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No Handshake Deals with Lenders: New Law Protects Lenders from Liability for Oral Promises and Commitments

Norman D. Farnam

Janell M. Oudenhoven

February 5, 2016

Wisconsin has a new law which prohibits lawsuits against financial institutions to enforce oral promises or commitments.  With several important exceptions, the effect of the new law is that all agreements between lenders and borrowers must be in writing.  Put another way, lenders no longer can be bound to oral agreements.

2015 Wisconsin Act 120 establishes that no action can be brought against a financial institution (defined as banks, savings banks, credit unions, savings and loan associations, and credit institutions) or its affiliate with respect to an offer, promise, agreement, or commitment unless it:

  1. is in writing;
  2. sets forth relevant terms and commitments;
  3. is signed by an authorized representative of the financial institution; and
  4. is delivered to the party that is seeking to enforce the offer, promise, agreement, or commitment.

To be protected, the lender’s oral communications must relate to (1) lending money, granting or extending credit, or making any other financial accommodation or (2) renewing, extending, modifying, or permitting a delay in repayment or performance of a loan, extension of credit, or other financial accommodation.

Act 120 does not protect financial institutions from lawsuits related to consumer credit transactions under Chapters 421 to 427 of the Wisconsin Statutes or oral communications made in connection with issuing or using a credit card or other open-ended credit.

Significantly, there was a last-minute amendment to Act 120 that permits claims under Section 100.18 of the Wisconsin Statutes for fraudulent misrepresentation by a lender.  Therefore, while a lender cannot be sued to enforce an oral agreement or on a theory of promissory estoppel, the lender may still be liable if its oral communications result in a fraud upon the borrower.

The intent of Act 120 appears to be to permit lenders to freely discuss potential terms of new loans, renewals and the workout of troubled loans.  The new law may help lenders discuss with borrowers the options available without the fear that the borrower will claim he or she had a deal with the lender.  On the other hand, the upshot of the new law for the borrower is that there can be no handshake deals with lenders.  Whether the law will ease or cool discussions between lenders and borrowers remains to be seen.


If you have any questions about how the information in this article may affect you or your business, please contact Norman Farnam at nfarnam@stroudlaw.com or (608) 257‑2281 or your Stroud attorney. 

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.