[Federal Register Volume 62, Number 1 (Thursday, January 2, 1997)]
[Proposed Rules]
[Pages 62-70]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32496]
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FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-0952]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is publishing for comment proposed revisions to
Regulation M, which implements the Consumer Leasing Act. The act
requires lessors to provide uniform cost and other disclosures about
consumer lease transactions. The proposed revisions primarily implement
amendments to the act contained in the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, which streamline the advertising
disclosures for lease transactions. In addition, the proposal contains
several technical amendments that would be made to the regulation.
DATES: Comments must be received by February 7, 1997.
ADDRESSES: Comments should refer to Docket No. R-0952, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments also may be delivered to Room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the
guard station in the Eccles Building courtyard on 20th Street, N.W.
(between Constitution Avenue and C Street) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's
rules regarding the availability of information.
FOR FURTHER INFORMATION CONTACT: Kyung H. Cho-Miller or Obrea O.
Poindexter, Staff Attorneys, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, Washington,
DC 20551, at (202) 452-2412 or 452-3667. Users of Telecommunications
Device for the Deaf only may contact Dorothea Thompson, at (202) 452-
3544.
SUPPLEMENTARY INFORMATION:
I. Background on the Consumer Leasing Act and Regulation M
The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted
into law in 1976 as an amendment to the Truth in Lending Act (TILA), 15
U.S.C. 1601 et seq. The CLA 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. Under the
act, lessors are required to provide uniform cost and other information
about consumer lease transactions.
The Board was given rulewriting authority, and its Regulation M (12
CFR part 213) implements the CLA. An official staff commentary
interprets the regulation.
The Board recently completed a review of Regulation M, pursuant to
its policy of periodically reviewing its regulations, and approved a
final rule in September 1996 substantially revising the regulation to
update the disclosure requirements and to carry out more effectively
the purposes of the Act (61 FR 52246, October 7, 1996).
II. Proposed Regulatory Provisions
This proposed rulemaking contains a few technical amendments to the
regulation. For example, the model clause for providing a description
of the leased property is added and the example of an annual charge as
an other charge is deleted on the open- and closed-end model forms. All
the proposed technical amendments are discussed in detail in the
section-by-section analysis.
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In the September 1996 final rule, the advertising provisions
implemented amendments to the CLA contained in the Riegle Community
Development and Regulatory Improvement Act of 1994 (Pub. L. 103-325,
108 Stat. 2160), allowing a toll-free number or a print advertisement
to substitute for certain lease disclosures in radio commercials (which
was expanded in the final rule to television commercials).
The advertisement provisions were amended and streamlined on
September 30, 1996, when the Congress enacted the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (Pub. L. 104-208, 110 Stat.
3009) (the 1996 Act). The Board's proposed rule implements the
statutory changes, which are discussed in detail below in Sec. 213.7.
III. Section-by-Section Analysis
Section 213.4 Content of disclosures
4(n) Fees and Taxes
In the September 1996 final rule, paragraph 4(n) of this section
stated that the lessor must disclose the total dollar amount of all
official and license fees, registration, title, or taxes required to be
paid ``to the lessor'' in connection with the lease. Adding ``paid to
the lessor'' narrowed the scope of the disclosure from the previous
requirement. No substantive change to the requirement was intended.
Thus, the phrase ``to the lessor'' would be deleted from this section.
4(o) Insurance
The Board proposes to revise the captions for paragraph 4(o) (1)
and (2) to change the focus from voluntary and required insurance. The
new captions more accurately reflect the requirement for the insurance
disclosure--that insurance obtained through the lessor or through a
third party, regardless of whether it is required or voluntary, must be
disclosed.
Section 213.5 Renegotiations, Extensions, and Assumptions
5(d) Exceptions
Under Regulation M, new disclosures generally are required where a
covered lease transaction is renegotiated or extended; however, under
paragraph 5(d)(1) new disclosures are not required if the ``lease
charge'' is reduced in a renegotiation or an extension of an existing
lease. This exception was moved from the official staff commentary to
the regulation in the final rule approved in September 1996. For
clarity and consistency in terminology throughout the regulation, the
Board proposes to replace the term ``lease charge'' with the term
``rent charge.''
Section 213.7 Advertising
The advertising provisions in Regulation M currently require
additional disclosure if an advertisement states any of the following
terms: the amount of any payment; the number of required payments; or a
statement of any capitalized cost reduction or other payment required
prior to or at consummation, or that no payment is required. Under the
amendments to the CLA contained in the 1996 Act, an advertisement that
states the number of required payments would no longer trigger
additional disclosures.
The 1996 Act also changes the items that must be disclosed (to the
extent applicable) when a triggering term is stated in an
advertisement. The current disclosures and the changes made by the 1996
Act are as follows:
(1) That the transaction advertised is a lease. No change was
made in this disclosure.
(2) The total amount due at lease signing, or that no payment is
required. This disclosure has been expanded to also include amounts
due at delivery if delivery occurs after consummation.
(3) The number, amounts, due dates or periods of scheduled
payments, and total of such payments under the lease. The total of
scheduled payments is eliminated as a required disclosure.
(4) A statement of whether or not the lessee has the option to
purchase the leased property, and where the lessee has the option to
purchase at the end of the lease term, the purchase-option price.
This disclosure has been eliminated entirely.
(5) A statement of the amount, or the method for determining the
amount, of the lessee's liability (if any) at the end of the lease
term. This disclosure has been eliminated entirely.
(6) For an open-end lease, a statement of the lessee's liability
(if any) for the difference between the residual value of the lease
property and its realized value at the end of the lease term. This
disclosure was simplified to require a short statement that an
additional charge may be imposed.
The 1996 Act also adds as an additional disclosure of a statement
on whether or not a security deposit is required.
7(b) Clear and Conspicuous Standard
7(b)(1) Amount Due at Lease Signing
The general rule in this paragraph states that any reference to a
charge that is part of the total amount due at lease signing may not be
more prominent than the disclosure of the total amount due at lease
signing. The amount of any capitalized cost reduction (or no
capitalized cost reduction) is provided as an example of an amount that
is a part of the total amount due at lease signing. The Board proposes
to delete this example from this paragraph and to move it to the
official staff commentary.
7(d) Advertisement of Terms That Require Additional Disclosure
7(d)(1) Triggering Terms
Pursuant to the 1996 Act, the Board proposes to delete paragraph
7(d)(1)(ii). Merely stating in an advertisement the number of required
lease payments, for example, ``36 payments,'' no longer ``triggers''
the additional disclosures in paragraph 7(d)(2). Paragraph 7(d)(1)(iii)
would be redesignated as paragraph 7(d)(1)(ii).
7(d)(2) Additional Terms
An advertisement stating any item listed in paragraph 7(d)(1) is
required to state the additional disclosures in paragraph 7(d)(2), as
applicable. As discussed previously, the 1996 Act amends many of the
required additional disclosures in this paragraph. The following
proposed changes implement the statutory amendments.
The 1996 Act expands the disclosure of the total amount due at
lease signing in paragraph 7(d)(2)(ii) to include ``amounts paid at
delivery, whichever occurs later.'' Prior to the amendments, a delivery
charge paid after consummation was not included in the total amount due
at lease signing in Sec. 213.4(b) or in this section. Under the
proposed changes to implement the statutory amendment, the delivery
charge would be included in the total even if it was paid after
consummation. The Board does not propose to expand the disclosure under
Sec. 213.4 to parallel the new advertising rule.
The total of scheduled payments disclosure from paragraph
7(d)(2)(iii), all of paragraph 7(d)(2)(iv), and all of paragraph
7(d)(2)(v) will be deleted. A statement of whether or not a security
deposit is required is added by the statute and proposed as paragraph
7(d)(iv). For an open-end lease, the amended statute requires a
statement that an extra charge may be imposed at the end of the lease
term; the regulatory provision is redesignated as paragraph 7(d)(2)(v).
7(f) Alternative Disclosures--Television or Radio Advertisements
7(f)(1) Toll-Free Number or Print Advertisement
The 1996 Act deletes the ``total of scheduled payments'' as a
required additional disclosure under section 184(a), the general
advertising disclosures, but not in section 184(c),
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which governs radio advertisements. Section 105(a) of the TILA provides
that the Board's regulations ``may contain such classifications,
differentiations, or other provisions, and may provide for such
adjustments and exceptions for any class of transactions, as in the
judgment of the Board are necessary or proper to effectuate the
purposes of [the CLA], to prevent circumvention or evasion thereof, or
to facilitate compliance therewith.'' The Board does not believe that
the Congress intended to require more disclosures for radio
advertisements than other advertisements. Accordingly, the Board
proposes to delete the disclosure of the ``total of scheduled
payments'' from section 184(c) on radio advertisements pursuant to its
exception authority under section 105(a).
Appendices
Lessors are required to provide a description of leased property
under the CLA and Sec. 213.4(a) of Regulation M. The Board proposes to
amend the model forms for open- and closed-end leases disclosures to
add among the nonsegregated disclosures a model clause for describing
leased property.
The Board proposes to amend the model forms for open- and closed-
end leases by deleting ``annual tax'' as an example of an other charge.
Third-party fees or charges paid to the lessor but not retained by the
lessor such as taxes are not included in the ``other charges''
disclosure.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-0952 and, when
possible, should use a standard Courier typeface with a type size of 10
or 12 characters per inch. This will enable the Board to convert the
text to machine-readable form through electronic scanning, and will
facilitate automated retrieval of comments for review. Also, if
accompanied by an original document in paper form, comments may be
submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-
compatible DOS-based format.
The comment period ends on February 7, 1997. Normally, the Board
provides a 60-day comment period, in keeping with the Board's policy
statement on rulemaking (44 FR 3957, January 19, 1979). The proposed
regulatory revisions primarily implement changes in the law made by the
1996 Act that streamline the advertising provisions and, in addition,
make a few technical changes to Regulation M. The Board believes that
it is desirable to ensure that a final rule takes effect along with the
final rule approved in September 1996, which requires issuing a final
rule by April 1, 1997. Accordingly, the Board is providing an
abbreviated comment period.
V. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C. 603), the Board's Office of the Secretary has reviewed the
proposed amendments to Regulation M. Overall, the amendments are not
expected to have any significant impact on small entities. The proposed
regulatory revisions, primarily required to implement the 1996 Act,
ease compliance by streamlining the advertising provisions. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
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 proposed rule
under the authority delegated to the Board by the Office of Management
and Budget. Comments on the collections of information should be sent
to the Office of Management and Budget, Paperwork Reduction Project
(7100-0202), Washington, DC 20503, with copies of such comments to be
sent to Mary M. McLaughlin, Chief, Financial Reports Section, Division
of Research and Statistics, Mail Stop 97, Board of Governors of the
Federal Reserve System, Washington, DC 20551.
The respondents are individuals or businesses that regularly lease,
offer to lease, or arrange for the lease of personal property under a
consumer lease. 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. Records,
required to evidence compliance with the regulation, must be retained
for twenty-four months. The revisions to the collection of information
requirements in this proposed rule are found in 12 CFR 213.4, 213.5,
and 213.7 and appendices A-1 and 2.
Regulation M applies to all types of financial institutions, not
just state member banks. Under the Paperwork Reduction Act, however,
the Federal Reserve accounts for the paperwork burden associated with
Regulation M only for state member banks. Any estimates of paperwork
burden for institutions other than state member banks affected by the
amendments would be provided by the federal agency or agencies that
supervise those lessors. The Federal Reserve has found that few state
member banks engage in consumer leasing and that while the prevalence
of leasing has increased in recent years, it has not increased
substantially among state member banks. It also has found that among
state member banks that engage in consumer leasing, only a very few
advertise consumer leases.
The proposed revisions to Secs. 213.4 and 213.5 are estimated to
have no effect on the hour burden that the regulation imposes. The
proposed revisions to Sec. 213.7, while more substantive, are expected
to have no net effect on the hour burden.
The current hour burden for state member banks, as of the September
1996 final rule, is estimated to be eighteen minutes for the
disclosures and twenty-five minutes for advertising. It is estimated
that there will be 310 respondents and an average frequency of 120
responses per respondent each year. The total amount of annual hour
burden at all state member banks is estimated to be 11,179 hours.
Start-up cost burden associated with the September 1996 final rule was
estimated to be $12,000 per respondent, amounting to a total of
$3,720,000 for state member banks. The Federal Reserve estimates that
this amount is sufficient to cover any costs of the proposed rule.
The disclosures made by lessors to consumers under Regulation M are
mandatory (15 U.S.C. 1667 et seq.). Because the Federal Reserve does
not collect any information, no issue of confidentiality under the
Freedom of Information Act arises. Consumer lease information in
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.
An agency 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.
Comments are invited on: (a) whether the proposed revised
collection of information is necessary for the proper performance of
the Federal Reserve's functions; including whether the information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed revised information collection, including
the cost of compliance; (c) ways to enhance the quality, utility, and
clarity of the information to be
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collected; and (d) ways to minimize the burden of information
collection on respondents, including through the use of automated
collection techniques or other forms of information technology.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and recordkeeping
requirements, Truth in Lending.
Certain conventions have been used to highlight the proposed
revisions to the regulation. New language is shown inside bold-faced
arrows, while language that would be deleted is set off with bold-faced
brackets.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR Part 213 as follows:
PART 213--CONSUMER LEASING (REGULATION M)
1. The authority citation for part 213 continues to read as
follows:
Authority: 15 U.S.C. 1604.
2. Section 213.4 would be amended as follows:
a. Paragraph (n) would be revised; and
b. The headings of Paragraphs (o)(1) and (o)(2) would be revised.
The revisions read as follows:
Sec. 213.4 Content of disclosures.
* * * * *
(n) Fees and taxes. The total dollar amount for all official and
license fees, registration, title, or taxes required to be paid [to the
lessor] in connection with the lease.
(o) Insurance. * * *
(1) [Voluntary insurance.] Through the
lessor. * * *
(2) [Required insurance.] Through a third
party. * * *
* * * * *
3. Section 213.5 would be amended by revising paragraph (d)(1) to
read as follows:
Sec. 213.5 Renegotiations, extensions, and assumptions.
* * * * *
(d) Exceptions. * * *
(1) A reduction in the [lease] rent charge;
* * * * *
4. Section 213.7 would be amended as follows:
a. Paragraph (b)(1) would be revised;
b. Paragraph (d) would be revised.
The revisions read as follows:
Sec. 213.7 Advertising.
* * * * *
(b) Clear and conspicuous standard. * * *
(1) Amount due at lease signing. Except for the statement of a
periodic payment, any affirmative or negative reference to a charge
that is a part of the total amount due at lease signing under paragraph
(d)(2)(ii) of this section [, such as the amount of any capitalized
cost reduction (or no capitalized cost reduction is required),] shall
not be more prominent than the disclosure of the total amount due at
lease signing.
* * * * *
(d) Advertisement of terms that require additional disclosure--(1)
Triggering terms. An advertisement that states any of the following
items shall contain the disclosures required by paragraph (d)(2) of
this section, except as provided in paragraphs (e) and (f) of this
section:
(i) The amount of any payment; or
[(ii) The number of required payments; or]
[(iii)] (ii) A statement of any capitalized
cost reduction or other payment required prior to or at consummation,
or that no payment is required.
(2) Additional terms. An advertisement stating any item listed in
paragraph (d)(1) of this section shall also state the following items:
(i) That the transaction advertised is a lease;
(ii) The total amount due at lease signing or delivery,
whichever is later , or that no payment is required;
(iii) The number, amounts, and due dates or
periods of scheduled payments[, and total of such payments] under the
lease;
[(iv) A statement of whether or not the lessee has the option to
purchase the leased property, and where the lessee has the option to
purchase at the end of the lease term, the purchase-option price. The
method of determining the purchase-option price may be substituted in
disclosing the lessee's option to purchase the leased property prior to
the end of the lease term;]
[(v)] (iv) A statement of whether
or not a security deposit is required [the amount, or the
method for determining the amount, of the lessee's liability (if any)
at the end of the lease term that] ; and
[(vi)] (v) A statement [of the lessee's
liability] that an extra charge may be imposed at the end of
the lease term where the lessee is liable (if any) for the
difference between the residual value of the leased property and its
realized value at the end of the lease term.
* * * * *
5. Appendix A to part 213 is amended by revising Appendix A-1 and
Appendix A-2 to read as follows:
Appendix A to Part 213--Model Forms
* * * * *
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By order of the Board of Governors of the Federal Reserve
System, December 17, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-32496 Filed 12-31-96; 8:45 am]
BILLING CODE 6210-01-P
