[Federal Register Volume 64, Number 177 (Tuesday, September 14, 1999)]
[Proposed Rules]
[Pages 49713-49722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23141]
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FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1042]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is requesting comment on proposed revisions to
Regulation M, which implements the Consumer Leasing Act. The Board
previously published a proposed rule that permits lessors to use
electronic communication (for example, communication via personal
computer and modem) to provide disclosures required by the act and
regulation, if the consumer agrees to such delivery. (A similar rule
was also proposed under various other consumer financial services and
fair lending regulations administered by the Board.) In response to
comments received on the proposals, the Board is publishing for comment
an alternative proposal on the electronic delivery of disclosures,
together with proposed commentary that would provide further guidance
on electronic communication issues.
DATES: Comments must be received by October 29, 1999.
ADDRESSES: Comments, which should refer to Docket No. R-1042, may be
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 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.
weekdays, and to the security control room at all other times. The mail
room and the security control room, both in the Board's Eccles
Building, 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., pursuant to
Sec. 261.12, except as provided in Sec. 261.14 of the Board's Rules
Regarding the Availability of Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Kyung H. 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. Users of Telecommunications Device for the Deaf (TDD) only,
contact 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 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 Board's Regulation M (12 CFR
part 213) implements the act.
The CLA and Regulation M require disclosures to be provided to
consumers in writing, presuming that lessors provide paper documents.
Under many laws that call for information to be in writing, information
in electronic form is considered to be ``written.'' Information
produced, stored, or communicated by computer is also generally
considered to be a writing, where visual text is involved.
In May 1996, the Board revised Regulation E (Electronic Fund
Transfers) following a comprehensive review. During that process, the
Board determined that electronic communications for delivery of
information required by federal laws governing financial services could
effectively reduce compliance costs without adversely affecting
consumer protections. Consequently, the Board simultaneously issued a
proposed rule to permit financial institutions to use electronic
communication to deliver disclosures that Regulation E requires to be
given in writing. (61 FR 19696, May 2, 1996.) The 1996 proposal
required that disclosures be provided in a form the consumer may
retain, a requirement that institutions could satisfy by providing
information in a format that may be printed or downloaded. The proposed
rule also allowed consumers to request a paper copy of a disclosure for
up to one year after its original delivery.
Following a review of the comments, on March 25, 1998, the Board
issued an interim rule under Regulation E (the ``interim rule''), 63 FR
14528. The Board also published proposals under Regulations DD (Truth
in Savings), 63 FR 14533, M (Consumer Leasing), 63 FR 14538, Z (Truth
in Lending), 63 FR 14548, and B (Equal Credit Opportunity), 63 FR
14552, (collectively, the ``March 1998 proposed rules''). The rules
would apply to financial institutions, creditors, lessors, and other
entities that are required to give disclosures to consumers and others.
(For ease of reference this background section uses the terms
``financial institutions,'' ``institutions,'' and ``consumers.'') The
interim rule and the March 1998 proposed rules were similar to the May
1996 proposed rule; however, they did not require financial
institutions to provide paper copies of disclosures to a consumer upon
request if the consumer previously agreed to receive disclosures
electronically. The Board believed that most institutions would
accommodate consumer requests for paper copies when feasible or
redeliver disclosures electronically; and the Board encouraged
financial institutions to do so.
The March 1998 proposed rules and the interim rule permitted
financial institutions to provide disclosures electronically if the
consumer agreed, with few other requirements. The rule was intended to
provide flexibility and did not specify any particular method for
obtaining a consumer's agreement. Whether the parties had an agreement
would be determined by state law. The proposals and the interim rule
did not preclude a financial institution and a consumer from entering
into an agreement electronically, nor did they prescribe a formal
mechanism for doing so.
The Board received approximately 200 written comments on the
interim rule and the March 1998 proposed rules. The majority of
comments were submitted by financial institutions and their trade
associations. Industry commenters generally supported the use of
electronic communication to deliver information required by the CLA and
Regulation M. Nevertheless, many sought specific revisions and
additional guidance on how to comply with the disclosure requirements
in particular transactions and circumstances.
Industry commenters were especially concerned about the condition
that a consumer had to ``agree'' to receive information by electronic
communication, because the rule did not specify a method for
establishing that an ``agreement'' was reached. These commenters
believed that relying on state law created uncertainty about what
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constitutes an agreement and, therefore, potential liability for
noncompliance. To avoid uncertainty over which state's laws apply, some
commenters urged the Board to adopt a federal minimum standard for
agreements or for informed consent to receive disclosures by electronic
communication. These commenters believed that such a standard would
avoid the compliance burden associated with tailoring legally binding
``agreements'' to the contract laws of all jurisdictions where
electronic communications may be sent.
Consumer advocates generally opposed the March 1998 interim rule
and proposed rules. Without additional safeguards, they believed,
consumers may not be provided with adequate information about
electronic communications before an ``agreement'' is reached. They also
believed that promises of lower costs could induce consumers to agree
to receive disclosures electronically without a full understanding of
the implications. To avoid such problems, they urged the Board, for
example, either to require institutions to disclose to consumers that
their account with the institution will not be adversely affected if
they do not agree to receive electronic disclosures, or to permit
financial institutions to offer electronic disclosures only to
consumers who initiate contact with the institution through electronic
communication. They also noted that some consumers will likely consent
to electronic disclosures believing that they have the technical
capability to retrieve information electronically, but might later
discover that they are unable to do so. They questioned consumers'
willingness and ability to access and retain disclosures posted on
Internet websites, and express their apprehension that the goals of
federally mandated disclosure laws will be lost.
Consumer advocates and others were particularly concerned about the
use of electronic disclosures in connection with home-secured loans and
certain other transactions that consumers typically consummate in
person (citing as examples automobile loans and leases, short-term
``payday'' loans, or home improvement financing contracts resulting
from door-to-door sales). They asserted that there is little benefit to
eliminating paper disclosures in such transactions and that allowing
electronic disclosures in those cases could lead to abusive practices.
Accordingly, consumer advocates and others believed that paper
disclosures should always accompany electronic disclosures in mortgage
loans and certain other transactions, and that consumers should have
the right to obtain paper copies of disclosures upon request for all
types of transactions (deposit account, credit card, loan or lease, and
other transactions).
A final issue raised by consumer advocates was the integrity of
disclosures sent electronically. They stated that there may be
instances when the consumer and the institution disagree on the terms
or conditions of an agreement and consumers may need to offer
electronic disclosures as proof of the agreed-upon terms and to enforce
rights under consumer protection laws. Thus, to assure that electronic
documents have not been altered and that they accurately reflect the
disclosures originally sent, consumer advocates recommended that the
Board require that electronic disclosures be authenticated by an
independent third party.
The Board's Consumer Advisory Council considered the electronic
delivery of disclosures in 1998 and again in 1999. Many Council members
shared views similar to those expressed in written comment letters on
the 1998 proposals. For example, some Council members expressed concern
that the Board was moving too quickly in allowing electronic
disclosures for certain transactions, and suggested that the Board
might go forward with electronic disclosures for deposit accounts while
proceeding more slowly on credit and lease transactions. Others
expressed concern about consumer access and consumers' ability to
retain electronic disclosures. They believed that, without specific
guidance from the Board, institutions would provide electronic
disclosures without knowing whether consumers could retain or access
the disclosures, and without establishing procedures to address
technical malfunctions or nondelivery. The Council also discussed the
integrity and security of electronic documents.
II. Overview of Proposed Revisions
Based on a review of the comments and further analysis, the Board
is requesting comment on a modified proposed rule that is more detailed
than the interim rule and March 1998 proposed rules. It is intended to
provide specific guidance for lessors that choose to use electronic
communication to comply with Regulation M's requirements to provide
written disclosures, and to ensure effective delivery of disclosures to
consumers through this medium. Though detailed, the proposal provides
flexibility for compliance with electronic communication rules.
The modified proposal does not permit the electronic delivery of
Regulation M disclosures where a consumer enters into a lease agreement
in person, and the required Regulation M disclosures are provided at
that time (either as part of the lease agreement or separately), those
disclosures have to be in paper form.
The Regulation M leasing disclosures must be given to consumers
before they become obligated for a lease, and must reflect the legal
obligation. The disclosures can be made in a separate statement or in
the lease contract or other document evidencing the lease. Lessors
typically include the disclosures in the lease agreement. Few lessors
currently consummate lease agreements electronically; however, as
standards are developed for establishing legal agreements by electronic
communication, more lease contracts may be entered into by that means.
While leases are typically not consummated on-line, consumers are
able to shop on-line and apply for leases. The purpose of the
Regulation M disclosures is to ensure that consumers have meaningful
information about lease terms and to promote comparison shopping.
Therefore, the use of electronic communication may allow lessors to
provide Regulation M disclosures to consumers earlier in the leasing
process.
The Board is soliciting comment on a modified approach that
addresses both industry and consumer group concerns. Under the
proposal, lessors would have to provide specific information about how
the consumer can receive and retain electronic disclosures--through a
standardized disclosure statement--before obtaining consumers'
acceptance of such delivery, with some exceptions. If they satisfy
these requirements and obtain consumers' affirmative consent, lessors
would be permitted to use electronic communications. As a general rule
a lessor would be permitted to offer the option of receiving electronic
disclosures to all consumers, whether they initially contact the lessor
by electronic communications, or otherwise. To address concerns about
potential abuses, however, the proposal provides that if a consumer
consummates a lease in person, disclosures required to be given at that
time must be in paper form.
Lessors would have the option of delivering disclosures to an e-
mail address designated by the consumer or making disclosures available
at another location such as the lessor's website, for printing or
downloading. If the disclosures are posted at a website location,
lessors generally must notify
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consumers at an e-mail address about the availability of the
information. (Lessors may offer consumers the option of receiving alert
notices at a postal address.) The disclosures must remain available at
that site for 90 days.
Disclosures provided electronically would be subject to the ``clear
and conspicuous'' standard, and the existing format, timing, and
retainability rules in Regulation M. For example, to satisfy the timing
requirement, if disclosures are due at the time an electronic
transaction is being conducted, they would have to appear on the screen
before the consumer could consummate the transaction.
Lessors generally must provide a means for consumers to confirm the
availability of equipment to receive and retain electronic disclosure
documents. A lessor would not otherwise have a duty to verify
consumers' actual ability to receive, print, or download the
disclosures. Some commenters suggested that lessors should be required
to verify delivery by return receipt. The Board solicits comment on the
need for such a requirement and the feasibility of that approach.
As previously mentioned, consumer advocates and others have
expressed concerns that electronic documents can be altered more easily
than paper documents. The issue of the integrity and security of
electronic documents affects electronic commerce in general and is not
unique to the written disclosures required under the consumer
protection laws administered by the Board. Consumers' ability to
enforce rights under the consumer protection laws could be impaired in
some cases, however, if the authenticity of disclosures that they
retain cannot be demonstrated. Signatures, notary seals, and other
established verification procedures are used to detect alterations for
transactions memorialized in paper form. The development of similar
devices for electronic communications should reduce uncertainty over
time about the ability to use electronic documents for resolving
disputes.
The Board's rules require lessors to retain evidence of compliance
with Regulation M. Specific comment is solicited on the feasibility of
complying with a requirement that lessors provide disclosures in a
format that cannot be altered without detection, or have systems in
place capable of detecting whether or not information has been altered,
as well as the feasibility of requiring use of independent
certification authorities to verify disclosure documents.
Elsewhere in today's Federal Register, the Board is publishing
similar proposals for comment under Regulations B, E, Z, and DD. In a
separate notice the Board is publishing an interim rule under
Regulation DD, which implements the Truth in Savings Act, to permit
depository institutions to use electronic communication to deliver
disclosures on periodic statements. For ease of reference, the Board
has assigned new docket numbers to the modified proposals published
today.
III. Section-by-Section Analysis
Pursuant to its authority under section 187 of the CLA, the Board
proposes to amend Regulation M to permit lessors to use electronic
communication to provide the disclosures required by Sec. 213.4. Below
is a section-by-section analysis of the rules for providing disclosures
by electronic communication, including references to proposed
commentary provisions.
The March 1998 proposed rule addressed electronic communication in
Sec. 213.3 of the regulation, which contains the general disclosure
requirements. In the revised proposal, the rules on electronic
communications are contained in Sec. 213.6 for easier reference and to
avoid complicating the general Regulation M disclosure requirements.
Section 213.6 Requirements for Electronic Communication
6(a) Definition
The definition of the term ``electronic communication'' in the
March 1998 proposed rule remains unchanged. Section 213.6(a) limits the
term to a message transmitted electronically that can be displayed on
equipment as visual text, such as a message that is displayed on a
computer monitor screen. Most commenters supported the term as defined
in the proposed rule. Some commenters favored a more expansive
definition that would encompass communications such as audio and voice
response telephone systems. Because the proposal is intended to permit
electronic communication to satisfy the statutory requirement for
written disclosures, the Board believes visual text is an essential
element of the definition.
Commenters asked the Board to clarify the coverage of certain types
of communications. A few commenters asked about communication by
facsimile. Facsimiles are initially transmitted electronically; the
information may be received either in paper form or electronically
through software that allows a consumer to capture the facsimile,
display it on a monitor, and store it on a computer diskette or drive.
Thus, information sent by facsimile may be subject to the provisions
governing electronic communication. When disclosures are sent by
facsimile, a lessor should comply with the requirements for electronic
communication unless it knows that the disclosures will be received in
paper form. Proposed comment 6(a)-1 contains this guidance.
6(b) Electronic Communication Between Lessor and Consumer
Section 213.6(b)(1) would permit lessors to provide disclosures
using electronic communication, if the lessor complies with provisions
in new Sec. 213.6(c), discussed below.
1. Presenting disclosures in a clear and conspicuous format. The
Board does not intend to discourage or encourage specific types of
technologies. Regardless of the technology, however, disclosures
provided electronically must be presented in a clear and conspicuous
format as is the case for all written disclosures under the act and
regulation. See Sec. 213.3(a).
When consumers consent to receive disclosures electronically and
they confirm that they have the equipment to do so, lessors generally
would have no further duty to determine that consumers are able to
receive the disclosures. Lessors do have the responsibility of ensuring
the proper equipment is in place in instances where the lessor controls
the equipment.
2. Providing disclosures in a form the consumer may keep. As with
other written disclosures, information provided by electronic
communication must be in a form the consumer can retain. Under the 1998
proposals and interim rule, a lessor would satisfy this requirement by
providing information that can be printed or downloaded. The modified
proposal adopts the same approach but also provides that the
information must be sent to a specified location to ensure that
consumers have an adequate opportunity to retain the information.
Consumers communicate electronically with lessors through a variety
of means and from various locations. Depending on the location (at
home, at work, in a public place such as a library), a consumer may not
have the ability at a given time to preserve CLA disclosures presented
on-screen. Therefore, when a lessor provides disclosures by electronic
communication, to satisfy the retention requirements, the lessor must
send the disclosures to a consumer's e-mail address or other location
where
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information may be retrieved at a later date. Proposed comment 6(b)-1
contains this guidance; see also the discussion under Sec. 213.6(d),
below. If a lessor controlled an electronic terminal used to provide
electronic disclosures, a lessor could provide equipment for the
consumer to print a paper copy in lieu of sending the information to
the consumer's electronic mail address or posting the information at
another location such as the lessor's website.
3. Timing. Lessors must ensure that electronic disclosures comply
with all relevant timing requirements of the regulation. For example,
disclosures must be provided prior to consummation of a lease. The rule
ensures that consumers have an opportunity to read important
information about costs and other terms before becoming obligated.
To illustrate the timing requirements for electronic communication,
assume that a consumer is interested in leasing a vehicle on-line and
uses a personal computer at home to access the lessor's website on the
Internet. The lessor provides disclosures to the consumer about the
delivery of Regulation M disclosures by electronic communication (the
Sec. 213.6(c) disclosures discussed below) and the consumer responds
affirmatively. If the lessor's procedures permit the consumer to lease
a vehicle at that time, disclosures required under Sec. 213.4 would
have to be provided before the consumer becomes obligated on-line.
Thus, the disclosures must automatically appear on the screen or the
consumer must be required to access the information before consummating
the lease on-line. The timing requirements for providing disclosures
would not be met if, in this example, the lessor permitted the consumer
to consummate the lease on-line and sent disclosures to an e-mail
address thereafter. Proposed comment 6(b)-2 contains this guidance.
On the other hand, assume that a consumer applies for a lease on-
line and the lessor delays processing the consumer's request until the
required disclosures have been delivered by e-mail. In that case the
information would not have to also appear on the screen; delivery to
the consumer's e-mail address would be sufficient. In either case, the
consumer must be given the opportunity to receive the disclosures
before consummation.
6(b)(2) In-Person Exception
The proposal contains an exception to the general rule allowing
information required by Regulation M to be provided by electronic
communication; in these cases, paper disclosures would be required. The
exception, contained in Sec. 213.6(b)(2), seeks to address concerns
about potential abuses where consumers are transacting business in
person but are offered disclosures in electronic form. In such
transactions, there is an expectation that consumers would have to be
given paper copies of disclosures along with paper copies of other
documents evidencing the transaction.
Under Sec. 213.6(b)(2), if a consumer consummates a lease in
person, the lessor must generally provide disclosures in paper form.
For example, if a consumer goes to a lessor's place of business to
consummate a lease, disclosures are required before consummation and
they must be provided in paper form; directing the consumer to
disclosures posted on the lessor's website would not be sufficient. If,
however, a consumer applies for a lease on the Internet, a lessor may
send disclosures electronically at or around that time, even though the
lessor's procedures require the consumer to visit the lessor at a later
time to complete the transaction (for example, to sign a lease
agreement). Proposed comment 6(b)(2)-1 contains this guidance.
6(c) Disclosure Notice
Section 213.6(c) would identify the specific steps required before
a lessor could use electronic communication to satisfy the regulation's
disclosure requirements. Proposed Model Forms A-4 and A-5, and Sample
Forms A-7 and A-8 are published to aid compliance with these
requirements.
6(c)(1) Notice by Lessor
Section 213.6(c)(1) outlines the information that lessors must
provide before electronic disclosures can be given. The lessor must:
(1) Describe the information to be provided electronically and specify
whether the information is also available in paper form or whether the
lease is offered only with electronic disclosures; (2) identify the
address or location where the information will be provided
electronically; and if it will be available at a location other than
the consumer's electronic address, specify for how long and where it
can be obtained once that period ends; (3) specify any technical
requirements for receiving and retaining information sent
electronically, and provide a means for the consumer to confirm the
availability of equipment meeting those requirements; and (4) provide a
toll-free telephone number and, at the lessor's option, an electronic
or a postal address for questions about receiving electronic
disclosures and for seeking assistance with technical or other
difficulties (see proposed comments to 6(c)(1)). The Board requests
comment on whether other information should be disclosed regarding the
use of electronic communication and on any format changes that might
improve the usefulness of the notice for consumers.
Under the proposal, the Sec. 213.6(c)(1) disclosures must be
provided, as applicable, before the lessor uses electronic
communication to deliver the disclosures required by Sec. 213.4 of the
regulation. The approach of requiring a standardized disclosure
statement addresses, in several ways, the concern that consumers may be
steered into using electronic communication without fully understanding
the implications. Under this approach, the specific disclosures that
would be delivered electronically must be identified, and consumers
must be informed whether there is also an option to receive the
information in paper form. Consumers must provide an e-mail address
where one is required. Technical requirements must also be stated, and
consumers must affirm that their equipment meets the requirements, and
that they have the capability of retaining electronic disclosures by
downloading or printing them (see proposed comment 6(c)-1). Thus,
Sec. 213.6(c)(1) disclosures should allow consumers to make informed
judgments about receiving electronic disclosures.
Commenters generally requested guidance on when the consumer
chooses not to receive information by electronic communication. A
lessor could offer a consumer the option of receiving disclosures in
paper form, but it would not be required to do so. For example, a
lessor could offer particular leases for which disclosures are given
only by electronic communication. Section 213.6(c)(1)(i) would require
lessors to tell consumers whether or not they have the option to
receive disclosures in paper form. Proposed sample disclosure
statements in which the consumer has an option to receive electronic or
paper disclosures (Form A-7) or electronic disclosures only (Form A-8)
are contained in appendix A.
6(c)(2) Response by Consumer
Proposed Sec. 213.6(c)(2) would require lessors to provide a means
for the consumer to affirmatively indicate that disclosures may be
provided electronically, for example, a ``check box'' on a computer
screen. The requirement is intended to ensure that consumers' consent
is established knowingly and voluntarily.
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6(d) Address or Location To Receive Electronic Communication
Proposed Sec. 213.6(d) identifies addresses and locations where
lessors using electronic communication may send information. Lessors
may send information to a consumer's electronic address, which is
defined in proposed comment 6(d)(1)-1 as an e-mail address that the
consumer also may use for receiving communications from parties other
than the lessor. For example, a lessor's responsibility to provide
disclosures by electronic communication will be satisfied when the
information is sent to the consumer's electronic address in accordance
with the applicable proposed rules concerning delivery of disclosures
by electronic communication.
The Board recognizes that currently, because of security and
privacy concerns associated with data transmissions, a number of
lessors may choose to provide disclosures at their websites, where the
consumer may retrieve them under secure conditions. Under
Sec. 213.6(d), a lessor may make disclosures available to a consumer at
a location other than the consumer's electronic address. The lessor
must notify the consumer when the information becomes available and
identify the lease involved. The notice must be sent to the electronic
mail address designated by the consumer; the lessor may, at its option,
permit the consumer to designate a postal address. A proposed model
form (Model Form A-6) is published below.
The requirements of the regulation would be met only if the
required disclosure is posted on the website and the consumer is
notified of its availability in a timely fashion. For example, lessors
must provide disclosures to consumers prior to consummation of a lease.
(12 CFR 213.3(a)(3).)
There is a variety of circumstances when a consumer may not be able
immediately to access the information due to illness, travel, or
computer malfunction, for example. Under Sec. 213.6(d), lessors must
post information sent to a location other than the consumer's
electronic address for 90 days. Proposed comment 6(d)(2)-1 contains
this guidance.
Under the modified proposal, lessors that post information at a
location other than the consumer's electronic mail address are
required--after the 90 day period--to make disclosures available to
consumers upon request for a period of not less than two years from the
date disclosures are required to be made, consistent with the record
retention requirements under Sec. 213.8. The Board requests comments on
this approach, including suggestions for alternative means for
providing consumers continuing access to disclosures.
Section 213.7 Advertising
7(b) Clear and Conspicuous Standard
7(b)(1) Amount Due at Lease Signing
Under Sec. 213.7(b)(1), in an advertisement, lessors cannot refer
to a component of the total amount due prior to or at consummation or
by delivery (except for the periodic payment amount) more prominently
than the total amount due. Also, lessors that advertise a percentage
rate must include a statement about the limitations of the rate, which
must be as prominent as the rate. Proposed comment 7(b)(1)-3 contains
guidance on how this rule applies in an electronic advertisement.
7(b)(2) Advertisement of a Lease Rate
Under Sec. 213.7(b)(2), if a lessor includes a rate in an
advertisement, the rate cannot be more prominent than any of the
disclosures in Sec. 213.4. Comment 7(b)(2)-1 would be revised to
provide guidance on how this rule applies in an electronic
advertisement.
7(c) Catalogs and Multi-Page Advertisement
Stating certain credit terms in an advertisement for a lease
triggers the disclosure of additional terms. Section 213.7(c) permits
lessors using a multiple-page advertisement to state the additional
disclosures in a table or schedule as long as the triggering lease
terms appearing anywhere else in the advertisement refer to the page
where the table or schedule is printed. Several commenters asked the
Board to clarify the rules for electronic advertisements.
Section 213.7(c) would be amended to cover electronic
advertisements. Lessors that advertise using electronic communication
generally would comply with Sec. 213.7(c) if the table or schedule with
the additional information is set forth clearly and conspicuously and
the triggering lease terms appearing anywhere else in the advertisement
clearly refer to the page or location where the table or schedule
begins. Proposed comment 7(c)-2 contains this guidance.
Appendix A to Part 213--Model Forms
The Board solicits comment on three proposed model forms and two
sample forms for use by lessors to aid compliance with the disclosure
requirements of Secs. 213.6(c) and 6(c). Model Forms A-4 and A-5 would
implement Sec. 213.6(c), regarding the notice that lessors must give
prior to using electronic communication to provide required
disclosures. Model Form A-6 would implement Sec. 213.6(d), regarding
notices to consumers about the availability of electronic disclosures
at locations such as the lessor's website. Use of any modified version
of these forms would be in compliance as long as the lessor does not
delete information required by the regulation or rearrange the format
in a way that affects the substance, clarity, or meaningful sequence of
the disclosure.
Sample Form A-7 illustrates the disclosures under Sec. 213.6(a)(3)
for a vehicle lease transaction. The sample assumes that the lessor
also offers paper disclosures for consumers who choose not to receive
electronic disclosures. Sample Form A-8 assumes that consumers must
accept electronic disclosures if they want to contract for the lease.
Additional Issues Raised by Electronic Communication
Preemption
A few commenters suggested that any final rule issued by the Board
permitting electronic disclosures should explicitly preempt any state
law requiring paper disclosures. Under Sec. 213.9 of the regulation,
state laws are preempted if they are inconsistent with the act and
regulation and only to the extent of the inconsistency. The proposed
rule would provide lessors with the option of giving required
disclosures by electronic communication as an alternative to paper.
There is no apparent inconsistency with the act and regulation if state
laws require paper disclosures. The Board will, however, review
preemption issues that are brought to the Board's attention. Section
213.9(b) outlines the Board's procedures for determining whether a
specific law is preempted, which will guide the Board in any
determination requested by a state, lessor, or other interested party
following publication of a final rule regarding electronic
communication.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-1042 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
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in paper form, comments may be submitted on 3\1/2\-inch computer
diskettes in any IBM-compatible DOS- or Windows-based format.
V. Initial Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act,
the Board has reviewed the proposed amendments to Regulation M.
Although the proposal would add disclosure requirements with respect to
electronic communication, overall, the proposed amendments are not
expected to have any significant impact on small entities. A lessor's
use of electronic communication to provide disclosures required by the
regulation is optional. The proposed rule would give lessors
flexibility in providing disclosures. 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 (OMB). 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 number. The OMB
control number is 7100-0202.
The collection of information requirements that are relevant to
this proposed rulemaking are in 12 CFR 213.3, 213.4, 213.5, 213.7,
213.8 and in Appendix A. This information is mandatory (15 U.S.C. 1667
et seq.) to evidence compliance with the requirements of Regulation M
and the Consumer Leasing Act (CLA). The revised requirements would be
used to ensure adequate disclosure of basic terms, costs, and rights
relating to lease transactions, at or before the time lessees enter
into a consumer lease transaction and when the availability of a
consumer lease on particular terms is advertised and lessees receive
certain disclosures by electronic communication. The respondents/
recordkeepers are for-profit lessors, including small businesses.
Lessors are also required to retain records for 24 months. This
regulation applies to all types of lessors, not just state member
banks; however, under Paperwork Reduction Act regulations, the Federal
Reserve accounts for the burden of the paperwork associated with the
regulation only for state member banks. Other agencies account for the
paperwork burden on their respective constituencies under this
regulation.
The proposed revisions would allow lessors the option of using
electronic communication (for example, via personal computer and modem)
to provide disclosures required by the regulation. Although the
proposal would add disclosure requirements with respect to electronic
communication, the optional use of electronic communication would
likely reduce the paperwork burden of lessors. With respect to state
member banks, it is estimated that there are 310 respondents/
recordkeepers subject to the disclosure requirements with an average
frequency of 37,200 responses per respondent each year. It is also
estimated of the 310 respondent/recordkeepers, approximately 15 are
subject to the advertising requirement. This subset of respondent/
recordkeepers has an average frequency of 45 responses per respondent
each year. Therefore the current amount of annual burden is estimated
to be 11,179 hours. There is estimated to be no additional annual cost
burden and no capital or start-up cost.
Because the records would be maintained at state member banks and
the notices are not provided to the Federal Reserve, no issue of
confidentiality under the Freedom of Information Act arises; however,
any information obtained by the Federal Reserve may be protected from
disclosure under exemptions (b) (4), (6), and (8) of the Freedom of
Information Act (5 U.S.C. 522(b) (4), (6) and (8)). The disclosures and
information about error allegations are confidential between lessors
and the customer.
The Federal Reserve requests comments from lessors, especially
state member banks, that will help to estimate the number and burden of
the various disclosures that would be made in the first year this
proposed regulation would be effective. Comments are invited on: (a)
The cost of compliance; (b) ways to enhance the quality, utility, and
clarity of the information to be disclosed; and (c) ways to minimize
the burden of disclosure on respondents, including through the use of
automated disclosure techniques or other forms of information
technology. Comments on the collection 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 sent to Mary
M. West, Federal Reserve Board Clearance Officer, Division of Research
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve
System, Washington, DC 20551.
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 proposed changes to
Regulation M. New language is shown inside bold-faced arrows and
deletions are shown in bold-faced brackets.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation M, 12 CFR part 213, as set forth below:
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. Section 213.6 is added to read as follows:
Sec. 213.6 Requirements for electronic communication.
(a) Definition. Electronic communication means a message
transmitted electronically between a consumer and a lessor in a format
that allows visual text to be displayed on equipment such as a personal
computer monitor.
(b) Electronic communication between lessor and consumer. (1)
General. Except as provided in paragraph (b)(2) of this section, a
lessor that has complied with paragraph (c) of this section may provide
by electronic communication the disclosures required by Sec. 213.4.
Disclosures required under this section must be made clearly and
conspicuously, in writing or by electronic communication, and in a form
the consumer may keep.
(2) In-person exception. Prior to consummation of a lease in
person, disclosures required under Sec. 213.4 must be provided in paper
form, unless the consumer requested the transaction by electronic
communication and the lessor provided disclosures in compliance with
paragraph (c) (1) and (2) of this section at or around that time.
(c) Disclosure notice. The disclosure notice required by this
paragraph shall be provided in a manner substantially similar to the
applicable model form in Appendix A of this part (Model Forms A-4 and
A-5).
(1) Notice by lessor. A lessor shall:
(i) Describe the information to be provided electronically and
specify whether the information is also available in paper form or
whether the lease is offered only with electronic disclosures;
[[Page 49719]]
(ii) Identify the address or location where the information will be
provided electronically; and if it is made available at a location
other than the consumer's electronic address, how long the information
will be available, and how it can be obtained once that period ends;
(iii) Specify any technical requirements for receiving and
retaining information sent electronically, and provide a means for the
consumer to confirm the availability of equipment meeting those
requirements; and
(iv) Provide a toll-free telephone number and, at the lessor's
option, an address for questions about receiving electronic disclosures
and for seeking technical or other assistance related to electronic
communication.
(2) Response by consumer. A lessor shall provide a means for the
consumer to accept or reject electronic disclosures.
(d) Address or location to receive electronic communication. A
lessor that uses electronic communication to provide the disclosures
required by Sec. 213.4 shall:
(1) Send the information to the consumer's electronic address; or
(2) Post the information for at least 90 days at a location such as
a website, and send a notice to the consumer when the information
becomes available. Thereafter the information shall be available upon
request for a period of not less than two years from the date
disclosures are required to be made. The notice required by paragraph
(d)(2) of this section shall identify the lease property in accordance
with Sec. 213.4(a), shall be sent to an electronic address designated
by the consumer (or to a postal address, at the lessor's option), and
shall be substantially similar to the model form set forth in Appendix
A of this part (Model Form A-6).
3. Section 213.7 is amended by revising paragraph (c) to read as
follows:
Sec. 213.7 Advertising.
* * * * *
(c) Catalogs, [and] multiple-page , and
electronic advertisements. A catalog or other multiple-page
advertisement, or an advertisement using electronic
communication that provides a table or schedule of the
required disclosures shall be considered a single advertisement if, for
lease terms that appear without all the required disclosures, the
advertisement refers to the page or [pages on which]location
where the table or schedule appears.
* * * * *
4. Appendix A to Part 213 is amended by adding a new Appendix A-4,
Appendix A-5, Appendix A-6, Appendix A-7, and Appendix A-8 to read as
follows:
Appendix A to Part 213--Model Forms
* * * * *
Appendix A-4 Model Disclosures for Electronic
Communication (Sec. 213.6(c))
(Disclosures Available in Paper or Electronically)
You can choose to receive important information required by the
Consumer Leasing Act in paper or electronically.
Read this notice carefully and keep a copy for your records.
You can choose to receive the following information in
paper form or electronically: (description of Regulation M
disclosures).
How would you like to receive this information: ______
I want paper disclosures. ______ I want electronic disclosures.
[If you choose electronic disclosures, this
information will be available at: (specify location) for ______
days. After that, the information will be available upon request
(state how to obtain the information). When the information is
posted, we will send you a message at the electronic mail address
you designate here: (consumer's electronic mail address).]
[If you choose electronic disclosures this information will be
sent to the electronic mail address that you designate here:
(consumer's electronic mail address).]
To receive this information you will need: (list
hardware and software requirements). Do you have access to a
computer that satisfies these requirements? ______Yes ______No
Do you have access to a printer, or the ability to
download information, in order to keep copies for your records?
______Yes ______No
If you have questions about receiving disclosures, or
need technical or other assistance concerning these disclosures,
contact us at (telephone number).
A-5 Model Disclosures for Electronic Communication (Sec. 213.6(c))
(Disclosures Available Only Electronically)
You will receive important information required by the Consumer
Leasing Act electronically.
Read this notice carefully and keep a copy for your records.
The following information will be provided
electronically: (description of Regulation M disclosures).
This lease is not available unless you accept
electronic disclosures.
[If you choose electronic disclosures, this information
will be available at: (specify location) for ______ days. After
that, the information will be available upon request (state how to
obtain the information). When the information is posted, we will
send you a message at the electronic mail address you designate
here: (consumer's electronic mail address).]
[If you choose electronic disclosures this information will be
sent to the electronic mail address that you designate here:
(consumer's electronic mail address).]
To receive this information you will need: (list
hardware and software requirements). Do you have access to a
computer that satisfies these requirements? ______Yes ______No
Do you have access to a printer, or the ability to
download information, in order to keep copies for your records?
______Yes ______No
Do you want this lease with electronic disclosures?
______Yes ______No
If you have questions about receiving disclosures, or
need technical or other assistance concerning these disclosures,
contact us at (telephone number).
A-6 Model Notice for Delivery of Information Posted at Certain
Locations (Sec. 213.6(d))
Information about your (identify lease) is now available at
[website address or other location]. The information discusses
(describe the disclosure). It will be available for ______days.
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5. In Supplement I to Part 213, a new Section 213.6 Requirements
for Electronic Communication is added to read as follows:
Supplement I to Part 213--Official Staff Commentary to Regulation M
* * * * *
Section 213.6--Requirements for Electronic Communication
6(a) Definition
1. Coverage. Information transmitted by facsimile may be
received in paper form or electronically, although the party
initiating the transmission may not know at the time the disclosures
are sent which form will be used. A lessor that provides disclosures
by facsimile machine should comply with the requirements for
electronic communication unless the lessor knows that the
disclosures will be received in paper form.
6(b) Electronic Communication Between Lessor and Consumer
1. Retainability. Lessors must provide electronic disclosures in
a retainable format (for example, they can be printed or
downloaded). Consumers may communicate electronically with lessors
through a variety of means and from various locations. Depending on
the location (at home, at work, in a public place such as a
library), a consumer may not have the ability at a given time to
preserve CLA disclosures presented on-screen. To ensure that
consumers have an adequate opportunity to retain the disclosures,
the lessor also must send them to the consumer's designated
electronic mail address or to another location, for example, on the
lessor's website, where the information may be retrieved at a later
date.
2. Timing and delivery. When a consumer becomes obligated for a
lease transaction on the Internet, for example, in order to meet the
timing and delivery requirements, lessors must ensure that
disclosures applicable at that time appear on the screen and are in
a retainable format. The delivery requirements would not be met if
disclosures do not either appear on the screen or if the consumer is
allowed to consummate the lease before receiving the disclosures.
For example, a lessor can provide a link to electronic disclosures
appearing on a separate page as long as consumers cannot bypass the
link and they are required to access the disclosures before becoming
obligated on the lease.
6(b)(2) In-Person Exception
1. Disclosures in paper form. If a consumer consummates a lease
in person, the lessor must generally provide disclosures in paper
form. For example, if a consumer goes to a lessor's place of
business to consummate a lease, disclosures are required before
consummation and they must be provided in paper form; directing the
consumer to disclosures posted on the lessor's website would not be
sufficient. If, however, a consumer applies for a lease on the
Internet, a lessor may send disclosures electronically at or around
that time even though the lessor's procedures require the consumer
to visit the lessor at a later time to complete the transaction (for
example, to sign a lease agreement).
6(c) Disclosure Notice
1. Consumer's affirmative responses. Even though a consumer
accepts electronic disclosures in accordance with Sec. 213.6(c)(2),
a lessor may deliver disclosures by electronic communication only if
the consumer provides an electronic address where one is required,
and responds affirmatively to questions about technical requirements
and the ability to print or download information (see sample forms
A-7 and A-8 in appendix A to this part).
6(c)(1) Notice by Lessor
1. Toll-free telephone number. The number must be toll-free for
nonlocal calls made from an area code other than the one used in the
lessor's dialing area. Alternatively, a lessor may provide any
telephone number that allows a consumer to call for information and
reverse the telephone charges.
2. Lessor's address. Lessors have the option of providing either
an electronic or postal address for consumers' use in addition to
the toll-free telephone number.
6(d) Address or Location To Receive Electronic Communication.
Paragraph 6(d)(1)
1. Electronic address. A consumer's electronic address is an
electronic mail address that may be used by the consumer for
receiving communications transmitted by parties other than the
lessor.
Paragraph 6(d)(2)
1. Availability. Information that is not sent to a consumer's
electronic mail address must be available for at least 90 days from
the date the information becomes available or from the date the
notice required by Sec. 213.6(d)(2) is sent to the consumer,
whichever occurs later.
* * * * *
6. In Supplement I to Part 213, in Sec. 213.7--Advertising, the
following amendments are made:
a. Under 7(b)(1) Amount due at Lease Signing or Delivery, a new
paragraph 3. is added;
b. Under 7(b)(2) Advertisement of a Lease Rate, paragraph 1. is
revised; and
c. Under 7(c) Catalogs and Multi-Page Advertisements, paragraph
12 is redesignated as paragraph 2 and revised. The addition and
revisions read as follows:
* * * * *
Sec. 213.7 Advertising
* * * * *
7(b)(1) Amount due at Lease Signing or Delivery
* * * * *
3. Electronic advertisements. A lessor that has an
electronic advertisement does not comply with the prominence rule in
Sec. 213.7(b)(1) if both the triggering terms and the required
disclosures cannot be viewed simultaneously.
7(b)(2) Advertisement of a Lease Rate
1. Location of statement. The notice required to accompany a
percentage rate stated in an advertisement must be placed in close
proximity to the rate without any other intervening language or
symbols. For example, a lessor may not place an asterisk next to the
rate and place the notice elsewhere in the advertisement. In
addition, with the exception of the notice required by
Sec. 213.4(s), the rate cannot be more prominent than any Sec. 213.4
disclosure stated in the advertisement. A lessor does not
comply with the prominence rule in Sec. 213.7(b)(2) if a rate
contained in an electronic advertisement and the required
disclosures cannot be viewed simultaneously.
7(c) Catalogs and Multi-Page Advertisements
* * * * *
2. Cross-references. A catalog, multiple-page, or
electronic [multi-page] advertisement is a single
advertisement (requiring only one set of lease disclosures) if it
contains a table, chart, or schedule with the disclosures required
under Sec. 213.7(d)(2)(i) through (v). If one of the triggering
terms listed in Sec. 213.7(d)(1) appears in a catalog
,[ or other] multiple-page , or
electronic advertisement, it must clearly
direct the consumer to the page or location where the table, chart,
or schedule begins. For example, in an electronic advertisement, a
term triggering additional disclosures may be accompanied by a link
that directly connects the consumer to the additional information
(but see comments under Sec. 213.7(b) about the prominence
rule). [the page on which the triggering term is used
must clearly refer to the specific page where the table, chart, or
schedule begins.]
* * * * *
By order of the Board of Governors of the Federal Reserve
System, August 31, 1999.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 99-23141 Filed 9-13-99; 8:45 am]
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