NEWS: The League and the Wisconsin Bankers Association (WBA) have filed a joint “friend of the court” brief in support of Simplicity Credit Union, in an appeals court case that raises important questions about a notice that lenders must send consumers after a repossession.
The case involves a Wisconsin couple, joint borrowers on a defaulted loan, who argue that the credit union sent a legally insufficient notice after repossessing their vehicle. The credit union won in the circuit court, and the case is now before the Wisconsin Court of Appeals.
Our brief stresses that Chapter 409 of the Wisconsin Statutes – Wisconsin’s version of Uniform Commercial Code (UCC) Article 9 – gives lenders a “safe harbor” if the notice sent after a repossession uses certain language, which is exactly what the credit union’s notice did. The borrowers’ attorneys want the court to rule that parts of the Wisconsin Consumer Act also apply and somehow require different wording in that notice.
Why this appeal is important
Several years ago, plaintiffs’ attorneys won a similar case in Massachusetts. A court there ruled that a Massachusetts consumer law superseded the UCC provisions. The League does not want to see Wisconsin courts follow the same flawed analysis, which would expose lenders statewide to litigation risks after a repossession. The League and Simplicity have also identified several material differences between the Massachusetts statute and the WCA that require a different result here.
Credit unions with bond coverage from TruStage may have seen a Feb. 29, 2024, Risk Alert from them, titled, “Post-repossession letters back in the crosshairs of predatory attorneys.” (You can log into their Business Protection Resource Center to view it.)
In that alert, TruStage warned that “Litigation and class action lawsuits have again ramped up alleging defective notices of disposition (notice of sale or notice of intent to sell repossessed collateral and defective notices of deficiency), which can significantly impact credit unions.” The alert includes a list of steps credit unions should take to mitigate their risks in this area. The League urges credit unions to consider taking those steps.
Factual background
In 2021, a Wisconsin couple borrowed $4,222 from Simplicity Credit Union, allegedly to pay for repairs to their 2005 Dodge Durango. They signed a security agreement, pledging the SUV as collateral for that joint loan.
The couple soon defaulted on the loan payments. Under Wisconsin law and the terms of the loan agreement, the default gave the credit union the right to take possession of the SUV.
Simplicity properly sent all the legally required notices as part of its collections process, such as a Notice of Right to Cure Default/Take Possession to each borrower. (As described in The League’s ii Release No. B066, that notice is needed before a credit union or other lender can attempt “self-help” repossession on a consumer’s vehicle.)
Importantly for this case, after picking up the SUV, the credit union sent a Notice of Intent to Sell (the “pre-sale notice”). It told both borrowers that their vehicle had been repossessed and that – if not timely redeemed – it would be sold at a private sale. (The League offers a sample pre-sale notice as Exh. B to our ii Release No. B060, titling it “Notice of Our Plan to Sell Property.”)
After selling the Durango, the credit union also sent the borrowers a Statement of Accounting (the post-sale notice). That notice informed the couple that the vehicle had been sold and that, after accounting for the sale proceeds and other costs, they owed Simplicity $4,233. (The League offers a similar post-sale notice as Exh. C to our ii Release No. B060, titling it “Explanation of Calculation of Surplus or Deficiency.”)
The couple has not paid any portion of their remaining debt to Simplicity, nor has the credit union tried to collect any deficiency left after the sale. Instead, the borrowers filed a lawsuit in Wood County Circuit Court, claiming that the “pre-sale notice” was deficient.
The credit union won a summary judgment from the circuit court (meaning that the parties did not have a real dispute over the facts and that the court believed Simplicity was entitled to win as a matter of law). The borrowers appealed that decision.
The attorneys for the credit union and for the debtors have filed their briefs. The League and the WBA have now weighed in to back the credit union’s position, telling the court: “The issues raised in this appeal are highly relevant and of statewide concern to credit unions and banking interests and to lenders engaged in consumer lending.”
Legal issue
This case focuses on language in the “pre-sale notice.” Simplicity Credit Union’s notice quoted verbatim some language set forth in §409.614 of the Wisconsin Statutes (part of our state’s version of the UCC): “The money that we get from the sale (after paying our costs) will reduce the amount you owe. If we get less money than you owe, you will still owe us the difference ….” The League’s sample notice uses the same language.
Quoting that wording is important because the UCC (Wis. Stat. §409.614) says that using the language “provides sufficient information” to the consumer as a matter of law, thus immunizing the creditor from liability. In other words, using the language is supposed to give lenders a “safe harbor.”
That is why quoting the UCC in these notices is standard practice for lenders. In fact, the TruStage alert recommended that credit unions should “review your letters to ensure they have the required components.” We urge credit unions to consult with their attorneys about the language to be used in relevant notices and/or consider using the safe-harbor language as provided in the UCC.
But the debtors’ attorneys argue that quoting the safe-harbor language actually exposes a creditor to liability. That is because (they say) a section of the Wisconsin Consumer Act – Wis. Stat. §425.210 – implies that the Consumer Act somehow repealed, amended, or displaced the UCC provision. The Consumer Act (they argue) required Simplicity to instead describe the deficiency in the pre-sale notice as the amount still owed less the “fair market value” of the vehicle.
In other words, the UCC requires the notice to refer to the sales price of the repossessed vehicle, and the debtors claim it should have referred to the fair market value, instead.
Simplicity, The League, and the WBA all vehemently disagree with the plaintiffs. We stress that UCC Article 9 has requirements for notices after repossession, while the Consumer Act only has requirements for notices before repossession. Neither one was intended to repeal, amend, or displace the other; instead, they work together and have done so for decades. We wrote:
[C]redit unions and banks have operated for more than 23 years in reliance upon chapter 409’s safe-harbor … which provides the statutorily mandated form of notice to give to consumers after repossession.
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The [Consumer Act] and chapter 409 operate harmoniously and without conflict. The WCA mandates specific pre-repossession notices and chapter 409 mandates specific post-repossession notices. Conversely, chapter 409 does not require pre-repossession notices and the WCA does not require any post-repossession notices. These notice requirements apply in different contexts.
We urged the Court of Appeals to apply the statutes as written, and not to read in any “implied” repeal or amendment.
Credit unions should understand that if a lender later seeks to collect what is still owed after selling a repossessed vehicle, then the Consumer Act entitles that lender to a “deficiency judgment,” which is computed by deducting the fair market value of the collateral from the unpaid balance. That Consumer Act provision has no bearing on the notice Simplicity sent about its plans to sell the repossessed SUV. In fact, it has no relevance to this case at all because the credit union did not seek a deficiency judgment.
The League is following this Court of Appeals case closely, and we will alert you about any developments.