited to those available under relevant statutory or common law (such damages might be used to offset any deficiency judgment against the debtor). Moreover, if the creditor sends the requisite Repossession Notice via regular mail (that is, not certified or registered mail), it is liable for only $25 plus the consumer's actual damages.25 If the creditor can prove that the debtor received the Repossession Notice, however it was sent, it is difficult to imagine that the consumer will have suffered actual damages as a result of how the creditor posted the notice. Thus, as long as the creditor sends the Repossession Notice in any form, its liability under the new repossession amendment is likely to be limited to $25, a sum hardly sufficient to inspire legal challenges.
Finally, one way the amendments could have balanced the interests of creditors and consumers a bit more evenly would have been to require that the Repossession Notice include a statement that following repossession, the consumer might still be liable for a deficiency judgment. Many consumers mistakenly assume that if they voluntarily surrender their vehicle, their problems with the creditor will end. This frequently is not the case, given the substantial outstanding amount that often remains due after resale. Consumers might be more inclined to demand to be sued if they know that they may still owe money to a creditor following a repossession. The amendments require no such helpful disclosure.
Ambiguities and Other Problems with the Law
The repossession amendments discussed above pose several practical problems for consumers, creditors, and their attorneys in addition to those described above. For example, regardless of whether the creditor sends the Repossession Notice via certified or registered mail, many consumers will never receive it and thus never be made aware that their vehicle is about to be repossessed. Moreover, many consumers, particularly those who do not speak or read English, will be unable to understand the Repossession Notice even if they receive it, and thus will not assert their rights within the requisite 15 days, if ever.
In addition, the amendment creates ambiguity concerning the content and timing of the Repossession Notice and the consumer's demand to be sued. For example, since the amendment contains no specific drafting requirements for the Repossession Notice (aside from the disclosure about attorney fees described above), that notice could be drafted with the kind of legalese sure to confuse even the most sophisticated consumer. And by what standard is the creditor to judge whether a notice from a consumer constitutes a "demand that the merchant proceed in court," to quote the language of the amendment?26 Given the lack of clarity as to what constitutes a proper "demand," some unscrupulous creditors might be tempted to adopt a high threshold for satisfying this requirement. Similarly, short of sending the demand via certified or registered mail, how will a consumer be able to prove that a creditor received the demand for suit if the creditor denies having done so? For while the amendment affords creditors a safe harbor from liability if they send the Repossession Notice via certified or registered mail, it creates no such safe harbor for the demand for suit sent by consumers.
The consumer's deadline for responding to the Repossession Notice and making a demand to be sued also is vague. For example, must the consumer send such a demand within 15 days of the date when the creditor sent the Repossession Notice, or within 15 days of the day the consumer received that notice? And in order for that demand to be valid, must it be received by the creditor within 15 days of the day the creditor sent the Repossession Notice, or must it merely be sent by the consumer within 15 days of the day the creditor sent (or the consumer received) the Repossession Notice?
These are the kinds of issues left unresolved in the statute. They are likely to create confusion for both consumers and creditors and thus be the subject of litigation over the next few years. The old law was much clearer: unless a consumer met the threshold for voluntary surrender or abandoned the vehicle, a creditor had to file a replevin action before repossession.
Practical Concerns for Attorneys
How should a practitioner representing consumers or creditors alter his or her approach in response to these changes and ambiguities in Wisconsin's new repossession law? First, creditors' attorneys should advise their clients to strictly adhere to the requirements set forth in Wis. Stat. section 425.205(1g) when sending the Repossession Notice to the debtor. Second, creditors' attorneys should advise their clients that if they breach the peace during a repossession, they risk incurring the hefty penalties described above.
Consumers' attorneys must be aware of the narrow 15-day window within which a consumer must act to challenge the proposed repossession. Of course, the attorney may not learn about a proposed repossession until after the requisite 15 days for demanding suit have passed (indeed, the repossession may have occurred before the consumer contacts an attorney). The 15-day window will make it extremely difficult for most attorneys to make a timely demand on behalf of their clients. Nevertheless, this is the best opportunity for consumers and their attorneys to challenge the validity of the repossession or other aspects of the relationship between the consumer and creditor. Sending that demand for suit via certified or registered mail will make it difficult for the creditor to argue that it did not receive the demand in a timely fashion.
Consumers' attorneys also may attempt to make post-repossession challenges for unlawful repossession, breach of peace, and underlying debt or contract violations. Moreover, if the post-repossession challenge is based on a fee shifting statute such as the WCA, a successful consumer may be able to collect attorney fees.
Because the amendments have made it very difficult for consumers or their advocates to successfully challenge repossessions before they occur, most future litigation over repossessions is likely to center on whether the peace was breached during the repossession. As noted above, the threshold for breach of the peace under the WCA is low, and the remedies are potent. Because judicial process is no longer required before repossession, breaches of the peace are likely to increase. A suit based on breach of the peace also may provide a forum for a challenge to the underlying contract (usually a standard form document that the consumer had no opportunity to negotiate) or the creditor's abusive debt collection practices before repossession (repossession often is the final stage of a protracted attempt by the creditor to collect an outstanding debt). Accordingly, it is good practice for any attorney considering a challenge to a repossession to collect all relevant paperwork, interview witnesses to the repossession, and ask the client to prepare a timeline of relevant events, including debt collection phone calls and other contacts.
Further Erosion of the WCA's Consumer Protections
From a larger perspective, the amendments to Wisconsin's repossession law described in this article continue a disturbing trend over the past decade during which various consumer protections in the WCA have been whittled away. Since its enactment in 1972,27 the WCA consistently has been noted as one of the primary tools "to protect customers from unfair, deceptive, false, misleading and unconscionable practices by merchants, and to permit and encourage the development of fair and economically sound consumer practices in consumer transactions."28 The Wisconsin Supreme Court has recognized the WCA as an important mechanism to help consumers - particularly those with limited means - combat unfair business practices.29 And the process through which the WCA was enacted was nearly as important as the substance of its provisions: it was a model of compromise between various interested groups, including merchants, creditors, consumer advocates, and state regulators.30
This spirit of compromise has been sorely lacking in recent years. During that time, consumer protections have been removed from the WCA. For example, agricultural credit has been largely exempted from the WCA,31 and caps on late fees and other charges have been raised or completely eliminated.32 On the other hand, calls for modifying the WCA in ways that would help consumers, such as increasing the dollar threshold for coverage under the WCA (transactions of $25,000 or less) and the woefully inadequate maximum statutory damages (at most $1,000 and in some cases as little as $25) have fallen on deaf ears.33 The repossession amendments continue the pattern, threatening to reduce the WCA to a barely recognizable shell of its former self.
Wisconsin's nearly 35-year ban on the self-help repossession of motor vehicles is history. Creditors now are able to declare a consumer in default and repossess a motor vehicle without court intervention. Attorneys representing consumers and creditors should familiarize themselves with the law and relevant administrative rules so as to assert and vindicate their clients' rights.34