Payday Loan Store of Wisconsin, Inc. v. Jesica Mount

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Appeal No. 2010AP2298 Cir. Ct. No, 20106V355

WISCONSIN COURT OF APPEALS
DISTRICT IV

PAYDAY LOAN STORE OF WISCONSIN, INC.,

FILED
PLAINITFF-APPELLANT,
V JUN 30, 2011
A. John Voel ker
JESICA MOUNT, P/K/A J ESICA JOHNSON, Acting Clerk of Suprene

Court

DEFENDANT-RESPONDENT.

CERTIFICATION BY WISCONSIN COURT OF APPEALS

Before Vergeront, P.J., Lundsten and Sherman, JJ.

We certify this appeal to the Wisconsin Supreme Court to consider
whether an annual interest rate in excess of a thousand percent per year for a short-
term loan is per se unconscionable under the Wisconsin Consumer Act (WCA)."
Payday Loan Stores of Wisconsin, Inc. contends that no interest rate is per se
unconscionable under the WCA, because the act states that there is no limit on
finance charges. It then contends that, even if the WCA allows a finding that a
particular interest rate is per se unconscionable, the summary judgment maternal in
this case was insufficient to support that detennination.

' We believe that the other issues in dispute in this appeal may be resolved based on
existing case law, either by the supreme court or by this court on remand. See Slate v. Past, 197
Wis. 2d 279, 541 N.W.2d 115 (1995).

No. 2010AP2298
2
Jesica Mount contends that, despite the fact that the WCA sets no
limit on finance charges, excessive interest rates may still be held per se
unconscionable under the act. She also contends that the material she provided to
the court was sufficient to support its determination that the interest rates in this
case were unconscionable.
A decision in this case will have statewide impact on consumer
credit transactions and provide guidance to lower courts faced with disputes over
those transactions. Accordingly, we certify the appeal in this case to the
Wisconsin Supreme Court for its review and determination.
Background
Between August 2008 and January 2009, Mount entered into
multiple contracts with Payday for short-term personal loans. The annualized
interest rates on the loans varied from 446% to 1338%.
Payday initiated a small claims action against Mount in December
2009 after Mount failed to make required loan payments. Mount answered the
complaint, denying liability and counterclaiming for violations of the WCA.2
Mount moved for summary judgment, attaching the twenty loan
agreements between Payday and Mount and Mount’s affidavit describing the loans
she entered into and their interest rates. The court determined that the interest
rates were unconscionable and granted summary judgment to Mount. Payday
appeals.
2 Payday initially obtained a default judgment against Mount; however, Mount then
obtained relief from the default judgment.

No. 2010AP2298
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Discussion
Consumer transactions are regulated by WIS. STAT. chs. 421 to 427
(2009-10),3 commonly known as the Wisconsin Consumer Act. See WIS. STAT.
§ 421.101. The issue in this case is whether the annualized interest rates for
Payday’s loans to Mount were per se unconscionable under WIS. STAT.
§ 425.107.4 Resolving this issue requires answering two questions: (1) Does the
WCA preclude a determination that a particular interest rate is unconscionable?
(2) If it does not, what is the legal standard to apply and what type of evidence is
necessary to establish unconscionability?
I.
Under WIS. STAT. § 425.107(1), a court may refuse to enforce a
consumer credit transaction if it determines, as a matter of law, that any aspect of
the transaction is unconscionable.5 The WCA provides the following guidelines
3 All references to the Wisconsin Statutes are to the 2009-10 version unless otherwise
noted.
4 The parties do not address whether the language of the WCA is ambiguous. The
parties frame their arguments as if each has posited the only reasonable reading of the WCA; it
appears, therefore, that both assert the WCA is unambiguous. However, Payday asserts that it is
significant that the legislature did not simply eliminate usury laws in 1981, but replaced them
with a statute specifically providing there would be no limit on finance charges on consumer
credit transactions entered into after October 31, 1984. See WIS. STAT. § 422.201(2)(a) and (bn).
In contrast, Mount points to the WCA’s underlying purpose.
5 WISCONSIN STAT. § 425.107(1) provides:
(continued)

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for courts in determining whether a consumer credit transaction is unconscionable
under subsection (1):
(3) Without limiting the scope of sub. (1), the court
may consider, among other things, the following as
pertinent to the issue of unconscionability:
(a) That the practice unfairly takes advantage of the
lack of knowledge, ability, experience or capacity of
customers;
(b) That those engaging in the practice know of the
inability of customers to receive benefits properly
anticipated from the goods or services involved;
(c) That there exists a gross disparity between the price
of goods or services and their value as measured by the
price at which similar goods or services are readily
obtainable by other customers, or by other tests of true
value;
(d) That the practice may enable merchants to take
advantage of the inability of customers reasonably to
protect their interests by reason of physical or mental
infirmities, illiteracy or inability to understand the language
of the agreement, ignorance or lack of education or similar
factors;
(e) That the terms of the transaction require customers
to waive legal rights;
(f) That the terms of the transaction require customers
to unreasonably jeopardize money or property beyond the
money or property immediately at issue in the transaction;
(g) That the natural effect of the practice would
reasonably cause or aid in causing customers to
With respect to a consumer credit transaction, if the court as
a matter of law finds that any aspect of the transaction, any
conduct directed against the customer by a party to the
transaction, or any result of the transaction is unconscionable,
the court shall, in addition to the remedy and penalty authorized
in sub. (5), either refuse to enforce the transaction against the
customer, or so limit the application of any unconscionable
aspect or conduct to avoid any unconscionable result.

No. 2010AP2298
5
misunderstand the true nature of the transaction or their
rights and duties thereunder;
(h) That the writing purporting to evidence the
obligation of the customer in the transaction contains terms
or provisions or authorizes practices prohibited by law; and
(i) Definitions of unconscionability in statutes,
regulations, rulings and decisions of legislative,
administrative or judicial bodies.
WIS. STAT. § 425.107(3).
As an initial matter, the parties dispute whether money is a “good”
or “service” under WIS. STAT. § 425.107(3)(c). Mount contends that money can
be a good or service under § 425.107(3)(c), and that there is a “gross disparity”
between the price of the money—as measured by the interest rate on the loan—
and its value. Payday contends that the WCA expressly provides that money is not
a good, and that it is clearly not a service. See WIS. STAT. §421.301(21) (“‘Goods’
has the meaning given in s. 409.102(1)(ks)….”); § 409.102(1)(ks)
(“‘Goods’ …. does not include … money….”); § 421.301(42)(a) (“‘Services’
includes: 1. Work, labor and other personal services; 2. Privileges with respect to
transportation, hotel and restaurant accommodations, education, entertainment,
recreation, physical culture, hospital accommodations, funerals, cemetery
accommodations, and the like; and 3. Insurance provided in connection with a
consumer credit transaction.”).
We do not believe that whether or not money is a good or a service
is dispositive. Our reading of WIS. STAT. § 425.107(3) indicates that each of its
paragraphs is a consideration for the court, but is not in itself dispositive.
Subsection 425.107(1) states that remedies are available “if the court as a matter of
law finds that any aspect of the [consumer credit] transaction … is
unconscionable.” Subsection 425.107(3), in turn, states that “[w]ithout limiting

No. 2010AP2298
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the scope of sub. (1), the court may consider, among other things, the following as
pertinent to the issue of unconscionability,” and then sets forth various
considerations in paragraphs (a) through (i). Among those considerations is the
content of paragraph (c): “That there exists a gross disparity between the price of
goods or services and their value as measured by the price at which similar goods
or services are readily obtainable by other customers, or by other tests of true
value.” It does not follow, however, that only credit transactions involving goods
or services under § 425.107(3)(c) may be held unconscionable under § 425.107(1);
rather, § 425.107(3) states that a court may consider whether there is a gross
disparity between the price of a good or service and its value. Thus, even if
money is not a good or a service, a court could still turn to the other provisions of
§ 425.107(3)(c) in determining unconscionability of interest rates on a loan.
We find more significant the parties’ dispute concerning WIS. STAT.
§ 425.107(4), which provides that:
Any charge or practice expressly permitted by chs. 421 to
427 and 429 is not in itself unconscionable but even though
a practice or charge is authorized by chs. 421 to 427 and
429, the totality of a creditor’s conduct may show that such
practice or charge is part of an unconscionable course of
conduct.
Payday contends that the WCA expressly permits any finance charge, including
any interest rate,6 thereby precluding a court from determining that a particular
interest rate is per se unconscionable under WIS. STAT. § 425.107(1). In support, it
cites WIS. STAT. § 422.201(2)(bn), which states: “A consumer credit transaction
6 Under WIS. STAT. § 421.301(20), “‘Finance charge’ means the sum of all charges,
payable directly or indirectly by the customer as an incident to or as a condition of the extension
of credit, … includ[ing] … (a) [i]nterest….”

No. 2010AP2298
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entered into after October 31, 1984, is not subject to any maximum limit on
finance charges.”
Under Payday’s interpretation of WIS. STAT. §§ 425.107(4) and
422.201(2)(bn), the interest rates on its loans to Mount fall within the ambit of a
“charge or practice expressly permitted” by the WCA. Payday contends that the
legislature enacted § 422.201(2)(bn) to foreclose claims by consumers that the
interest rate of a loan is itself unconscionable by expressly permitting any amount
of finance charges, including any interest rate.
Payday takes the position that the supreme court has, in cases such
as Wisconsin Auto Title Loans, Inc. v. Jones, 2006 WI 53, ¶95, 290 Wis. 2d 514,
714 N.W.2d 155 (Abrahamson, C.J., concurring), indicated this is an issue best
reserved to the legislature. Payday sets forth valid concerns with courts, rather
than the legislature, determining which interest rates are too high. It notes the
lengthy legislative process for determining whether to limit finance charges and
determining appropriate limits; that a determination by the legislature would not
single out one lender from the marketplace, as a court decision does; and that if
court decisions may declare any particular interest rate too high, there will be no
certainty for lenders as to what interest rate is acceptable, and different courts may
come to different decisions on the same interest rates.
We note, however, that it appears that much of this reasoning would
apply any time a court determines a lender’s conduct is unconscionable. We also
note that we have already recognized the difficulty inherent in judicial
determinations of unconscionability. In Bank One Milwaukee, N.A. v. Harris,
209 Wis. 2d 412, 420 n.5, 563 N.W.2d 543 (Ct. App. 1997), we said:

No. 2010AP2298
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In reaching [a determination of unconscionability under
WIS. STAT. § 425.107,] we need not articulate a single,
precise definition of “unconscionable.” Indeed, at times,
when courts are “faced with the task of trying to define
what may be indefinable,” they “perhaps ... could never
succeed in intelligibly doing so” but may respond, as we do
here: “[We] know [unconscionability] when [we] see it.”
Jacobellis v. Ohio, 378 U.S. 184, 197, (1964) (Stewart, J.,
concurring).
Mount disagrees that WIS. STAT. § 422.201(2)(bn) precludes a court
from determining that an interest rate is per se unconscionable under WIS. STAT.
§ 425.107(1). Mount asserts that the issues in this case must be analyzed in light
of the stated purposes and policies of the WCA. The WCA provides that it “shall
be liberally construed and applied to promote [its] underlying purposes and
policies,” which are:
(a) To simplify, clarify and modernize the law
concerning consumer transactions;
(b) To protect customers against unfair, deceptive,
false, misleading and unconscionable practices by
merchants;
(c) To permit and encourage the development of fair
and economically sound consumer practices in consumer
transactions; and
(d) To coordinate the regulation of consumer credit
transactions with the policies of the federal consumer
protection act.
WIS. STAT. § 421.102(1) and (2).
Mount then contends that the absence of an interest rate cap does not
defeat a claim that an interest rate is unconscionable, citing cases from other states
and CORBIN ON CONTRACTS. See, e.g., Johnson v. Tele-Cash, Inc., 82 F. Supp.
2d 264, 278-79 (D. Del. 1999), reversed in part on other grounds by Johnson v.
West Suburban Bank, 225 F.3d 366 (3d Cir. 2000) (absence of statutory cap on

No. 2010AP2298
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interest rate did not preclude claim that interest rate was unconscionable); 2 Joseph
M. Perillo and Helen Hadjiyannakis Bender, CORBIN ON CONTRACTS § 5.16
(1995) (absent a statutory cap on interest rates, interest rates are valid “up to the
point at which ‘unconscionability’ becomes an operative factor”).
We think it is unclear whether the WCA allows a court to determine
that the interest rate for a short-term loan is per se unconscionable. If the
legislature has “expressly permitted” lending money at any interest rate by
providing that there is no maximum limit on finance charges in consumer credit
transactions, then no interest rate, no matter how high, is per se unconscionable
under the WCA. See WIS. STAT. §§ 422.201(2)(bn), 425.107(1) and (4). If,
however, the act of lending money with an annual interest rate of over a thousand
percent is not “expressly permitted” by the provision that there is no maximum
limit on finance charges, then the claim that the interest rates in this case were per
se unconscionable does not appear to be precluded under the WCA.
II.
If the WCA does not preclude a determination that a particular
interest rate is per se unconscionable, it is necessary to resolve the parties’ dispute
over the legal standard to apply in determining unconscionability under the WCA
and the type of evidence necessary.
The dispute over the legal standard concerns whether both
procedural and substantive unconscionability is required. Payday contends that it
is because the WCA adopts the common law definition of unconscionability. See
WIS. STAT. § 425.107(3)(i) (court may consider common law definitions of
unconscionability in determining unconscionability of consumer credit transaction
under WCA); Jones, 290 Wis. 2d 514, ¶29 (“For a contract or a contract provision

No. 2010AP2298
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to be declared invalid as unconscionable, the contract or contract provision must
be determined to be both procedurally and substantively unconscionable.”).
In contrast, Mount argues that the WCA provides that any aspect of
a contract, irrespective of the contract’s formation, may be held unconscionable.
She cites the language of WIS. STAT. § 425.107(1) (“any aspect” of a consumer
credit transaction may be held unconscionable), § 425.107(2) (“[s]pecific practices
forbidden by the administrator in rules promulgated pursuant to s. 426.108 shall be
presumed to be unconscionable”), and § 425.107(3) (listing considerations for a
court in determining unconscionability, including terms of the contract or practices
of the merchant). She also points to Harris, 209 Wis. 2d at 419, in which we
relied on two of the considerations listed under § 425.107(3) and the dictionary
definition of “unconscionable” to conclude that the conduct of the lender was
unconscionable, rather than undertaking the common law analysis of procedural
and substantive unconscionability.
The dispute over the evidence necessary to prove unconscionability
under the WCA concerns the role, if any, of evidence on the short-term loan
industry. Payday contends that determination of unconscionability requires
evidence that the interest rate is excessive as compared to similar short-term loans,
which must consist of expert testimony under WIS. STAT. § 907.02 to establish that
the interest rates are not commercially reasonable in the context of the short-term
loan industry. There was no such evidence here. Instead, Payday asserts, the
circuit court impermissibly relied solely on its own opinion that the rates were too
high in holding the loans unconscionable.
Mount disagrees that expert testimony on the short-term loan
industry is necessary to prove unconscionability. She points out that the summary

No. 2010AP2298
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judgment materials include the twenty loan agreements Mount entered into with
Payday and Mount’s affidavit setting forth the interest rates on the loans she
entered into. Mount asserts that on this record the court properly determined as a
matter of law that the interest rates were unconscionable. Mount cites WIS. STAT.
§ 421.108, which imposes an obligation of good faith on acts under the WCA, and
defines good faith as “honesty in fact in the conduct or transaction concerned and
the observance of reasonable commercial standards of fair dealing.” Mount
contends that an annual interest rate of over a thousand percent does not, as a
matter of law, fit that definition.
We think that guidance from the supreme court on both these topics
will benefit consumer law practitioners and the lower courts. Harris appears to
support Mount’s contention that a finding of unconscionability under the WCA
does not require both procedural and substantive unconscionability. However,
Harris does not address what evidence is necessary to support a claim that interest
rates are unconscionable. Payday’s assertion that expert testimony is necessary to
establish that interest rates are not commercially reasonable in the context of the
short-term loan industry appears logical. However, Payday has not identified any
controlling authority on point, nor are we aware of any.7
7 Mount contends that Matter of Disciplinary Proceedings Against Sedor, 73 Wis. 2d
629, 245 N.W.2d 895 (1976), is controlling. She asserts that, in Sedor, the court held that a loan
with an effective annual interest rate of 70% was unconscionable, and thus the significantly
higher interest rates here are necessarily unconscionable. See id. at 641 (“[T]he loan by the
defendant to his client calling for terms expected to benefit him at the rate of $500 per month for
78 months over and above repayment of principal and interest at ten and one-half percent interest
was indeed unconscionable.”). We do not read Sedor, an attorney disciplinary action involving a
loan by an attorney to his client, to stand for the proposition that consumer loans with interest
rates above a certain level are per se unconscionable.
(continued)

No. 2010AP2298
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Conclusion
We believe that the question of whether the WCA precludes a court
from determining that an annual interest rate on a short-term loan of over a
thousand percent is unconscionable should be decided by the Wisconsin Supreme
Court. Whether the WCA precludes a court from determining that an interest rate
is per se unconscionable is a question of statutory interpretation that has not yet
been addressed by the courts. If the WCA does not preclude a court determining
that interest rates are per se unconscionable, this case presents the question of what
legal standard to apply in determining unconscionability and what evidence is
necessary. Because this appeal presents issues of significant statewide
importance, we believe it is appropriately addressed to the Wisconsin Supreme
Court.
Conversely, Payday contends that Sundseth v. Roadmaster Body Corp., 74 Wis. 2d 61,
245 N.W.2d 919 (1976), the companion case to Sedor, controls. Payday points out that the
Sundseth court held the loan at issue in Sedor enforceable against individual guarantors of the
loan. Sundseth, 74 Wis. 2d at 63-64. However, as Payday recognizes, the parties in Sundseth
did not assert that the loan was unconscionable. Accordingly, we do not view either Sedor or
Sundseth to provide guidance as to whether interest rates may be held per se unconscionable
under the WCA.

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