Client Alert

'Self-Help' Repossession of Motor Vehicles Now Allowed in Wisconsin

This is to update you on Wisconsin’s new self-help repossession law (2005 Wisconsin Act 255), which became effective on April 13, 2006. The new law amends the Wisconsin Consumer Act and permits, under certain circumstances, "self-help" repossession by creditors of motor vehicle collateral following defaults in consumer credit transactions. Previously, Wisconsin creditors were required to obtain a replevin judgment in small claims court before taking possession of collateral. Until this law was changed, Wisconsin was the only state in the country to require creditors to take this judicial action before retaking collateral after a loan default.
 

1. New Notice Required
   
   Under the new law, which is limited in application only to motor vehicle collateral, a creditor may repossess an automobile without judicial process if the creditor mails a notice by certified or registered mail to the borrower which includes all of the following information:
   
   - The creditor’s name, address and telephone number; a brief identification of the credit transaction (a Loan Account Number should suffice); and brief description of the collateral.
   
   - A statement that, as a result of the borrower’s default under the contract or loan agreement, the creditor may have the right to take possession of the collateral without further notice or court proceeding.
   
   - A statement that if the borrower is not in default or objects to the creditor’s right to take possession of the collateral, the borrower may, no later than 15 days after the notice has been given, demand that the creditor proceed in court by notifying the creditor in writing.
   
   - A statement that if the creditor proceeds in court, the borrower may be required to pay court costs and attorneys fees.
   
   The notice described above may be combined with any other notice, except it must be combined with the "Notice of Right to Cure" under the Wisconsin Consumer Act, if the borrower has such a right to cure the default.
   
   The new law requires that verbal or written notice must be given to local law enforcement authorities before the repossession. This notice may be given either by the creditor or its repossession company. The notice must include the creditor’s and borrower’s name; the name of the repossession company (if one is used); and a description of the motor vehicle being repossessed.
   
   
2. New Loan Agreements/Contracts May Be Necessary to Utilize "Self-Help" Repossession Rights.
   
   Before utilizing the new law’s self-help repossession process, creditors or their legal counsel should first review and make certain that their loan or contract documents in question permit this action. For example, some Wisconsin consumer loan documents we have reviewed include language such as "repossession of collateral may not occur until lender files an action in court and obtains a judgment." This type of language, or similar provisions, could lead to claims by borrowers of breach of contract if the lender proceeds to repossess collateral without filing any court action.
   
   If your contracts and agreements need to be revised to accommodate Wisconsin’s new self-help procedures, you may not be able to take advantage of this new law until defaults occur under your new contract forms. We understand that several forms vendors to Wisconsin banks are currently preparing new documents for this purpose.
   
   In conclusion, before creditors start utilizing Wisconsin’s new self-help repossession law they should make certain that their contracts permit this, and also that the new Notice described above is used.
   
   This Financial Institutions Update is published to provide our friends and clients with current information that may affect their businesses. This information is not intended to serve as specific legal advice or as a solicitation for business.