Variable Rate Loans Ceilings & Floors
In response to your letter dated October 8, 2001, written on behalf of [Redacted Content] and based upon reviews done by DFI's General Counsel and Banking Administrator, DFI approves of a procedure under the Wisconsin Consumer Act, in which caps and floors are implemented on variable rate open-end lines of credit, without regard to the initial index value or interest rate. Wis. Stat. s. 422.421(3)(b) does not affect the floors and ceilings imposed on open-end lines of credit. This section requires equal limitations on the amount of any periodic increase and decrease in the interest rate during the term of an agreement, but does not affect the overall cap and floor placed on the rate. For example, a bank may have a variable rate plan with an initial rate of 7%, a cap of 18%, and a floor of 6%. Or, in the current rate environment, the bank may implement an agreed-upon floor of 6%, with a rate ceiling of 18%, when the current index value is 5.5%. Wis. Stat. s. 422.421(3)(b) is not applicable to the cap or the floor. This interpretation is applicable to closed-end loans as well. In addition, DFI would apply a similar analysis and reach the same conclusion regarding Wis. Stat. s. 138.056(2)(b).
Wisconsin Consumer Act Interpretive Opinion - Variable Rate Loans Ceilings & Floors, October 18, 2001, Secretary John F Kundert