Section 422.402. Balloon payments prohibited.

 

(1)  Except as provided in sub. (1m) , no merchant shall enter into an agreement which requires a schedule of payments under which any one payment is not equal or substantially equal to all other payments, or under which the intervals between any consecutive payments differ substantially except as permitted in sub. (2) or (3) with respect to a consumer credit transaction other than a transaction which is one of the following:

(a) Pursuant to an open-end credit plan.

(b) Not precomputed and on which the annual percentage rate disclosed under subch. III is less than 16.5 percent for a consumer credit sale in which the seller retains a security interest in real estate which is the subject of the sale or any consumer loan, either of which is entered into on or after April 6, 1980, and prior to November 1, 1981, or 12 percent for any other consumer credit transaction.

(1m)  No merchant shall enter into an agreement which requires a schedule of payments under which any one payment is not equal or substantially equal to all other payments, or under which the intervals between any consecutive payments differ substantially except as permitted in sub. (2) or (3) with respect to a consumer credit transaction other than a transaction which is one of the following:  

(a) Pursuant to an open-end credit plan.

(b) Not precomputed and on which the annual percentage rate disclosed under subch. III is not more than 18 percent for a consumer credit sale in which the seller retains a security interest in real estate which is the subject of the sale or any consumer loan, either of which is entered into on or after November 1, 1981, and before November 1, 1984.

(2)  The parties may agree to payments that are not substantially equal to other payments or are paid at unequal intervals if:

(a) The customer's livelihood is dependent upon income that is seasonal or otherwise not regular, such payments are in accordance with the needs of the customer and a notice in substantially the following language is set forth immediately below the customer's signature in 12-point boldface type, or its equivalent as prescribed by the administrator:

WARNING

The amounts of payments or the dates on which they are payable under this agreement are not equal. Do not sign this paper unless you are certain that this payment schedule meets your needs.

(b) The unequal or irregular payment is part of an agreed down payment received by the creditor contemporaneously with or prior to the consummation of the transaction;

(c) The unequal or irregular payment is part of an agreed down payment that does not exceed 20 percent of the cash price, has a due date not later than the due date of the 2nd installment of the transaction and is excluded from the amount financed upon which the finance charge is computed, and if it is the mutual understanding of the customer and the creditor that such a partial payment will be separately financed the customer has the right to rescind the transaction without penalty if the customer cannot obtain such separate financing;

(d) The unequal or irregular payment is the final scheduled payment and is less than, or not more than 10 percent greater than, the average amount of the other scheduled payments, if such other payments are substantially equal; or

(e) The unequal or irregular payment is the first scheduled payment and results from the inclusion of interest charged for a first installment period of not more than 45 days or less than 15 days as permitted under s. 138.09 (7) (c) 2.

(3)  In the event that sub. (2) (a) applies, the customer shall have the right at any time to refinance the unequal or irregular installment pursuant to s. 422.205 for refinancing, except that the rate shall not exceed the rate disclosed in the original transaction pursuant to subch. III of ch. 422 .

(4)  Taking or arranging for the customer to sign an instrument in violation of this section shall be subject to s. 425.304 .

(5)  This section does not apply to a manufactured home transaction as defined in s. 138.056 (1) (bg) made on or after November 1, 1981, and before November 1, 1984, if:

(a) The transaction complies with s. 138.056 ; or

(b) The unequal or irregular payment is the final scheduled payment of the transaction, and the merchant agrees to refinance the final scheduled payment at a rate of interest not in excess of the rate disclosed pursuant to subch. III of ch. 422 by more than one percent multiplied by the number of 6-month periods in the term of the immediately prior manufactured home transaction.

(6)  This section does not apply to consumer credit transactions entered into on or after November 1, 1984.

1971 c. 239 ; 1977 c. 444 ; 1979 c. 168 ; 1981 c. 45 ; 1983 a. 36 ; 1987 a. 27 ; 1991 a. 316 ; 1995 a. 225 ; 1997 a. 302 ; 2007 a. 11 .