Now that the COVID-19 pandemic has subsided to some extent, banks and lenders are beginning to resume collections. Further, as interest rates and inflation continue to rise, it is likely that the number of past due accounts will also rise. One of the issues with collections are the slough of regulations that come with collections from consumers. Consumer collections must be compliant with the Federal Fair Debt Collection Practices Act (the FDCPA), and in Wisconsin, the more stringent Wisconsin Consumer Act (the WCA). Both use the standard of the “least sophisticated consumer” to determine if the creditor’s act is abusive, unfair, or deceptive. Attorneys and lenders should keep this standard in mind when drafting letters to consumers.
The WCA is found in Chapters 421-427 of the Wisconsin Statutes. The definitions contained in those chapters explain the appropriate way for creditors to collect debts from consumers. Consumer debts are debts incurred for personal, family, or household purposes. Examples of consumer credit transactions include consumer credit sales, consumer loans, consumer leases, and transactions open to open-end credit plans (i.e. credit cards). If a consumer defaults on a consumer debt, a creditor in Wisconsin must send what is known as a “Right to Cure” Letter (Letter). There are a number of “rules” in sending the Letter, that must be followed in order for a creditor to properly sue for the debt.
Wis. Stat. § 425.103 defines “default” under the WCA. Of note is that one missed payment is not a default under the Act. A default does not occur until 10 days after the second missed payment. This default is what triggers the required Letter. The Letter is defined under Wis. Stat. §§ 425.104- 425.105. One of the most important requirements of the Letter is that the “due date” for the cure payment must be more than 15 days from the date the Letter was sent. If less than 15 days are given in the Letter, it is as if no letter, or notice, was provided to the consumer and a creditor does not have a right to file the lawsuit against the consumer. See Indianhead Motors v. Brooks, 2006 WI App 266, 297 Wis.2d 821, 726 N.W.2d 352. The remedy for a lack of notice is a dismissal of the case without prejudice and does not disrupt a creditor’s right to payment from the debtor. See Security Finance v. Kirsh, 2019 WI 42, 386 Wis.2d 388, 926 N.W.2d 167.
The Letter must contain the following information: (1) name, address, and phone number of the creditor, (2) brief identification of the transaction (i.e. credit card ending in XXXX), (3) a statement of the nature of the alleged default (i.e.: nonpayment since X date no sooner than two missed payments ago), (4) a clear statement of the total payment to cure the default, including an itemization of delinquent charges, or other performance necessary to cure the alleged default, (5) the exact date by which the amount must be paid (at least 15 days after the sent date), and (6) the name, address, and telephone number of the person to whom payment must be made (if different than the creditor). See Wis. Stat. § 425.104.
One issue related to the Letter is that courts strictly construe the Letter where even minor defects or omissions are enough to render the Letter invalid. Again, if the Letter does not comply with the law, the consumer’s remedy is to dismiss the case without prejudice. Courts are unlikely to look kindly upon creditors sending non-compliant letters more than once, especially to the same consumer. Additionally, consumers’ rights attorneys love to see improper letters and actions by lenders. These attorneys usually also assert a claim for the lack of “meaningful attorney involvement,” which is related to review by an attorney to determine if the lawsuit should be filed against a debtor. An invalid notice can be tied to this claim as attorneys should be reviewing letters sent to consumers to confirm whether the letter is compliant with Wis. Stat. § 425.104.
Another one of the current issues related to the above-described Letter is what is meant by the “itemization of delinquency charges?” Generally, showing each late fee with each missed payment is acceptable, but what if it’s a credit card where late fees are assessed by the credit card company pursuant to the credit card agreement as opposed to the lender or bank? A short explanation of how late fees are incurred on the account is usually sufficient to fulfill this requirement for the Letter. If no late fees will be charged in the cure amount, that should also be stated in the Letter.
One last important item to note is that not every debt requires the Right to Cure Letter under the WCA. For example, mortgages and loans for more than $25,000 do not require a right to cure (unless a right to cure is required in the contract; the language of the contract determines how to handle a default for mortgages and the type of notice required). It is imperative that lenders and attorneys know the requirements of the Letter to be sure they comply with the FDCPA and the WCA. If not, consumers’ rights attorneys are ready and willing to file suit against the lender, and in some cases, the particular attorney who sent the Letter or filed the suit.