422.421 Variable rate transaction.
(1) Definitions. In this section:
(a) “Approved index" means any relevant index approved by the administrator that is beyond the control of the creditor and is verifiable by the customer.
(b)
1. “Consummation" with respect to a variable rate transaction other than one pursuant to an open-end credit plan means the time at which a customer becomes contractually obligated on the variable rate transaction.
2. “Consummation" with respect to a variable rate transaction pursuant to an open-end credit plan means the time at which a creditor accepts a customer's application and authorizes the customer's participation in the plan or the time at which an amendment to an existing open-end credit plan is accepted by or becomes binding on the customer under sub. (11) or s. 422.415.
(c) “Variable rate transaction" means any open-end credit plan and any consumer credit transaction other than one pursuant to an open-end credit plan, the terms of which permit the rate of finance charge to be adjusted from time to time during the term of the plan or transaction other than by an adjustment under s. 422.415, but does not include any consumer credit transaction the terms of which permit only the rates of finance charge that are initially numerically specified in any document evidencing the plan or transaction.
(2) Variable rate transactions permitted. Creditors may engage in variable rate transactions subject to the conditions and limitations of this section.
(3) Approved index adjustments.
(a) Adjustments in the rate of finance charge of a variable rate transaction that are based upon changes in an approved index shall be made in accordance with provisions set forth in the documents evidencing the variable rate transaction including provisions specifying all of the following:
1. The method of determining approved index values.
2. The relationship between approved index values and the rates of finance charge.
3. The method of implementing the adjustments.
4. The frequency of adjustments.
5. Any limits on the magnitude of adjustments.
6. Any minimum increments of adjustments.
7. The method of implementing any rounding of the rates of finance charge.
(b) The provisions under par. (a) 5. may specify limited magnitudes of decreases in the rate of finance charge if the provisions specify limited magnitudes of increases that are at least as restrictive.
(c) If a creditor fails at any time to increase the rate of finance charge to the extent permitted by the provisions under par. (a), the creditor may not carry over and add any portion of the increase to any subsequent adjustment. Failure at any time to increase the rate of finance charge to the extent permitted by the provisions under par. (a) does not affect in any way the creditor's right to prospectively reestablish the relationship between approved index values and the rates of finance charge in accordance with the provisions under par. (a).
(4) Other adjustments.
(a) Adjustments in the rate of finance charge of a variable rate transaction that are not based upon changes in an approved index shall be made in accordance with provisions set forth in the documents evidencing the variable rate transaction, including provisions specifying all of the following:
1. If based upon changes in an index other than an approved index, the method of determining index values.
2. If based upon changes in an index other than an approved index, the relationship between index values and the rates of finance charge.
3. The method of implementing the adjustments.
4. The frequency of adjustments.
5. Any limits on the magnitude of adjustments.
6. Any minimum increments of adjustments.
7. The method of implementing any rounding of the rates of finance charge.
(b) The provisions under par. (a) may not specify an increase in the rate of finance charge in excess of 2 percent plus any carry over permitted under par. (d) for each 12-month period commencing with the consummation of the variable rate transaction.
(c) The provisions under par. (a) may not specify a date for adjustment that is earlier than 3 months after the date of consummation of the variable rate transaction.
(d) If a creditor fails to increase the rate of finance charge during a 12-month period under par. (b) to the extent permitted by the provisions under par. (a), the increase may be carried over and added to any adjustment in the rate of finance charge otherwise permitted by the provisions under par. (a) but only during the succeeding 12-month period and subject to the limitations of par. (e).
(e) The maximum increase which may be carried over to a succeeding 12-month period under par. (d) is the difference between the rate of finance charge as of the commencement of the preceding 12-month period plus 2 percent and the highest rate of finance charge actually imposed during that 12-month period, or one percent, whichever is less.
(5) Notice.
(a)
1. Except as provided in par. (b), a creditor shall mail or deliver to the customer written notice of every change implementing an adjustment in the rate of finance charge in a variable rate transaction. The notice shall be mailed or delivered to the customer at the customer's last-known address appearing on the records of the creditor. If the variable rate transaction involves more than one customer, notice given to any customer satisfies this requirement.
2. The notice under subd. 1. shall be mailed or delivered at least 15 days prior to the effective date of the adjustment if the adjustment is implemented in whole or in part by a change in the amount of a periodic payment, other than the final payment, previously disclosed to the customer.
3. The notice under subd. 1. shall be mailed or delivered not later than 30 days after the effective date of the adjustment if the adjustment is implemented by any change other than a change under subd. 2.
(b)
1. The requirements of par. (a) do not apply to a creditor if the adjustment is made in a variable rate transaction pursuant to an open-end credit plan that is based upon changes in an approved index.
2. The requirements of par. (a) do not apply to a creditor if the adjustment is made in a variable rate transaction, other than a transaction pursuant to an open-end credit plan, that is based upon changes in an approved index if the change does not cause a change in the amount of a periodic payment, other than the final payment, previously disclosed to the customer.
(c) If the final payment in a variable rate transaction, other than one pursuant to an open-end credit plan, exceeds the final payment disclosed to the customer prior to consummation by more than 50 percent but not less than $100 as a result of adjustments in the rate of finance charge during the term of the variable rate transaction, the creditor shall give the customer written notice of the estimated amount of the final payment at least 90 days but not more than 180 days prior to the due date of the final payment. The notice shall be mailed or delivered to the customer at the customer's last-known address appearing on the records of the creditor. If the variable rate transaction involves more than one customer, notice given to any customer satisfies this requirement. Notwithstanding the terms of the variable rate transaction, the final payment shall not be due until the later of the originally scheduled due date or 90 days after mailing or delivering the notice and the customer shall not be in default during that period if the customer continues to make payments in the scheduled amounts and with the scheduled frequency in effect immediately prior to the final payment until the total amount due has been paid in full.
(6) Maximum rate.
(a) For any variable rate transaction, other than one pursuant to an open-end credit plan, entered into before November 1, 1984, the maximum rate of finance charge for any payment period may not exceed the limit set forth in s. 422.201 (2) (bm) as determined on the earlier of the first day of the payment period or the day notice is given under sub. (5) for the payment period.
(c) The maximum rate of finance charge established under par. (a) shall continue in effect for the entire term of the payment period regardless of any changes in the limit set forth in s. 422.201 (2) (bm) during the payment period.
(7) Adjustments after maturity date.
(a) Notwithstanding s. 422.203, adjustments in the rate of finance charge based upon changes in an approved index may continue to be made after the final scheduled maturity date if the adjustments are made in accordance with the requirements of sub. (3) governing adjustments made prior to the final scheduled maturity date.
(b) Notwithstanding s. 422.203, adjustments in the rate of finance charge not based upon an approved index may continue to be made after the final scheduled maturity date if the adjustments are made in accordance with the requirements of sub. (4) governing adjustments made prior to the final scheduled maturity date, and if the adjustments are not less favorable to the customer than contemporaneous adjustments made prior to the final scheduled maturity dates of similar variable rate transactions between other customers and the creditor.
(8) Changes in original schedule of payments. The original schedule of payments for variable rate transactions that are subject to s. 422.402 shall comply with the requirements of s. 422.402. Any change made in the original schedule of payments to implement adjustments under sub. (3) or (4) is not a violation of s. 422.402.
(9) Changes in open-end credit plans. Any change made in the terms of an open-end credit plan to implement adjustments under sub. (3) or (4) is not a violation of s. 422.415.
(10) Prepayment. Upon prepayment in full of the unpaid balance of a variable rate transaction, an amount not less than the unearned portion of the finance charge, if any, calculated according to s. 422.209 (2) (b) shall be rebated to the customer.
(11) Amendments to open-end credit plans.
(a) Parties to an open-end credit plan entered into before or within 6 months after September 1, 1984, may agree to an amendment to the plan in accordance with the requirements of sub. (3) or (4) to permit the rate of finance charge for existing and future balances to be adjusted from time to time in accordance with the provisions of this section, only as provided under pars. (b) and (c) or under s. 422.415.
(b) An amendment under par. (a) may be made if the customer accepts the amendment as provided in par. (c) and if all of the following conditions are met:
1. The creditor gives written notice of the amendment to the customer by mail, addressed to the customer's last-known address appearing on the records of the creditor, not more than 60 days and not less than 30 days prior to the effective date of the amendment.
2. The notice under subd. 1. provides for acceptance or rejection by the customer as provided in either or both of the following:
a. If a self-addressed reply card is enclosed with the notice, the notice states that the customer accepts the amendment unless a reply card rejecting the amendment is mailed or delivered to the creditor by a date specified in the notice which is not less than 20 days after the date of mailing of the notice.
b. The notice states that the customer accepts the amendment if the customer enters into a consumer credit transaction under the plan at any time more than 15 days after the date of mailing of the notice.
(c) The customer shall have accepted the amendment if the customer fails to mail or deliver the reply card as provided in the notice under par. (b) 2. a., or if the customer enters into a transaction as provided in the notice under par. (b) 2. b.
(d) If a customer rejects an amendment as provided in the notice under par. (b) 2., the creditor shall permit the customer to pay existing balances under existing terms and the creditor may either close the account to future transactions or continue the account under existing terms.
(12) Penalty. A violation of this section is subject to s. 425.304, except that failure to give the notice required under sub. (5) (c) does not subject a creditor to the penalty provided in s. 425.302 or 425.304.
History: 1983 a. 389; 1985 a. 29; 1987 a. 27; 1995 a. 328; 1997 a. 302.