Q&A: Here’s a question that a Wisconsin credit union recently asked one of The League’s Compliance Specialists – Rod Cory – along with his answer. To learn more about how the Compliance Specialist program could help your credit union, contact Paul Guttormsson.
Do you have a compliance question? Contact The League’s Compliance Hotline at (800) 242-0833 or email.
Q. When a married person living in Wisconsin applies for credit on their own, is it important for the credit union to get a signed “family purpose” statement? Why?
A. Yes, it is beneficial for the credit union to ask the applicant to sign that statement, which gives the credit union some important compliance advantages. To understand why, we need to start with a little background on the Wisconsin Marital Property Act (WMPA).
Under the WMPA, any obligation incurred by a spouse during marriage (i.e., while the couple is living in Wisconsin and until the date a court grants a final judgment for divorce or legal separation) is presumed to be incurred “in the interest of the marriage or the family.” This is sometimes called a family purpose obligation. The presumption is rebuttable, however, and there is little guidance to help define when a debt is/isn’t in the interest of the marriage or family.
However, that presumption is proven conclusively (that is, it’s irrebuttable) if the borrower separately signs a statement of family purpose. A sample statement is included in Exhibit C to The League’s ii Release No. B005 The League’s “Credit Union Loan Application for Wisconsin Residents”(#82083) also includes such a statement, which says:
There are several good reasons to request that a family purpose statement be signed when a married applicant applies for credit on their own. Certain compliance steps are triggered for family purpose loans to a married person under the WMPA. To know which steps the credit union can/should take, it’s important to be confident about whether the loan is for a family purpose.
- Underwriting. The WMPA says that if a spouse applies on their own for credit during marriage, and the debt will be incurred in the interest of the marriage or the family, then the credit union must determine the applicant’s creditworthiness based on all marital property available to satisfy that debt, in the same way that it would consider the property that is available to satisfy an unmarried applicant’s debt. This requires the credit union to consider the incomes of both spouses – even the one that’s not applying. For example, a spouse who does not work outside the home may apply for credit without the other spouse and still claim the other spouse’s income, and all their marital property, on the credit application. A credit union that fails to consider all available marital property in this situation may be fined up to $1,000, the WMPA says. On the other hand, you cannot count the non-applicant spouse’s income if it is not a family purpose obligation.
- Tattletale notice. The credit union must give a written “tattletale” notice of the extension of credit to the non-applicant spouse before any payment is due, if it is a Wisconsin Consumer Act loan. On the other hand, if it is not a family purpose obligation, providing a tattletale notice is a privacy violation.
- Non-applicant spouse’s rights. The non-applicant spouse may exercise the rights and remedies available to the incurring spouse under the Wisconsin Consumer Act, such as to cure a default, redeem collateral, request copies of payment histories, sue the credit union for violations, etc. The non-applicant does not have those rights if it is not a family purpose obligation. Similarly, the non-applicant spouse of a person who establishes an open−end credit plan under the Wisconsin Consumer Act may terminate the plan by giving written notice of termination to the credit union. The non-applicant does not have the right to terminate if the line is not a family purpose obligation.
- Collections. A family purpose obligation may be satisfied from all marital property, no matter which spouse holds it, and from all other property of the incurring spouse (regardless of how titled). This means that the credit union can reach the couple’s marital property – no matter which spouse holds it – for collection purposes. For example, during marriage, income earned by the non-incurring spouse can be garnished to satisfy family purpose obligations the other spouse incurred, because each spouse’s income is marital property. If the debt was not for a family purpose, those collections avenues would not be open to the credit union.
For all those reasons, getting a family purpose statement may be the safest way to be confident about how to comply with the WMPA. For details on the WMPA, see The League’s ii Release No. B005.