[Federal Register Volume 63, Number 234 (Monday, December 7, 1998)]
[Proposed Rules]
[Pages 67434-67436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32338]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1028]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; official staff commentary.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing for comment proposed revisions to the
official staff commentary to Regulation M, which implements the
Consumer Leasing Act. The commentary applies and interprets the
requirements of the regulation. The proposed update would provide
guidance on disclosures for lease advertisements, multiple-item leases,
renegotiations and extensions and estimates of official fees and taxes.
DATES: Comments should be received by January 22, 1999.
ADDRESSES: Comments should refer to Docket No. R-1028, may be mailed to
Ms. Jennifer J. Johnson, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington,
D.C. 20551. Comments addressed to Ms. Johnson may also be delivered to
the Board's mail room between 8:45 a.m. and 5:15 p.m., and to the
security control room at all other times. Both the mail room and the
security control room are accessible from the courtyard entrance on
20th Street between Constitution Avenue and C Street, N.W. Comments may
be inspected in room MP-500 between 9:00 a.m. and 5:00 p.m., in
accordance with Secs. 261.12 and 261.14, of the Board's Rules Regarding
the Availability of Information. 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Staff Attorney, or
Jane Ahrens, Senior Counsel, 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:
I. Background
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 Board's Regulation M (12 CFR part 213)
implements the Act. 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.
The commentary (12 CFR Part 213 (Supp. I)) is a substitute for
individual written staff interpretations; it is updated annually, as
necessary, to address significant questions that arise. This is the
first update since the January 1, 1998 compliance date for the revised
regulation. The Board expects to adopt revisions to the commentary in
final form in March 1999. To the extent the revisions require changes
in lessors' compliance procedures, the effective date for mandatory
compliance is October 1, 1999.
II. Proposed Revisions
Section 213.3--General Disclosure Requirements
3(d) Use of Estimates
Comment 3(d)(1)-1(i) provides an example for estimating official
fees and
[[Page 67435]]
taxes. The language of the example would be revised and moved to
comment 4(n)-2.
Section 213.4--Content of Disclosures
4(c) Payment Schedule and Total Amount of Periodic Payments
Comment 4(c)-1 would be revised to clarify that scheduled payments
can be made at both regular and irregular intervals. A similar revision
would be made in comment 1 to appendix A.
4(f) Payment Calculation
Motor vehicle lease disclosures must include a mathematical
progression of how periodic payments are derived. Comment 4(f)-2 would
be added to address lease transactions that involve multiple items of
leased property if one of the items is not a motor vehicle under state
law.
4(n) Fees and Taxes
The lessor must disclose the total amount payable by the lessee
during the lease term for official and license fees, registration,
certificate of title fees, and taxes. These amounts may vary over the
course of the lease, and some lessors have requested guidance for
calculating an estimated total amount. Proposed comment 4(n)-2 would
clarify lessors' ability to use rates or charges in effect at the time
of disclosure. The proposed comment would also provide guidance for
estimating fees and taxes that are based on the future market value of
the leased property, both of which may vary depending on the valuation
method used.
Section 213.5--Renegotiations, Extensions, and Assumptions
5(a) Renegotiations
A renegotiation occurs where a lease is satisfied and replaced by a
new lease which generally triggers new disclosures. Proposed comment
5(a)-1 would be added to clarify that disclosures should conform to the
lessee's legal obligation.
5(b) Extensions
Proposed comment 5(b)-3 would be added to provide guidance on lease
extensions, which sometimes are consummated before the end of the
initial lease term. The revisions would clarify that disclosures should
be based on the lessee's obligation for the period of the extension,
whether the extension agreement is consummated during the initial lease
term or afterwards. Any fees required in connection with the extension
also must be reflected in the new disclosures, regardless of when the
fees are paid.
Section 213.7--Advertising
7(d)(2) Additional Terms
Proposed comment 7(d)(2)-1 would be revised to provide guidance for
advertising periodic lease payments that are affected by third-party
fees that vary by state or locality, such as taxes or licenses.
Appendix A--Model Forms
Comment 1 to appendix A would be revised to provide additional
examples of permissible changes to the model forms.
III. Form of Comment Letters
Comment letters should refer to Docket No. R-1028, and, when
possible, should use a standard 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 computer diskettes in any IBM-compatible DOS- or Windows-based
format.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and recordkeeping
requirements, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions to text of the staff commentary. New language is shown inside
bold-faced arrows, while language that would be deleted is set off with
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 would continue to read as
follows:
Authority: 15 U.S.C. 1604; 1667f.
2. In Supplement I to Part 213, under Sec. 213.3--General
disclosure requirements, under Paragraph 3(d)(1) Standard, paragraph 1.
would be amended by removing ``For example:'' from the last line and
paragraph 1.i. would be removed.
3. In Supplement I to Part 213, under Sec. 213.4--Content of
disclosures, the following amendments would be made:
a. Under 4(c) Payment Schedule and Total Amount of Periodic
Payments, paragraph 1. would be revised; and
b. Under 4(f) Payment Calculation, a new paragraph 2. would be
added.
c. Under 4(n) Fees and Taxes, a new paragraph 2. would be added.
The additions and revisions would read as follows:
Supplement I to Part 213--Official Staff Commentary to Regulation M
* * * * *
Sec. 213.4 Content of disclosures.
* * * * *
4(c) Payment Schedule and Total Amount of Periodic Payments
1. Periodic payments. The phrase ``number, amount, and due dates or
periods of payments'' requires the disclosure of all payments that are
made at regular or irregular intervals and
generally derived from rent, capitalized or amortized amounts such as
depreciation, and other amounts that are collected by the lessor at the
same interval(s), including, for example, taxes, maintenance, and
insurance charges. Other periodic payments may, but need not, be
disclosed under Sec. 213.4(c).
* * * * *
4(f) Payment Calculation
* * * * *
2. Multiple-items. If a lease transaction involves
multiple items of leased property, one of which is not a motor vehicle
under state law, at their option, lessors may include all items in the
disclosures required under 4(f). See comment 3(a)-4 regarding
disclosure of multiple transactions.
* * * * *
4(n) Fees and Taxes
* * * * *
2. Estimates. Lessors may estimate the total amount for
fees and taxes based on the rates or charges in effect at the time of
the disclosure and identify it as an estimate. Where a rate is applied
to the market value of the leased property, lessors have flexibility in
estimating the future value of the property, including using the
unamortized balance under the lease or a published valuation guide.
Lessors may accompany the estimate with a statement that the actual fee
or tax may be higher or lower depending on the rate in effect or the
value of the leased property at the time the fee or tax is
due.
* * * * *
4. In Supplement I to Part 213, under Sec. 213.5--Renegotiations,
extensions, and assumptions, the following amendments would be made:
a. A new undesignated heading, 5(a) Renegotiations, and paragraph
1. would be added; and
b. Under Paragraph 5(b) Extensions., a new paragraph 3. would be
added.
The additions would read as follows:
[[Page 67436]]
Sec. 213.5 Renegotiations, extensions, and assumptions.
* * * * *
5(a) Renegotiations
1. Basis of disclosures. Lessors have flexibility in
making disclosures so long as they reflect the legal obligation under
the renegotiated lease. For example, assume that a 24-month lease is
replaced by a 36-month lease. The initial lease began on January 1,
1998, and was renegotiated and replaced on July 1, 1998, so that the
new lease term ends on January 1, 2001. If the renegotiated lease
covers the 36-month period beginning January 1, 1998, the new
disclosures would reflect all payments made by the lessee on the
initial lease and all payments on the renegotiated lease. However, if
the renegotiated lease covers only the remaining 30 months, from July
1, 1998, to January 1, 2001, the disclosures would reflect only the
charges incurred in connection with the renegotiation and the payments
for the remaining period.
* * * * *
5(b) Extensions
* * * * *
3. Basis of disclosures. The disclosures should be based
on the extension period, including any upfront costs paid in connection
with the extension. For example, assume that initially a lease ends on
March 1, 1999. In January 1999, agreement is reached to extend the
lease until October 1, 1999. The disclosure would include any extension
fee paid in January and the periodic payments for the seven-month
extension period beginning in March.
* * * * *
5. In Supplement I to Part 213, under Sec. 213.7--Advertising,
under Paragraph 7(d)(2) Additional Terms., paragraph 1. would be
revised as follows:
* * * * *
Sec. 213.7 Advertising.
* * * * *
7(d)(2) Additional Terms
* * * * *
1. Third-party fees that vary by state or locality. The disclosure
of a periodic payment or[the] total amount due at
lease signing or delivery may:
i. Exclude third-party fees, such as taxes, licenses, and
registration fees and disclose that fact; or
ii. Provide a periodic payment or total that
includes third-party fees based on a particular state or locality as
long as that fact and the fact that fees may vary by state or locality
are disclosed.
* * * * *
6. In Supplement I to Part 213, under Appendix A--Model Forms,
paragraph 1. would be revised as follows:
Appendix A--Model Forms
* * * * *
1. Permissible changes. Although use of the model forms is not
required, lessors using them properly will be deemed to be in
compliance with the regulation. Generally, lessors may make certain
changes in the format or content of the forms and may delete any
disclosures that are inapplicable to a transaction without losing the
act's protection from liability. For example, the model form based on
monthly periodic payments may be modified for single-payment lease
transactions or for quarterly or other regular or irregular
periodic payments. The model form may also be modified to reflect that
a transaction is an extension. The content, format, and
headings for the segregated disclosures must be substantially similar
to those contained in the model forms; therefore, any changes should be
minimal. The changes to the model forms should not be so extensive as
to affect the substance and the clarity of the disclosures.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority, December 1, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-32338 Filed 12-4-98; 8:45 am]
BILLING CODE 6210-01-P
