[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Rules and Regulations]
[Pages 52107-52115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26011]
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FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1004]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is publishing a final rule amending Regulation M,
which implements the Consumer Leasing Act. The act requires lessors to
provide consumers with uniform cost and other disclosures about
consumer lease transactions. The final rule adopts several technical
amendments to the regulation and commentary concerning lease payments,
advertisements, and the treatment of taxes.
DATES: This rule is effective September 24, 1998. Compliance is
optional until October 1, 1999.
FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Staff Attorney,
Division of Consumer and Community Affairs, Board of Governors of the
Federal Reserve System, at (202) 452-3667. For users of
Telecommunications Device for the Deaf (TDD) only, Diane Jenkins at
(202) 452-3544.
SUPPLEMENTARY INFORMATION:
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I. Background
The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, is
implemented by the Board's Regulation M (12 CFR 213). The CLA requires
lessors to provide consumers with uniform cost and other disclosures
about consumer lease transactions. The act generally applies to
consumer leases of personal property in which the contractual
obligation does not exceed $25,000 and has a term of more than four
months. An automobile lease is the most common type of consumer lease
covered by the act.
II. Regulatory Revisions
On March 25, 1998, the Board published several technical amendments
to Regulation M (63 FR 14538). Seventeen commenters, representing major
leasing companies and a consumer representative, submitted comments on
the proposed amendments; most generally supported the revisions.
In the same rulemaking, the Board proposed to allow lessors to
provide Regulation M disclosures electronically. Similar proposals were
made under Regulations B (Equal Credit Opportunity), DD (Truth in
Savings), and Z (Truth in Lending); an interim rule was issued under
Regulation E. The Board anticipates further action on these proposals
by year-end.
III. Section-by-Section Analysis
Section 213.4--Content of Disclosures
4(f)(8) Lease term
In September 1996, Regulation M was revised to require, among other
things, that lessors show consumers a mathematical progression of how a
scheduled payment is derived in a motor vehicle lease. In deriving a
scheduled payment, the ``total of base periodic payments'' is divided
by the number of lease payments. The caption in the regulation and on
the model forms refers to the number of lease payments as the ``lease
term.''
To avoid confusion, references to the ``lease term'' in
Sec. 213.4(f)(8) have been changed to ``lease payments'' with
corresponding changes to the model forms in appendix A of Regulation M.
For example, in reflecting the consumer's legal obligation to make one
payment under a single-payment lease, the figure disclosed under
Sec. 213.4(f)(8) should be one (not the lease term such as 24 months or
36 months).
Despite the revision to the model forms, lessors may continue to
use the existing form until supplies are exhausted. If properly
completed, those forms comply with the requirements of the act and
regulation, protecting lessors from civil liability under sections 130
of the Truth in Lending Act and 185 of the Consumer Leasing Act.
The term of the lease (such as 24 months or 36 months) is not a
required disclosure. Lessors may, however, disclose the lease term
among the segregated disclosures if they choose. This guidance,
included in the preamble to the proposed change, has been incorporated
into the commentary, replacing existing comment 4(f)(8)-1. Lessors
should note, however, that the calculation under Sec. 213.4(f)(8) calls
for the number of payments.
Section 213.7--Advertising
On April 1, 1997, the Board revised Regulation M to implement
amendments to the act contained in the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, which streamlined the advertising
disclosures for lease transactions (62 FR 15364). Under the act,
certain terms in an advertisement will trigger the disclosure of
additional information. A statement in a lease advertisement that no
initial payment is required is a ``triggering'' term that has been
added to Sec. 213.7(d)(1)(ii). It had been inadvertently omitted
previously.
Appendix A--Model Forms
Several technical changes have been made to the model forms in
appendix A. The model forms for open- and closed-end leases in appendix
A-1 and A-2 have been revised to change the reference under the payment
calculation (from ``Lease term. The number of months in your lease.''
to ``Lease payments. The number of payments in your lease''). Page 2 of
the open-end model form has been revised; in the ``end of term
liability,'' the second line of the paragraph following item 3 has been
corrected by changing ``actual'' to read ``actual value.'' Model form
A-3 for a furniture lease has been revised by adding ``or delivery ``
in the heading ``Amount due at lease signing.''
IV. Commentary Provisions
Section 213.4--Content of Disclosures
4(f) Payment Calculation
4(f)(7) Total of Base Periodic Payments
For motor vehicle leases, lessors are required under Sec. 213.4(f)
to provide a mathematical progression of how scheduled lease payments
are derived. Some lessors have expressed concern about exposure to
civil liability if one divides the total of the base periodic payments
disclosed under Sec. 213.4(f)(7) by the number of payments in the lease
disclosed under Sec. 213.4(f)(8) and then multiplies the base periodic
payment disclosed under Sec. 213.4(f)(9) by the number of payments in
the lease disclosed under Sec. 213.4(f)(8); the results are different
because of rounding.
Comment 4(f)(7)-1 has been added to respond to this concern. The
comment has been revised from the proposed language for clarity,
without substantive change. The anomaly also could be avoided by making
adjustments to the rent charge.
4(f)(8) Lease Payment.
Current comment 4(f)(8)-1 has been deleted as unnecessary, and has
been replaced by a new comment 4(f)(8)-1 that allows lessors to include
the lease term among the segregated disclosures. (Generally, lessors
may not add information to the segregated disclosures unless required
by regulation in Sec. 213.3(a)(2) or permitted to be included among the
segregated disclosures. See comment 3(a)(2)-2 and comments 1 and 2 to
appendix A.)
4(n) Fees and Taxes
Several examples are provided in comment 4(n)-1 to illustrate when
taxes are disclosed under this section. This comment has been revised
to clarify that taxes which are part of the scheduled payments are
required to be disclosed under Sec. 213.4(n).
Appendix A--Model Forms
Comment 2 to appendix A provides examples of acceptable changes
that may be made to the model forms. At the request of commenters, the
comment has been revised to clarify that inapplicable disclosures may
be deleted.
V. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C. 604), the Board has reviewed the final amendments to
Regulation M. Two of the three requirements of a final regulatory
flexibility analysis under this section are (1) a succinct statement of
the need for and the objectives of the rule and (2) a summary of the
issues raised by the public comments, the agency's assessment of the
issues, and a statement of the changes made in the final rule in
response to the comments. These two areas are discussed above.
The third requirement of the analysis calls for a description of
significant alternatives to the rule that would minimize the rule's
economic impact on small entities and reasons why the alternatives were
rejected. The final amendments will apply to all lessors subject to
Regulation M, including small entities. The amendments represent
relatively small changes to the existing
[[Page 52109]]
regulation; in some cases, the amendments clarify rights and duties of
covered lessors or reduce economic burden. Accordingly, the amendments
should not have a negative economic impact on small entities, and,
therefore, there were no significant alternatives that would have
minimized further the economic impact on those entities.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under
the authority delegated to the Board by the Office of Management and
Budget. The Federal Reserve may not conduct or sponsor, and an
organization is not required to respond to, this information collection
unless it displays a currently valid OMB control number. The OMB
control number is 7100-0202.
The collection of information that is revised by this rulemaking is
found in 12 CFR 213-- Regulation M, including Appendices A, B, C, and D
and Supplement I. This information collection is mandatory under the
Consumer Leasing Act (CLA) (15 U.S.C. 1667 et seq.) and the Board's
Regulation M. The purpose of the disclosures associated with Regulation
M is to ensure that lessees of personal property receive meaningful
information that enables them to compare lease terms with other leases
and, where appropriate, with credit transactions. The respondents/
recordkeepers are individuals or businesses that regularly lease, offer
to lease, or arrange for the lease of personal property under a
consumer lease, including small businesses. Institutions are also
required to retain records for twenty-four months as evidence of
compliance. No comments specifically addressing the burden estimate
were received.
The Board also extended the recordkeeping and disclosure
requirements in connection with Regulation M for three years. The
current estimated annual burden for this information collection is
11,179 hours. It is estimated that there are 310 disclosure respondents
and 15 advertising respondents with an average frequency of 120 and 3
responses per respondent each year, respectively. The technical
amendments clarifying the rules on lease payments, advertisements and
rounding calculations are estimated to have no effect on burden. There
is estimated to be no annual cost burden and no associated capital or
start up cost.
Consumer lease information in or referred to by advertisements is
available to the public. Disclosures of the costs, liabilities, and
terms of consumer lease transactions relating to specific leases are
not publicly available. Because the Federal Reserve does not collect
any of the information, no issue of confidentiality under the Freedom
of Information Act normally arises. However, the information may be
protected from disclosure under the exemptions (b)(4), (6), and (8) of
the Freedom of Information Act (5 U.S.C. 522 (b)(4), (6), and (8)).
The Board has a continued interest in the public's opinions of
Federal Reserve collections of information. At any time, comments
regarding the burden estimate, or any other aspect of this collection
of information, including suggestions for reducing the burden, may be
sent to: Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, N.W., Washington DC 20551; and to the Office of
Management and Budget, Paperwork Reduction Project (7100-0202),
Washington, DC 20503.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and recordkeeping
requirements, Truth in lending.
For the reasons set forth in the preamble, the Board amends
Regulation M, 12 CFR Part 213, as set forth below:
PART 213--CONSUMER LEASING (REGULATION M)
1. The authority citation for part 213 is revised to read as
follows:
Authority: 15 U.S.C. 1604; 1667f.
2. Section 213.4 is amended by revising paragraph (f)(8) to read as
follows:
Sec. 213.4 Content of disclosures.
* * * * *
(f) Payment calculation. * * *
(8) Lease payments. The lease payments with a description such as
``the number of payments in your lease.''
* * * * *
3. Section 213.7 is amended by revising paragraph (d)(1)(ii) to
read as follows:
Sec. 213.7 Advertising.
* * * * *
(d) Advertising of terms that require additional disclosure.--(1)
Triggering terms. * * *
(ii) A statement of any capitalized cost reduction or other payment
(or that no payment is required) prior to or at consummation or by
delivery, if delivery occurs after consummation.
* * * * *
4. Appendix A to part 213 is amended by revising Appendix A-1,
Appendix A-2, and Appendix A-3 to read as follows:
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5. In Supplement I to Part 213--Official Staff Commentary to
Regulation M, under Section 213.4--Content of Disclosures, the
following amendments are made:
a. A new paragraph 4(f)(7) Total of Base Periodic Payments is added
in numerical order.
b. The heading to paragraph 4(f)(8) and paragraph 1. are revised.
c. Under paragraph 4(n) Fees and taxes, paragraph 1.ii. is revised.
d. Under Appendix A--Model Forms, paragraph 2.v. is revised.
The addition and revisions read as follows:
Supplement I to Part 213--Official Staff Commentary to Regulation M
* * * * *
Section 213.4--Content of Disclosures
* * * * *
4(f)(7) Total of Base Periodic Payment
1. Accuracy of disclosure. If the periodic payment calculation
under Sec. 213.4(f) has been calculated correctly, the amount disclosed
under Sec. 213.4(f)(7)--the total of base periodic payments--is correct
for disclosure purposes even if that amount differs from the base
periodic payment disclosed under Sec. 213.4(f)(9) multiplied by the
number of lease payments disclosed under Sec. 213.4(f)(8), when the
difference is due to rounding.
* * * * *
4(f)(8) Lease Payment
1. Lease Term. The lease term may be disclosed among the segregated
disclosures.
* * * * *
4(n) Fees and taxes.
1. Treatment of certain taxes. * * *
ii. Taxes that are part of the scheduled payments are reflected in
the disclosure under Sec. 213.4(c), (f), and (n).
* * * * *
Appendix A--Model Forms
* * * * *
2. Examples of acceptable changes. * * *
v. Deleting or blocking out inapplicable disclosures, filling in
``N/A'' (not applicable) or ``0,'' crossing out, leaving blanks,
checking a box for applicable items, or circling applicable items (this
should facilitate use of multipurpose standard forms).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, September 23, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-26011 Filed 9-28-98; 8:45 am]
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