Insights

Two more states will now regulate “live checks.” Last month, Minnesota banned the practice outright. Wisconsin took a different approach, imposing stringent disclosure and refund requirements.

Consumer advocates deem the use of live check solicitations as predatory or deceptive, and apparently Minnesota legislators agree. The new Minnesota law declares that it is a deceptive practice to solicit a Minnesota resident for the sale of a good or service by providing a live check payable to the addressee, the presentment or negotiation of which obligates the addressee to purchase a good or service. Notably, the ban does not apply where the check recipient already has an open-end credit arrangement or business relationship with the financial institution or other lender or if the addressee has requested in writing that a live check be sent. The state’s attorney general is charged with enforcement of the new law.

Wisconsin lawmakers passed 2009 Wisconsin Act 150, effective March 25, 2010, which strictly regulates the use of live check solicitations. A live check is lawful only if it includes an explanation that the check is a solicitation for a loan (in 24-point type) and a notice (in 10-point type) that, by endorsing the check, the consumer has accepted the offer. A detachable APR disclosure must be in 14-point type. There must also be verbal disclosures made within three business days following negotiation. Consumers must have the right to return the amount borrowed without incurring a financial penalty. The Department of Agriculture, Trade and Consumer Protection can bring a legal action against a violator for $100 per solicitation, not exceed $10,000 in a seven-day period.

For more about live check legislation, see the May 2009 edition of Basis Points: “Live Checks Under Attack: Often-criticized Lender Practice Again in State Crosshairs.”