What interest rate can we charge on this loan in Wisconsin?
Wis. Stat. § 138.05(1) provides that, except as authorized by other statutes, no person shall directly or indirectly contract for, take or receive, in money, goods or things in action or in any other way, any greater sum or greater value for the loan or forbearance of money, goods or things in action than the rate of $12 upon $100 for one year computed upon the declining principal balance, with alternative computations in paragraphs (b) and (c) for loans repayable in installments. The same subsection adds a drafting rule: in computing interest upon any bond, note, or other instrument or agreement, interest shall not be compounded, nor shall the interest bear interest, unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged. Read no further and that is the wrong answer, because the section then withdraws itself from most lending. Subsection (5): “This section shall not apply to loans to corporations or limited liability companies.” Subsection (7): “This section does not apply to any loan or forbearance in the amount of $150,000 or more made after May 26, 1978 unless secured by an encumbrance on a one- to four-family dwelling which the borrower uses as his or her principal place of residence.” And subsection (8)(c): “This section does not apply to any loan or forbearance which is made on or after November 1, 1981, or to any refinancing, renewal, extension, modification or prepayment on or after November 1, 1981, of any loan or forbearance, except this section does apply to forbearances occurring primarily for personal, family or household purposes for which the only charge is a penalty or late charge for nonpayment when due.” On the section’s own words, then, a loan made today is outside § 138.05 altogether unless it is a forbearance primarily for personal, family or household purposes whose only charge is a late charge for nonpayment.
The trap
The $12 upon $100 figure is not a live cap on a loan you are writing now, and reading subsection (1) alone is how a drafter gets that wrong. Subsection (8)(c) takes the whole section off any loan or forbearance made on or after 1 November 1981, and off any refinancing, renewal, extension, modification or prepayment on or after that date, keeping only the consumer-forbearance late-charge case. Subsections (5) and (7) remove corporate and limited-liability-company borrowers and loans of $150,000 or more (after 26 May 1978) that are not secured by the borrower’s one- to four-family principal residence, and subsection (7) then says what counts as that amount, which is wider than it looks: a loan is deemed to be $150,000 or more not only where the outstanding principal initially exceeds $150,000 but also where the parties agreed the principal might exceed it at some time during the term and, when the agreement was made, it was reasonably expected to, even though less than $150,000 was ever advanced in the aggregate, and subsection (6) removes transactions governed by chs. 421 to 427 and 429 and discounts described in s. 422.201(8). Everything else § 138.05 appears to give a drafter travels with the section and is withdrawn with it: the compounding rule quoted above sits inside subsection (1), and the borrower’s right in § 138.05(2) to prepay a loan bearing more than $10 per $100 per year, with a refund of unearned interest, sits inside the same section, so neither reaches a post-1981 loan on these words. NOT ESTABLISHED HERE: what does set the enforceable rate on a Wisconsin loan made today. The opening words ‘except as authorized by other statutes’ point outside this section, and the statutes they point to (the Wisconsin Consumer Act in chs. 421 to 427, and the bank and licensed-lender provisions elsewhere in ch. 138) were not read for this rule.
10 authorities
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
Except as authorized by other statutes, no person shall, directly or indirectly, contract for, take or receive in money, goods or things in action, or in any other way, any greater sum or any greater value, for the loan or forbearance of money, goods or things in action, than: 138.05(1)(a) (a) At the rate of $12 upon $100 for one year computed upon the declining principal balance of the loan or forbearance;
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
In the computation of interest upon any bond, note, or other instrument or agreement, interest shall not be compounded, nor shall the interest thereon be construed to bear interest, unless an agreement to that effect is clearly expressed in writing, and signed by the party to be charged therewith.
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
Any loan for which the rate of interest charged exceeds $10 per $100 for one year computed upon the declining principal balance may be prepaid by the borrower at any time in whole or in part.
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
This section shall not apply to loans to corporations or limited liability companies.
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
This section does not apply to any loan or forbearance in the amount of $150,000 or more made after May 26, 1978 unless secured by an encumbrance on a one- to four-family dwelling which the borrower uses as his or her principal place of residence.
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
This section does not apply to any loan or forbearance which is made on or after November 1, 1981, or to any refinancing, renewal, extension, modification or prepayment on or after November 1, 1981, of any loan or forbearance, except this section does apply to forbearances occurring primarily for personal, family or household purposes for which the only charge is a penalty or late charge for nonpayment when due.
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
With respect to loans or forbearances repayable in substantially equal weekly or monthly installments and the face amounts of which include predetermined interest charges, at the rate of $6 upon $100 for one year computed upon that portion of the original principal amount of any such loan or forbearance, not including interest charges, for the time of such loan or forbearance, disregarding part payments and the dates thereof; and 138.05(1)(c) (c) With respect to loans or forbearances repayable in installments other than of the type described in par. (b) , the amount of interest may be predetermined at the rate set forth in par. (a) at the time the loan is made on the basis of the agreed rate of interest and the principal balances agreed to be outstanding and stated in the note or loan contract as an addition to the principal; provided that if any agreed balance of principal or principal and interest combined or any installment of principal or principal and interest combined is prepaid in full by cash or renewal the unearned interest shall be refunded as provided in sub. (2) (b) .
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
Upon prepayment of any such loan in full by cash, renewal or refinancing, the borrower shall be entitled to a refund of unearned interest charged which shall be determined as follows: 138.05(2)(a) (a) On any such loan which is repayable in substantially equal, successive installments at approximately equal intervals of time and the face amount of which includes predetermined interest charges, the amount of such refund shall be as great a proportion of the total interest charged as the sum of the balances scheduled to be outstanding during the full installment periods commencing with the installment date nearest the date of prepayment bears to the sum of the balances scheduled to be outstanding for all installment periods of the loan. 138.05(2)(b) (b) On any other such loan, the amount of such refund shall not be less than the difference between the interest charged and interest, at the rate contracted for, computed upon the unpaid principal balances of the loan from time to time outstanding prior to prepayment in full.
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
This section does not apply to transactions governed by chs. 421 to 427 and 429 or to discounts described in s. 422.201 (8) .
- statuteWis. Stat. § 138.05enactment date not established
The words that state the rule
For the purposes of this section, a loan is deemed a loan which is in the amount of $150,000 or more if: 138.05(7)(a) (a) The outstanding principal indebtedness under the loan initially exceeds $150,000; or 138.05(7)(b) (b) The parties to the loan agree that the principal indebtedness may exceed $150,000 at some time during the term of the loan and, when the agreement was made, the principal indebtedness was reasonably expected to exceed $150,000 notwithstanding the fact that less than $150,000 in the aggregate was initially or later advanced.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.