Q&A: Here’s a question that a Wisconsin credit union recently asked The League’s Legal Affairs team, along with our answer.
Q. I have searched the Wisconsin statutes and can’t find the state law that sets a maximum rate that can be charged on a loan. Can you point me in the right direction?
A. The Wisconsin Consumer Act’s 18% interest rate limit on open-end credit was repealed in 1995. No Wisconsin usury limits remain in effect for state-chartered credit unions. Instead, interest rates are set by contract with the borrower. The League’s ii Release No. B026 has details on interest rate rules in Wisconsin.
When our credit unions ask this question, though, we try to remind them of a few potential issues:
- For FCUs, the NCUA’s 18% rate cap applies. State-chartered credit unions in Wisconsin are not subject to that cap.
- The federal Military Lending Act limits the costs and terms allowed for certain types of loans that are made to people currently in military service and their dependents. Among other things, the law limits the cost of the credit to a 36% Military Annual Percentage Rate. See The League’s ii Release No. B067 for details.
- The federal Servicemembers Civil Relief Act says that loans contracted prior to entry into the military shall bear an interest rate of no more than 6% per year during the borrower’s time on active duty. See The League’s ii Release No. 0172 for details.
- On mortgage loans subject to Truth in Lending, the credit union must include a lifetime rate cap in both the loan agreement and disclosures. But you choose the cap to insert; the government doesn’t.
- The Wisconsin Consumer Act allows a minimum finance charge to be imposed if provided for in the agreement. The minimum finance charge may not be more than $5 (if the amount financed is $75 or less) or $7.50 (if the amount financed exceeds $75). Wis. Stats. § 422.201(9).
- The Wisconsin Consumer Act allows lenders to contract to charge interest after the final scheduled maturity date on consumer credit, at a rate not to exceed the greater of 12% per year or the annual rate of finance charge. If the credit union charges interest after the final scheduled maturity date, it must refrain from taking a delinquency charge on the final scheduled installment. Wis. Stats. § 422.203(4)(c).
- For loans that are subject to Wis. Stats. § 138.052, the interest imposed on the amount due after acceleration or maturity of a loan may not exceed the contract rate.
- Interest accrues on a money judgment at an annual rate equal to 1% plus the prime rate in effect on Jan. 1 of the year judgment is entered (if that date is on or before June 30), or the prime rate in effect on July 1 of the year judgment is entered (if that date is after June 30). The same interest rate remains in effect from the date of entry of judgment until the judgment is paid. Wis. Stats. § 814.04(4).
- If the credit union lends to borrowers in other states, be mindful of any usury limits that may apply under that state’s laws.
Do you have a compliance question? Contact The League’s Compliance Hotline at (800) 242-0833 or email.