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The Wisconsin Court of Appeals ruled that informational letters without payment demands and the passive receipt of mistakenly garnished funds do not constitute illegal debt collection or civil theft.
By Christina Baker — Compliance Analyst
Note: ACA provides Daily Decisions as an educational benefit for members. The information presented in the Daily Decision does not reflect ACA’s views on the validity of the allegations or the courts’ conclusions.
Background:
The plaintiff debtors initiated a voluntary amortization of debts proceeding under Wisconsin Statutes Section 128.21 to address outstanding debts, including an amount owed to Credit Acceptance Company. Prior to these proceedings, one of the debtor’s wages was actively being garnished to resolve this debt. The circuit court subsequently issued a stay order enjoining creditors from continuing wage garnishments and restricting communications regarding collections except through the plaintiffs’ legal counsel.
Following the stay, the plaintiff’s employer mistakenly deducted $117 from two subsequent paychecks on October 7 and October 21, 2022, and remitted the funds to Credit Acceptance Company. Additionally, on September 29, 2022, Credit Acceptance Company sent a letter to the plaintiffs stating, in prominent, bold text, that it was for informational purposes only and was not a demand for payment.
The letter mistakenly referenced a bankruptcy filing instead of the amortization proceeding, noted that automatic withdrawals had been terminated, and outlined the steps required to voluntarily reactivate them.
The plaintiffs filed a lawsuit alleging that both the letter and the receipt of garnished funds constituted illegal debt collection harassment and the enforcement of a nonexistent right under Wisconsin Statutes Section 427.104(1)(h) and Section 427.104(1)(j), alongside claims for civil theft and embezzlement under Wisconsin Statutes Section 895.446 and Section 943.20(1)(b). The circuit court granted judgment on the pleadings to Credit Acceptance Company, and the plaintiffs appealed.
Decision:
The Wisconsin Court of Appeals affirmed the circuit court’s order granting judgment on the pleadings in favor of the defendant, holding that the plaintiff failed to state actionable claims under consumer-protection or criminal-theft standards.
Regarding the statutory allegations under Wisconsin Statutes Section 427.104(1)(h) and Section 427.104(1)(j), the court evaluated the specific nature of the written correspondence sent to the plaintiff. The court determined that because the letter explicitly disclaimed any demand for payment in bold text, explained the passive termination of automated payments, and merely provided factual instructions for voluntary reactivation, it did not constitute an “attempt to collect an alleged debt” as a matter of law.
Because an actual collection attempt is a threshold requirement for liability under Section 427.104, the informational letter could not legally support claims of harassment or the assertion of a nonexistent right.
Turning to the wage garnishment claims under Section 427.104(1)(j), the court rejected the argument that the passive receipt of funds violated the law. Drawing on persuasive federal jurisprudence from Whitehead v. Discover Bank, the court emphasized that the Wisconsin earnings garnishment statutory framework places liability directly upon the garnishee employer if it wrongfully deducts more from an employee’s earnings than authorized. The law contains no provision penalizing a creditor for simply accepting funds that an employer improperly withheld and forwarded.
Furthermore, relying on Braatz v. Check & Cash LLC, the court concluded that the implementation of an amortization stay under Section 128.21 merely suspends a creditor’s operational ability to enforce a judgment; it does not permanently extinguish or eliminate the underlying legal right to the debt itself. Therefore, accepting the funds did not amount to enforcing a nonexistent right. The court also noted the plaintiff failed to reasonably develop any separate argument regarding the garnishment under paragraph (1)(h).
Finally, the court dismissed the civil theft and embezzlement claims under Section 895.446 and Section 943.20(1)(b). The court observed that the plaintiff failed to analyze or plead the individual elements necessary to establish embezzlement. Crucially, the undisputed facts demonstrated that the plaintiff’s employer executed the automated deductions, not the creditor.
The plaintiff failed to show that the creditor possessed the funds by virtue of an official business, trustee, or bailee relationship, or that the creditor possessed the requisite intent to wrongfully convert the property contrary to legal authority. Consequently, the appellate court affirmed the dismissal of all claims.
ACA’s Take:
The ruling clarifies that creditors are not strictly liable when a debtor initiates voluntary amortization under Wisconsin Statutes, for the administrative errors of a third-party garnishee who fails to halt deductions immediately upon entry of a judicial stay. Further, the court clarifies the path to maintaining informational communications with customers while limiting statutory exposure.
Attorneys for Plaintiff:
Matthew Curtiss Lein, Lein Law Offices, Hayward, WI
Attorneys for Defendants:
Natalia S. Kruse, Husch Blackwell, Minneapolis, MN
Kimberly Gutierrez, Husch Blackwell, Madison, WI
Lisa M. Lawless, Husch Blackwell, Milwaukee, WI
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