Family Purpose Credit
The Marital Property Act creates an obligation "in the interest of the marriage or the family" at
Wis. Stat. s. 766.55. This has been termed a "family purpose" obligation. Unfortunately, there is no definition of either term. The statute simply states that an obligation incurred by a spouse during marriage is presumed to be for such a purpose. A family purpose debt is not limited to consumer credit transactions.
Therefore, if a spouse applies for "family purpose" credit the creditor must consider all marital property available to satisfy the obligation in the same manner that it considers the availability of property of an unmarried applicant. Any financial organization or other credit granting commercial institution that violates this section may be fined up to $1,000
Wis. Stat. s.766.56(4)(a).
Most creditors will likely secure a statement separately signed by the applicant spouse at or before the time the obligation is incurred stating that it is "in the interest of the marriage or the family." This, along with the presumption that all property is presumed to be marital property during the marriage and during probate, should be conclusive evidence that an obligation is for a family purpose.
Termination of Credit Plan by Spouse
Under the Act, a non-applicant spouse may terminate the open-end credit plan established by the other spouse. Termination is made by giving written notice of the termination to the creditor. Notice of termination does not affect the liability of the incurring spouse or the availability of either spouse’s interest in property to satisfy obligations incurred under the plan, both before and after notice of termination. The terminating spouse’s interest in marital property continues to be available both before and after termination subject to
Wis. Stat. s. 422.4155. The availability of the terminating spouse’s interest in marital property is limited to future obligations incurred within 15 business days after the creditor’s receipt of the termination notice. Total liability is limited to the greater of the credit limit or the balance outstanding on the date of receipt of the termination notice plus $500.
Open-end credit plans may include contract terms permitting the creditor to accelerate payment of an account balance upon notice of termination. The default provisions of
Wis. Stat. s. 425.103 and notice of right to cure default at
Wis. Stat. s. 425.105 do not apply (Wis. Stat. s. 766.565(5)).
Should the applicant spouse reapply following termination, the creditor may consider in its evaluation of a subsequent application the fact that the non-applicant had previously terminated an account under this provision.
Federal Preemption
Wisconsin Statute s. 766.565(5), the provision permitting a creditor to include in an open-end home equity agreement authorization to declare the account balance due and payable upon receiving notice of termination from a non-obligor spouse was preempted by the Board of Governors of the Federal Reserve System as being inconsistent with federal law.
The Board noted in its proposal for preemption that a strict application of the federal preemption standards to the state law would suggest that the entire state provision is consistent with the federal law, but that valid reasons exist for not preempting the right of the non-applicant spouse to terminate a plan. These include Wisconsin’s declared interest in protecting certain marital property rights by effectively deeming a non-obligor spouse to be a "consumer" specifically for purposes of terminating an open-end credit plan; and that precedent exists under
Federal Regulation Z for deeming a non-incurring person who has an ownership interest in the property that secures a plan to be a "consumer" and thus able to terminate the plan.
The Board decided a similar basis could not be found for permitting a creditor to interfere with the operation of the federal scheme by accelerating the outstanding balance in such cases. The Board determined that
Wis. Stat. s. 766.565(5), permitting a non-obligor spouse to terminate a home equity plan, is not preempted. The provision permitting a creditor to accelerate the outstanding balance in such cases is preempted.
Rights of the Spouse
Generally, the non-applicant spouse is treated like a customer and stands in the shoes of the applicant spouse insofar as rights and remedies under the Wisconsin Consumer Act are concerned (Wis. Stat. s. 766.565). However, except for a notice of adverse change in the terms of an open-end credit plan and notice of extension of credit, a non-applicant spouse is not entitled to any notices required to be given the applicant spouse (Wis. Stat. s. 766.565(2)).
The notice of adverse change is deemed given the date it is mailed and may be addressed to the incurring spouse if the face of the envelope bears notice that the contents contain important information for both spouses. The result of the failure to give such a notice is to make any rate increase ineffective as to the interest of the non-applicant spouse in marital property (Wis. Stat. s. 422.415).
Collections
A creditor may send billing notices or statements of accounts to the non-incurring spouse who has received a notice of extension of credit under
Wis. Stat. s. 766.56. The creditor may also collect the amount due on the account from a non-incurring spouse who has received notice of the extension of credit.
Contact Us
Phone: (608) 264-7969
Toll-Free: (800) 452-3328 (in Wisconsin)
Fax: (608) 264-7968