The Wisconsin Supreme Court (Court) recently issued its decision in Security Finance v. Brian Kirsch. The Court concluded that a creditor’s failure to provide a notice of right to cure default does not constitute a sufficient basis for relief under Wisconsin’s Consumer Debt Collection law.
In Security Finance the debtor defaulted on the payment obligation of his loan agreement. The creditor did not issue a notice of right to cure default as required by Wis. Stat. 425.105 (425) before filing a small claims lawsuit against the debtor to enforce the loan agreement. The debtor counterclaimed, seeking damages by argument that failure to send the notice of right to cure default violated Wis. Stat. 427.104 (427). The creditor motioned to dismiss the counterclaims, which the circuit court granted. The Court of Appeals affirmed and its decision was upheld by the Court.
The parties stipulated that the creditor’s failure to provide sufficient notice of right to cure constituted a procedural violation, resulting in dismissal of the creditor’s initial claim. Thus, the Court focused its analysis on the debtor’s 427 claim. The debtor argued that by filing suit prior to providing the notice of right to cure, the creditor violated 427 by “harassing” the debtor. The Court found that the procedural defect of filing suit without first providing a notice of right to cure does not create liability under 427 in absence of a specific 427 violation. Meaning, failure to provide the right to cure under 425 does not automatically create a cause of action under 427. Furthermore, the Court indicated that even though the creditor “jumped the gun,” that did not negate its right to enforce compliance with the loan agreement.
In conclusion, a creditor’s failure to provide notice of right to cure under 425 does not constitute a sufficient basis for relief under 427. Wisconsin banks must still ensure they follow the procedural requirements under 425 and should consider the procedures by which they meet those notice requirements in relation to enforcement of loan obligations. However, failure to provide notice of right to cure does not, by itself, create a cause for action under 427.