Sunday, February 16, 2014

What's In Your Wallet?- 2013 AB 523 And The Defrauded Homeowner

In the good old days (before December 2, 2011), homeowners who prevailed at trial against their sellers could enter a judgment against their sellers and watch that judgment grow at a rate of 12% a year. Sellers found liable by a jury would often find a way to pay off their debts to our clients right away - who wants a debt that accrues interest at 12% a year? Only payday loans and credit card balances earn a higher interest rate. Any rational debtor wants to pay off their higher interest rate debts first.

That all changed with the enactment of 2011 Wis Act 69, which reduced the interest rate on civil judgments to 1% plus the prime rate. The prime rate has been stuck at 3.25% for years, so homeowners who have entered judgment against their sellers since December 2, 2011 have watched their judgments grow by a paltry 4.25% a year. Sellers are no longer motivated to pay off their debts to homeowners. Sellers are only motivated to pay off their debts to our clients when their creditors demand it - when they want to finance the purchase of property or refinance their existing loans.

At least 2011 Wis. Act 69 applied equally to ALL creditors- credit card companies that obtained judgments against homeowners and other consumers were treated the same as homeowners who obtained judgments against their sellers. Unfortunately, it appears that this equal treatment of creditors will end soon. The Wisconsin Assembly has passed  2013 AB 523, which proposes to increase the annual interest rate on small claims judgments to 12% while leaving the annual interest rate on large claims judgments unchanged.

This proposed law, which still must be approved by the Wisconsin Senate and signed by the Governor, would be incredibly unfair to homeowners and other consumers. The damages that we suffer at the hands of negligent professionals and fraudulent sellers will almost always exceed the $10,000 small claims limit, so their debts to us will accrue interest at only 4.25% per year. On the other side of the coin, homeowners and other consumers are the most common small claims debtors. Some of us fall behind on our credit card balances or our medical bills. If this bill becomes law, our debts to them will accrue interest at 12% per year. In short, some creditors will become more equal than others.

I agree that the 12% interest rate on civil judgments should be restored, but that change should apply to ALL civil judgments. There is no rational reason for our legislature to place the interests of credit card companies ahead of the interests of injured and defrauded homeowners and consumers.

UPDATE - This proposed law has been resurrected as 2015 AB 95 and 2015 SB 76. Please see Wisconsin Consumer Blog for a different perspective.