Section 422.209. Rebate on prepayment.

 

(1)  Except as provided in sub. (1m) , upon prepayment in full of the unpaid balance of a precomputed consumer credit transaction, refinancing or consolidation, an amount not less than the unearned portion of the finance charge calculated according to this section shall be rebated to the customer. If the total of all rebates, refunds and credits to be paid to the customer under chs. 421 to 427 is less than $1, no rebate need be made.

(1m)  

(a) In the event of prepayment under sub. (1) , a merchant may retain a loan administration fee that meets all of the following conditions:

1. The loan administration fee does not exceed 2 percent of the amount financed in the precomputed consumer credit transaction, refinancing or consolidation.

2. The loan administration fee is for a consumer loan that is secured primarily by an interest in real property or in a mobile home, as defined in s. 101.91 (10) , or in a manufactured home, as defined in s. 101.91 (2) .

(b) Notwithstanding par. (a) , if a merchant retains any portion of a loan administration fee charged on a loan that is prepaid from the proceeds of a new loan made by the same merchant within 6 months after the prior loan, then the merchant shall reduce any loan administration fee on the new loan by the amount of the loan administration fee on the prior loan that was retained by the merchant.

(2)  

(a) The unearned portion of the precomputed finance charge on consumer credit transactions repayable in substantially equal successive installments at approximately equal intervals shall be equal to at least that portion of the finance charge which the sums of the installment balances of the obligation scheduled to be outstanding after the installment date nearest the date of prepayment bears to the sum of all installment balances originally scheduled to be outstanding under the obligation. For the purpose of determining the installment date nearest the date of prepayment when payments are monthly, any prepayment made on or before the 15th day following an installment due date shall be deemed to have been made as of the installment due date, and if prepayment occurs on or after the 16th day it shall be deemed to have been made on the succeeding installment due date. This method of calculating rebates may be referred to as the “rule of 78" or “sum of the digits" method. This paragraph applies to all of the following:

1. Consumer credit transactions entered into before November 1, 1981.

2. Consumer credit transactions having initial terms of less than 49 months entered into on or after November 1, 1981 and before August 1, 1987.

3. Consumer credit transactions in which the amount financed is less than $5,000, which have initial terms of less than 37 months and which are entered into on or after August 1, 1987.

(b) The unearned portion of the finance charge on consumer credit transactions described in par. (c) is, at the option of the creditor, either of the following:

1. The portion of the finance charge which is allocable to all unexpired payment periods as scheduled or deferred. A payment period is unexpired if prepayment is made within 15 days after the payment's due date. The unearned finance charge is the finance charge which, assuming all payments are made as scheduled or deferred, would be earned for each unexpired payment period by applying to unpaid balances of principal, according to the actuarial method, the annual percentage rate disclosed to the customer under subch. III . The creditor may decrease the annual interest rate to the next multiple of 0.25 percent.

2. The finance charge less the amount determined by applying the annual percentage rate disclosed to the customer under subch. III , according to the actuarial method, to the unpaid balances for the actual time those balances were unpaid up to the date of prepayment.

(c) Paragraph (b) applies to all of the following:

1. Consumer credit transactions which have terms of 49 months or more and which are entered into after November 1, 1981 and before August 1, 1987.

2. Consumer credit transactions in which the amount financed is $5,000 or more and which are entered into on or after August 1, 1987.

3. Consumer credit transactions in which the amount financed is less than $5,000, which have initial terms of 37 months or more and which are entered into on or after August 1, 1987.

(3)  With respect to other precomputed consumer credit transactions, the administrator may prescribe by rule the refund formula consistent with sub. (2) (a) taking into account the irregularity of installment amounts and due dates.

(4)  

(a) Except as provided in par. (b) , the unearned portion of a deferral charge is the deferral charge multiplied by the number of unexpired payment periods as of the date of prepayment and divided by the total number of installments deferred.

(b) If the unearned finance charge is calculated under sub. (2) (b) , the deferral charge shall be refunded in full.

(5)  This section does not preclude the collection or retention by the creditor of delinquency charges under s. 422.203 for delinquencies or payments due prior to prepayment.

(6)  If the maturity of the obligation is accelerated for any reason and judgment is obtained, the customer is entitled to the same rebate as if payment in full had been made on the date judgment is entered against the customer.

(6m)  For purpose of this section, the finance charge in a manufactured home transaction as defined in s. 138.056 (1) (bg) does not include fees, discounts, or other sums actually imposed by the government national mortgage association, the federal national mortgage association, the federal home loan mortgage corporation or other governmentally sponsored secondary mortgage market purchaser of the loan or any private secondary mortgage market purchaser of the loan who is not a person related to the original lender.

(7)  A violation of this section is subject to s. 425.304 .

1971 c. 239 ; 1979 c. 89 ; 1981 c. 45 ss. 41 to 44 , 51 ; 1987 a. 27 ; 1995 a. 272 ; 1997 a. 302 ; 1999 a. 9 , 53 ; 2007 a. 11 .