[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Proposed Rules]
[Pages 48752-48769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23048]
[[Page 48751]]
_______________________________________________________________________
Part II
Federal Reserve System
_______________________________________________________________________
12 CFR Part 213
Consumer Leasing; Proposed Rules
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 /
Proposed Rules
[[Page 48752]]
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-0892]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Board is issuing this proposal to revise Regulation M,
which implements the Consumer Leasing Act. The act requires lessors to
provide uniform cost and other disclosures about consumer lease
transactions. The Board has reviewed Regulation M, pursuant to its
policy of periodically reviewing its regulations, and proposes
revisions to simplify and clarify its provisions to carry out more
effectively the purposes of the act. The proposal contains several
substantive revisions, for example: additional disclosure requirements
about early termination charges, disclosure of the gross cost of
leases, the residual value, and the estimated lease charge; a
requirement that certain leasing disclosures be segregated from other
information; and pursuant to a statutory change, new advertising
provisions for radio and television. The proposal also simplifies the
language and format of the regulation, deleting obsolete provisions and
eliminating the footnotes or moving them to the Official Staff
Commentary. A proposal to revise the commentary is being published
elsewhere in today's issue of the Federal Register.
DATES: Comments must be received by November 17, 1995.
ADDRESSES: Comments should refer to Docket No. R-0892, and be mailed to
Mr. William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW, 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, NW (between
Constitution Avenue and C Street) any time. Comments may be inspected
in Room MP-500 of the Martin Building between 9 a.m. and 5 p.m.
weekdays, except as provided in 12 CFR section 261.8 of the Board's
rules regarding the availability of information.
FOR FURTHER INFORMATION CONTACT: Kyung H. Cho-Miller, Obrea O.
Poindexter, or W. Kurt Schumacher, 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;
for the hearing impaired only, contact Dorothea Thompson,
Telecommunications Device for the Deaf, 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 Board was given rulewriting authority, and its
Regulation M (12 CFR part 213) implements the CLA. An official staff
commentary that interprets the regulation has also been published
(Supplement I-CL-1 to 12 CFR 213).
The CLA generally applies to consumer leases of personal property
involving $25,000 or less and a term of more than four months. An
automobile lease is the most common type of consumer lease covered by
the CLA. Like the credit provisions of the TILA, the CLA requires
lessors to provide uniform cost and other disclosures in consumer lease
transactions and lease advertising. Prior to entering into a lease
agreement, lessors must give consumers 15 to 20 disclosures, including
the amount of initial charges to be paid, an identification of leased
property, a payment schedule, the responsibilities for maintaining the
leased property, and the liability for terminating a lease early. The
law also regulates balloon payments by limiting liability at the end of
a lease term to no more than three times the monthly payment.
II. The Review of Regulation M
The Board's Regulatory Planning and Review Program calls for the
periodic review of a regulation with four goals in mind: to clarify and
simplify regulatory language; to determine whether regulatory
amendments are needed to address technological and other developments;
to reduce undue regulatory burden on the industry; and to delete
obsolete provisions. Regulation M has not been substantially revised or
reviewed since it was first issued. The Board began a review of
Regulation M in November 1993 by publishing an advance notice of
proposed rulemaking (58 FR 61035, November 19, 1993). While comment was
solicited generally on the provisions of Regulation M and the CLA, the
Board identified three specific issues on which comment was desired:
(1) Disclosure of early termination charges, (2) broadcast media
advertising of leases, and (3) segregation of leasing disclosures from
other information.
The Board received 70 comment letters on the advance notice of
proposed rulemaking. Most commented only on the three issues addressed
in the advance notice. Based on its review and on the comments
received, the Board now proposes revisions to Regulation M. While
several revisions would make substantive changes to the regulation,
including new disclosure requirements, the proposal leaves many
provisions substantively unchanged. In addition to seeking comment on
the proposed regulatory changes, the Board again solicits views on
whether specific legislative revisions to the CLA may also be
warranted. For example, several commenters on the advance notice
suggested that CLA coverage be expanded to cover leases that exceed the
current $25,000 total contractual obligation limitation.
The proposal simplifies the language and format of the regulation
to state the requirements more clearly. Footnotes have been either
moved to the staff commentary or deleted as unnecessary. Obsolete
provisions have been deleted and explanatory material transferred to
the commentary. In addition to comments on the proposed changes, the
Board requests specific suggestions for other revisions that would
facilitate compliance without causing an adverse impact on consumer
protections.
Although the regulation applies to all consumer leases covered by
the CLA (for example, automobile leases and furniture leases), much of
the focus of the review has been on automobile leasing. The Board
solicits specific comment on whether any of the proposed rules are more
appropriately limited to automobile lease transactions.
It is anticipated that proposed revisions to Regulation M will be
adopted in final form in the Spring of 1996 with compliance optional
until October 1, 1996, the uniform effective date for mandatory
compliance.
III. Discussion of Proposed Revisions
The following discussion covers the proposed revisions section-by-
section. In many cases, the proposed changes would simplify or clarify
the current text, with no substantive change intended. Captions have
been added to each paragraph, to conform with current Board style; the
addition or wording of captions alone is not meant as a substantive
change in the meaning of the paragraph itself. The entire proposed
regulation and its appendices have been printed in full.
[[Page 48753]]
Section 213.1--Authority, Scope, Purpose, and Enforcement
1(b) Scope and Purpose
This paragraph is revised to add a sentence about the scope of the
law and to more closely parallel the purpose clause in Sec. 102 of the
TILA, 15 U.S.C. 1601.
1(d) Issuance of Staff Interpretations.
Current paragraph 1(d) has been moved to appendix C.
Section 213.2--Definitions
2(a) Definitions
Most of the definitions remain unchanged and are not discussed
below. The current definitions of ``Period'' and ``Real Property'' in
paragraphs (a) (10) and (13) respectively have been deleted as
unnecessary. Definitions of ``gross cost,'' ``estimated lease charge,''
``residual value,'' and of a ``closed-'' and an ``open-end lease'' are
added.
The following definitions are redesignated as indicated below:
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
``Arrange for lease of personal moved to comment 2(a)(10)-1.
property'' in 2(a)(4).
``Board'' in 2(a)(5)............... moved to section 2(a)(4).
``Lessee'' in 2(a)(7).............. moved to section 2(a)(9).
``Lessor'' in 2(a)(8).............. moved to section 2(a)(10).
``Organization'' in 2(a)(9)........ moved to section 2(a)(12).
``Person'' in 2(a)(11)............. moved to section 2(a)(13).
``Personal property'' in 2(a)(12).. moved to section 2(a)(14).
``Realized value'' in 2(a)(14)..... moved to section 2(a)(15).
``Security interest'' in 2(a)(15).. moved to section 2(a)(17).
Examples of security interests in moved to comment 2(a)(17)-1.
2(a)(15).
``State'' in 2(a)(16).............. moved to section 2(a)(18).
``Total lease obligation'' in moved to section 2(a)(19).
2(a)(17).
``Value at consummation'' in moved to section 2(a)(20).
2(a)(18).
------------------------------------------------------------------------
2(a)(2) Advertisement
The definition of ``advertisement'' is simplified and the examples
moved to the commentary as part of proposed comment 2(a)(2)-1. The
simplified language is consistent with other consumer regulations. The
definition of an advertisement is broad; it covers commercial messages
in any medium that directly or indirectly promote a consumer lease
transaction. No substantive change in the definition is intended by the
proposed revision.
2(a)(3) Agricultural Purpose
For simplicity, the portion of this statutory definition which
describes agricultural products is moved to the commentary as proposed
comment 2(a)(3)-1.
2(a)(5) Closed-End Lease
The proposal adds a definition of a closed-end lease, modeled after
the definition of closed-end credit in Regulation Z (12 CFR
Sec. 226.2(a)(10)). The term covers any lease that does not fall within
the definition of an open-end lease. In closed-end leases, sometimes
referred to as ``walk-away'' leases, the lessee is not responsible for
the residual value of the leased property at the end of the lease term.
2(a)(6) Consumer Lease
The rule of construction, currently in Sec. 213.2(b)(1), has been
moved to this paragraph.
2(a)(7) Estimated Lease Charge
The proposal adds a definition of ``estimated lease charge'' to
provide guidance in making the proposed disclosure in Sec. 213.5(q).
The estimated lease charge would reflect the total dollar amount of the
cost of the lease attributable to interest and other charges (whether
paid upfront or during the term of the lease). The Board believes that
such a disclosure together with a statement indicating what the figure
represents and the formula for calculating the estimated lease charge
(as provided in Sec. 213.5(q)) would further assist the consumer in
comparing leases. A first monthly or other periodic payment paid at or
before consummation is not included in the calculation of the estimated
lease charge, as it is reflected in the total periodic payment
disclosure. Any refundable charge such as a security deposit would also
not be included in the calculation.
2(a)(8) Gross Cost
The proposal adds a definition of ``gross cost'' to provide
guidance in making the proposed disclosure in Sec. 213.5(p) for closed-
end lease transactions. The Board proposes to define gross cost as the
total dollar amount of all items included in the value of a lease at
consummation. This figure would include the base price of the leased
property and any other items added to that price--such as a lessor's
markup, taxes, service agreements, insurance, and any outstanding
balance from a prior lease that is included in a new lease--prior to
being offset by any downpayment or trade-in by the consumer. Amounts
consisting of fees and other charges paid out-of-pocket at consummation
by the lessee are also included in the gross cost figure. The gross
cost is the amount upon which the periodic and other payments and terms
of the lease are based. The Board solicits comment on this definition.
2(a)(10) Lessor
The proposal deletes the phrase ``in the ordinary course of
business,'' as it may not be very helpful in determining whether a
person must comply with the CLA. In its place, a numerical test is set
forth. Under this test, a person who leases, offers, or arranges to
lease personal property more than five times in the preceding calendar
year is subject to the CLA and Regulation M. If a person did not meet
this numerical test in the preceding calendar year, the test is applied
to the current year. The Board solicits comment on the proposed
numerical test.
2(a)(11) Open-End Lease
The proposal adds a definition of ``open-end lease.'' The Board
believes the definition will provide useful guidance given that certain
disclosures are only relevant to open-end leases, those in
Sec. 213.5(m), and (o), and Sec. 213.8(d)(2)(vi).
2(a)(16) Residual Value
The proposal adds a definition of ``residual value'' to provide
guidance in making the proposed disclosure in Sec. 213.5(r) for closed-
end lease transactions. The residual value of leased property is the
amount determined at consummation to be the value of the leased
property at the end of the lease term.
2(b) Rules of Construction
This section is deleted from the regulation. Current paragraph
2(b)(1) is moved to paragraph 2(a)(6) of this section. Paragraphs
(b)(2) and (b)(3) of this section are deleted as unnecessary.
Section 213.3--Exempt Transactions
No changes have been proposed to this section.
Section 213.4--General disclosure requirements
4(a) General Requirements
Paragraph (a) contains general rules about the disclosures required
under Sec. 213.5, including the form, content, and timing of
disclosures. The major revision is the proposed requirement that
certain disclosures be segregated from other information. Several
existing format rules have been eliminated as unnecessary because of
the proposed segregation requirement. Other
[[Page 48754]]
provisions would be simplified and clarified to ease compliance.
4(a)(1) Form of Disclosures
The general disclosure requirements are found in section 182 of the
CLA. Clear and conspicuous lease disclosures must be given prior to
consummation of a lease on a dated written statement that identifies
the lessor and lessee. Generally, all the disclosures must be made
together on a separate statement or in the lease contract to be signed
by the lessee. Under the proposal, the segregated disclosures in
Sec. 213.4(a)(2), discussed below, may be provided on a separate
document and other CLA disclosures provided in the lease contract, as
long as all disclosures are given to a consumer at the same time.
Where the disclosures are included in the lease contract, the
regulation currently requires that the disclosures be provided above
the lessee's signature. Under the proposal, this specific requirement
is deleted as unnecessary. However, lessors must continue to ensure
that the disclosures are given to lessees before the lessee becomes
obligated on the lease transaction. To provide evidence of compliance,
disclosures may still be placed above the lessee's signature where
disclosures are included in a lease agreement. Alternatively, lessors
may include instructions alerting a lessee to read the disclosures
prior to signing the lease or could provide a signature line or an
acknowledgement of receipt for the lessee on the disclosure statement.
To satisfy the statutory standard that disclosures be made clearly
and conspicuously, the regulation currently requires that disclosures
be made on the same page and in a meaningful sequence--the grouping
together of related disclosures. The regulation also imposes type-size
requirements on numerical disclosures. In light of the proposal to
segregate certain disclosures, discussed below, the meaningful sequence
and the same page rule, and type-size disclosure requirements are
deleted as unnecessary.
Nonsegregated disclosures need not be on the same page but they
should be grouped together. Disclosures should also be presented in a
way that does not obscure the relationship of the terms to each other.
4(a)(2) Segregation of Certain Disclosures
The CLA does not require the segregation of the required leasing
disclosures from other information given to the consumer in a lease
transaction. There is some concern that the absence of a requirement
that the consumer leasing disclosures be segregated from general
contract or other terms limits the effectiveness of these disclosures
in meeting one of the goals of the CLA--to assure clear, conspicuous,
and meaningful disclosure of lease terms to consumers.
Lease contracts can be long, detailed, and complex and often
contain leasing disclosures interspersed among contract provisions.
Consumers generally have little time to review their lease contracts
before signing them. The Board believes a requirement that certain of
the mandated disclosures be segregated would highlight these
disclosures and thereby enhance consumers' ability to understand lease
terms and thus make more informed choices.
In its advance notice of proposed rulemaking, the Board
specifically requested comment on whether a segregation requirement
should be imposed. Thirty of the seventy commenters addressed the
issue. Twenty-six commenters favored some form of disclosure
segregation. The other four commenters believed that any consumer
benefit associated with isolating certain disclosures would not
outweigh the costs to lessors of revising forms, or that a segregated
disclosure requirement would require a statutory change.
Under section 105(a) of the TILA, which includes the CLA, the Board
has the authority to prescribe regulations containing ``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
purpose of this title, to prevent circumvention or evasion thereof, or
to facilitate compliance therewith.'' Pursuant to this authority, the
Board proposes that certain disclosures be segregated from other
disclosures and information. As discussed previously, lessors may
include the segregated disclosures in their lease contracts, but would
be required to separate them from other information. Alternatively,
lessors may provide the segregated disclosures to consumers on a
separate document. The content, format, and headings for these
disclosures should be substantially similar to those contained in the
model forms in appendix A of the regulation. To ensure uniformity, no
additional information may be included among the segregated
disclosures, except as permitted under any future provision found in
the official staff commentary to Regulation M.
The following disclosures (some of which are new) would be
segregated from other information:
Gross cost of the lease (new)--Sec. 213.5(p).
Total payment due at lease signing, subdivided into an
itemization of the costs to be paid at lease signing, and an
itemization of the means of paying these costs (this type of
itemization would be new)--Sec. 213.5(b).
Total of periodic payments and payment schedule--
Sec. 213.5(c).
Total of other charges payable to lessor--Sec. 213.5(e).
Residual value (new)--Sec. 213.5(r).
Statement concerning the consumer's right to purchase the
leased property at the end of the lease term--Sec. 213.5(k)(1).
Estimated lease charge (new)--Sec. 213.5(q).
Statement that a substantial charge may be imposed for
terminating a lease early and an example of an early termination charge
(new)--Sec. 213.5(l)(2).
Statement concerning lessee's possible wear and use
liability, including liability for excessive mileage (new in part)--
Sec. 213.5(h)(3).
Statement that the consumer should refer to lease
documents for nonsegregated CLA-required information (new)--
Sec. 213.5(s).
In an open-end lease, the value of the property at
consummation, the total lease obligation, and the difference between
them--Sec. 213.5(o)(1).
The remaining disclosures required by Regulation M and the CLA
would continue to be provided in a nonsegregated format (typically,
together with the other terms and conditions that comprise the lease
agreement). Comment is solicited on whether any items should be
excluded from, or others added to, the segregated disclosures.
Regulation M currently contains model forms for open-end leases,
for closed-end leases, and for furniture leases. These forms have been
revised to reflect how the segregated disclosures would appear. The
model forms are in appendix A.
4(a)(5) Language of Disclosures
Current paragraph 4(a)(4) states that lease disclosures must be
provided in English, except in the Commonwealth of Puerto Rico. The
proposal revises this position. Lessors would be permitted to give
disclosures in another language as long as disclosures in English are
given to a lessee who requests them. The Board believes that a more
permissive rule could promote the delivery of more meaningful
disclosures to consumers.
[[Page 48755]]
4(b) Additional Information
Current paragraph 4(b) permits additional information to be
included with any disclosures required by the regulation. The proposal
would permit additional information only with the nonsegregated CLA
leasing disclosures, provided the information does not detract from
those disclosures.
Current paragraphs 4(b) (1) and (2) have been deleted as
unnecessary. Pursuant to section 186(a) of the CLA and Regulation M,
proposed Sec. 213.10, if information required by state law is
inconsistent with the requirements of the act or regulation, the state
law is preempted.
4(c) Multiple Lessors or Lessees
Paragraph (c) provides that when a transaction involves multiple
lessors, one lessor may make the disclosures on behalf of all of them.
The phrase ``and the one that discloses shall be the one chosen by the
lessors'' is deleted as unnecessary. No substantive change is intended.
4(d) Use of Estimates
Current paragraph 4(d), which implements section 182 of the CLA on
the use of estimated disclosures, is proposed (4)(d)(1) and (2).
4(e) Effect of Subsequent Occurrence
Paragraph 4(e) provides that generally when an event occurs after
disclosures have been delivered which makes a disclosure inaccurate,
the inaccuracy does not constitute a violation of the act. This
paragraph clarifies that this rule applies to events occurring after
consummation of a lease. The first sentence of footnote 1 of the
current regulation, which contains a specific example of a subsequent
occurrence, has been incorporated into the staff commentary in comment
4(e)-3. The second sentence of the footnote is deleted as unnecessary
guidance under this regulation.
4(f) Minor Variations
Current paragraph 4(f) allows lessors to disregard February 29 in a
leap year when making disclosures. Proposed paragraph (f) incorporates
into the regulation all rules on minor variations that may be
disregarded in making disclosures, thus provisions currently contained
in comment 4(a)-2 of the commentary have been moved to this paragraph.
No substantive change is intended.
Section 213.5--Content of Disclosures
Section 213.4(g) is proposed Sec. 213.5. Several new disclosures
have been added under paragraphs (b), (h)(3), (l)(2), and (p) through
(s). Paragraphs which have not been changed, or which contain no
substantive changes, have been redesignated as follows:
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
Paragraph 4(g)(1).................. redesignated as 5(a).
Paragraph 4(g)(3).................. redesignated as 5(c).
Paragraph 4(g)(4).................. redesignated as 5(d).
Paragraph 4(g)(5).................. redesignated as 5(e).
Paragraph 4(g)(6).................. redesignated as 5(f).
Paragraph 4(g)(7).................. redesignated as 5(g).
Paragraph 4(g)(9).................. redesignated as 5(i).
Paragraph 4(g)(11)................. redesignated as 5(k).
Paragraph 4(g)(13)................. redesignated as 5(m).
Paragraph 4(g)(15)................. redesignated as 5(o).
------------------------------------------------------------------------
5(b) Total Amount Due at Lease Signing
Paragraph 5(b), currently Sec. 213.4(g)(2), requires lessors to
disclose to consumers the total amount of any payment due at the
consummation of a lease. The payment may include a security deposit, a
trade-in allowance or a downpayment (the ``capitalized cost
reduction''), a first periodic payment in advance, and fees such as
delivery charges. Under the current regulation, these charges must be
itemized by type but need not be itemized by amount. The Board is
proposing several changes to this paragraph. The language has been
revised to clarify that a total amount of payments due at lease signing
is required. The Board proposes to require that amounts paid at lease
signing be itemized by amount as well as by type. The Board believes
that these lease costs should be more completely and uniformly
disclosed, and requiring itemization by type and amount would ensure
this result. Under the proposal, the type and amount of each charge due
at consummation is included among the segregated disclosures under the
subheading ``itemized costs.'' Also, to enhance consumer understanding
of what payments are made and how they are allocated--particularly the
amount agreed upon as the trade-in allowance of property being provided
by the lessee--the lessor should disclose the net trade-in allowance,
any rebate, payments in cash, and any other credits under the
subheading ``means of paying itemized costs.'' (See the model forms in
appendix A for format.) The Board believes that standardization of the
terminology to be used and the full itemization of the initial costs
and means of payment will provide consumer benefit without imposing
substantial compliance costs on lessors.
5(h) Maintenance Responsibilities
Paragraph 5(h), currently Sec. 213.4(g)(8), requires disclosures
about maintaining or servicing leased property. Lessors currently must
identify the party responsible for maintaining or servicing the leased
property, along with a description of the responsibility, and as
applicable, a statement of reasonable wear and use standards. For
example, an automobile lease may state that a consumer will be liable
for excessive wear and use if the vehicle is returned with little tread
on the tires, with rust, dents or broken parts or accessories, or if
the vehicle is driven over a certain number of miles.
Some of the consumer representatives commenting on the Board's
advance notice expressed concerns about excess wear and use standards.
Generally, they suggested that lessors should have to describe, in
detail, the standard applied and the penalties that would be charged.
They also called for the development of standardized measurements of
excess wear and use. One commenter suggested that the Board prohibit
charges for excess wear and use beyond actual repair costs. In
addition, the Board's Consumer Advisory Council and others have advised
the Board that highlighting information about excessive mileage charges
is important.
Although the Board receives very few consumer complaints about
leasing, it has over the years received complaints about reasonable
wear and use standards. Consumers sometimes do not realize that lessors
may impose strict standards for what they consider normal use of lease
property, particularly leased automobiles, and that these standards may
vary depending on the lessor. While issues concerning excessive wear
and use liability are generally a matter of contract between a lessee
and lessor, the Board believes that a disclosure notice about the
possibility that a charge may be imposed at the end of the lease term
for excessive wear and use of leased property, based on the standards
imposed by the lessor, may heighten a consumer's awareness about
maintenance responsibilities without any substantial compliance costs
on lessors. Therefore, the Board proposes to add a disclosure
requirement in paragraph 5(h)(3), to be included among the segregated
disclosures, that ``you may be charged for excessive wear and use based
on the lessor's standard for normal use.'' In a vehicle lease
transaction, any applicable charge for excessive mileage must also be
included. The Board solicits comment on the proposed new disclosure,
including the required language.
5(j) Penalties and Other Charges for Delinquency
The Board proposes to add that any penalty or charge shall be
reasonable, to reflect the requirement found in section
[[Page 48756]]
183(b) of the CLA. No substantive change is intended.
5(l) Early Termination
Paragraph 5(l), currently Sec. 213.4(g)(12), requires a disclosure
about charges for terminating a lease early. The Board proposes
additional disclosure requirements, in Sec. 213.5(l)(2), that would be
included among the segregated disclosures. Lessors would have to
include a statement alerting consumers about charges for terminating a
lease early, including an example of an early termination penalty based
on an assumed termination of the lease at the end of the first year.
The CLA requires lessors to disclose the conditions under which the
lessee or lessor may terminate the lease before the end of the lease
term and the amount or method of determining a penalty or other charge
for early termination. Lessors typically disclose the method of
determining an early termination charge and such a disclosure is often
complex.
In its advance notice of proposed rulemaking, the Board solicited
comment on whether the disclosure of early termination charges could be
revised to more easily inform consumers about these charges. The Board
also solicited comment on whether the disclosure of the name of the
lessor's early termination method along with a representative example
of a lease termination charge should be considered, as well as any
other disclosure alternative. The notice mentioned a U.S. Court of
Appeals case, Lundquist v. Security Pacific Automotive Financial
Services Corp., 993 F.2d 11 (2d Cir.), cert. denied, 62 U.S.L.W. 3320
(U.S. Nov. 1, 1993), that has caused lessors concern. In that case, the
court held a lessor liable for violating the ``reasonably
understandable'' standard for disclosure under Regulation M; the lessor
had an early termination formula that the court found to be overly
complex and beyond the understanding of the average consumer. Many
lessors say that, given the complexity of modern automobile lease
transactions, it is difficult to describe every part of an early
termination formula in terms clearly understandable to consumers. In
particular, lessors state that the various methods used to determine
the ``unamortized capitalized cost'' portion of their early termination
formulas are inherently complex and cannot be reduced to a disclosure
that is easily understandable.
In responding to the Board's request for comment on this issue,
many lessor representatives favored allowing a reference to the name of
the method employed to determine the unamortized capitalized cost
portion of the early termination formula instead of requiring a
detailed description of that method. Some suggested that the Board also
define the most common amortization methods currently used (such as the
``actuarial'' or the ``constant yield'' methods) to provide for
uniformity. They believed that through education and exposure to the
names of the most commonly used methods, consumers would eventually
become aware of their advantages and disadvantages. Opponents believed
that merely providing the name of the method would not be useful and
would make it difficult or impossible for consumers to compute the
amount of an early termination charge. Some consumer advocates said
that in using complex methods and highly complicated descriptions in
determining early termination charges, lessors preclude consumers from
determining whether the charges themselves are reasonable. (The CLA
specifies that charges for early termination must be ``reasonable.'')
Other commenters, including both lessors and consumer representatives,
favored a full description of all aspects of a lessor's early
termination method, along with an example of how that method would
work. In addition, some commenters suggested a general statement
warning the consumer of the possibility of a substantial charge for
early termination.
Based on the comments received and upon further analysis, the Board
proposes to require that, along with an example of an early termination
charge, a statement be given by lessors among the segregated
disclosures that ``you may have to pay a substantial charge if you end
this lease early,'' that ``the actual charge will vary depending on
when the lease is terminated,'' and that ``other charges such as for
excessive wear and use may also be imposed.'' The Board believes these
highlighted disclosures would serve to better inform consumers about
the consequences if they were to terminate their leases early.
The Board believes that the CLA mandates full disclosure of a
lessor's method of determining an early termination charge, even if it
is complex. Therefore, in addition to the above statement and example,
a full description of the complete early termination method must be
disclosed by lessors outside of the segregated disclosures. However,
given the complexity of the methods involved, a lessor is permitted--in
giving the full description of its early termination method--to include
a reference to the name of a generally accepted method of computing the
unamortized gross or capitalized cost (also known as the ``adjusted
lease balance'') portion of its early termination charge. For example,
a lessor may state that the ``constant yield'' method would be utilized
in obtaining the unamortized portion of the gross cost, but the lessor
would have to specify how that figure--and any other term or figure--is
used in computing the total early termination charge that would be
imposed upon the consumer. Additionally, if a lessor refers to a named
method in this manner, it would have to provide a written explanation
of that method if requested by the consumer. While lessors should
attempt to provide clear and understandable explanations of their early
termination provisions to consumers, explanations that are full,
accurate, and not intended to be misleading are in compliance with CLA
and Regulation M disclosure requirements. (And, of course, the statute
requires that the early termination charges themselves must be
``reasonable.'') These positions are codified in the proposed revisions
to the Official Staff Commentary to Regulation M.
Finally, regarding the selection of an assumed termination period
for the early termination example, several approaches were considered
by the Board. The proposed example is based on an assumption that the
consumer terminates the lease near the beginning of the lease term--at
the end of the first year. This approach provides a ``worst case''
scenario. Early termination charges are typically highest at the
beginning of the lease term. The example could have been based on an
assumption that the consumer terminates the lease towards the end of
the lease--such as the end of the third year for a four-year lease, and
at the end of the second year for a three-year lease. The last year of
a lease is the period when many early terminations occur. An example
could have been based on an assumed early termination occurring for
instance, at the 50 percent mark of the lease term. Arguably, this
approach could allow an easier comparison of early termination examples
among leases, in contrast to the first two approaches where the assumed
early termination would not occur at proportionately equivalent points
in leases of different lengths.
While there is some merit to each alternative (and there are
others), the Board is proposing an early termination example based on
the assumption that the lease terminates at the end of the first year,
which illustrates to
[[Page 48757]]
consumers how substantial the charge could be if the lease is
terminated very early during the lease term. The figure used to
calculate the example must be calculated in the same manner the
residual value is calculated for purposes of Sec. 213.5(r). Therefore,
if a lessor uses the fair market value of the leased property to
estimate the value of the property at the end of the lease, the early
termination example must also be calculated using the fair market
value. Comment is solicited on the proposed example including whether
using an assumed termination period other than the one proposed would
be more appropriate.
5(n) Right of Appraisal
Paragraph 5(n), currently Sec. 213.4(g)(14), requires disclosure of
the right to an appraisal of leased property. Generally this provision
is applicable to open-end leases, but it also applies to closed-end
leases. Language is revised for clarity and accuracy, for example, the
term ``realized value'' replaces ``estimated value.'' No substantive
change is intended.
5(p) Gross Cost
The Board proposes to require disclosure of the gross cost among
the segregated disclosures. This disclosure is applicable only to
closed-end leases; proposed Sec. 213.5(o), currently Sec. 213.4(g)(15),
requires the disclosure of the ``value at consummation'' in open-end
leases. Federal law does not currently require disclosure of
information on the base price of the leased property in closed-end
leases. Because this figure usually is not given, consumers may assume
that the lease is based on the manufacturer's suggested retail price,
or on the negotiated sales price (if the parties initially contemplated
that the consumer would finance or purchase the property). However, the
starting price of the leased property may actually be significantly
higher than either of these figures.
Sixteen of the seventy commenters on the advance notice favored a
``capitalized cost'' disclosure. They included representatives of both
the leasing industry and consumer groups. Several trade associations
representing a large segment of the industry have recently asked their
members to voluntarily disclose this item. In addition, a few lessors
have been disclosing this figure for some time.
Pursuant to its authority under section 105(a) of the TILA, the
Board proposes to require disclosure of the ``gross cost'' in closed-
end lease transactions, using that term, in order to further effectuate
the purposes of the law. The Board believes such a disclosure (together
with a brief description such as ``the agreed upon acquisition value of
the vehicle including but not limited to items such as taxes, fees,
service contracts, and insurance'') would further the CLA's goal that
cost disclosures enable consumers to draw comparisons between leases
and, where appropriate, between leases and credit transactions. The
gross cost would include the agreed upon price of the leased property
and any other items added to that price--such as a lessor's markup,
taxes, fees, extended warranties, insurance, and any outstanding
balance from a prior lease that is included in a new lease--prior to
being offset by any downpayment or trade-in by the consumer. The gross
cost is the amount that the periodic and other payments and terms of
the lease are based upon, and is intended to be used by consumers to
compare a lease with similar lease and non-lease transactions. The
gross cost would be readily available to lessors from worksheets they
utilize in setting the terms and conditions of the lease. However, as
discussed in 5(q) below, the inclusion of a gross cost figure in the
segregated disclosures in some cases could invite consumers to make
misleading comparisons of leasing and financing options. The Board
solicits specific comment on this disclosure and its definition.
5(q) Estimated Lease Charge
Pursuant to its authority under section 105(a) of the TILA, the
Board proposes to require disclosure of the estimated lease charge
among the segregated disclosures to further effectuate the CLA's goal
of enabling consumers to comparison shop. This figure would show the
total dollar amount of the ``financing'' costs that will be charged to
the consumer over the lease term, including the amount attributable to
interest, or the ``time-price differential.'' Although this figure is
similar in concept to the finance charge required to be disclosed in
consumer credit transactions subject to the TILA, it is not identical
to a finance charge. As proposed, the lease charge would include items
such as use taxes, registration and other fees, and insurance--items
that are (under certain circumstances, at least) excluded from the
finance charge. Therefore, the lease charge would not typically be an
appropriate tool to make comparisons between lease and financing
transactions.
The Board currently does not propose to exclude any of the fees and
charges in the lease transaction from the estimated lease charge.
However, comment is solicited on whether and how this disclosure could
be made more comparable to the finance charge under the TILA. For
example, the Board requests comment on whether insurance charges--which
typically are not included directly in the finance charge--or charges
payable in a comparable cash transaction (such as automobile
registration fees)--should be excluded from the estimated lease charge.
When consumers are comparing different lease transactions with the
same gross costs and durations (for example, three-year auto leases
from two different dealers with the same gross cost but different
monthly payments and purchase option prices), the estimated lease
charge could be used to compare the transactions. However, as discussed
below, an estimated lease charge disclosure would not be useful in
comparing different leases where the gross costs or durations differ
substantially.
Lease rate. Some commenters on the advance notice--including a
number of consumer representatives and several small depository
institutions--recommended that the Board require lessors to disclose
the interest rate implicit in a lease transaction. Some recommended
that this lease rate reflect an annual percentage rate concept--that
is, a uniformly calculated rate that would include both interest and
other charges imposed in connection with the lease transaction. These
commenters suggested that the true cost of leasing would not be known
to consumers without a lease rate disclosure. They noted that if the
gross or capitalized cost and residual value of leased property are to
be disclosed to consumers, the lease rate would be the only missing
component necessary to determine the full cost of a lease. Commenters
opposed to an interest rate disclosure noted that it would not
necessarily reflect the ``true cost'' of leasing, as lessors might
simply be able to manipulate the residual value in order to show a
lower interest rate.
As noted by some commenters, the lease rate is the only key
information about the cost of leasing property that would not be
disclosed to consumers under the Board's proposed rule. Showing a lease
rate seems important if consumers are to consider adequately the choice
between leases involving different gross costs or leases of different
durations. For example, if the same automobile could be leased for
either three or five years, and the lessor applies the same rate in
either case, the two transactions would have
[[Page 48758]]
significantly different estimated lease charges (based on one lease
incurring interest charges for two years more than the other), yet they
would have the same annual lease rate.
A lease rate is clearly defined only in leases that have a fixed
dollar purchase option. In that case, a lease rate would be based on a
standard formula using the same information as in the estimated lease
charge: gross cost, total payment due at lease signing (less a first
monthly or other periodic payment and any refundable charges), total of
monthly payments, total of other charges payable to the lessor, and the
purchase option price. In view of some commenters' concerns that the
residual value could be manipulated to show a misleading lease rate,
the Board would not contemplate requiring a lease rate in leases that
do not have a dollar purchase price option.
Unlike the estimated lease charge, the lease rate disclosure may be
of use to consumers in comparing a lease with a credit transaction.
However, the lease rate may be of less use in cases when the fees
reflected in that rate differ substantially from the fees reflected in
the APR under the TILA. For example, leases typically include insurance
charges; these are included in the estimated lease charge, and the
Board would contemplate them being included in a lease rate disclosure
as well. If a lease and a credit transaction had the same annualized
rate, but the lease rate included insurance charges that are not
included in the credit transaction, the consumer would be misled if he
or she simply compared the two rates. In the instance where insurance
was not a factor and other fees were similar in amount, however, such a
comparison could prove to be of use to consumers in analyzing the costs
of these alternative transactions. The Board solicits comment on
whether and how a lease rate could be made more comparable to an APR to
facilitate such comparisons.
If the disclosure of a lease rate were not required, the inclusion
of a gross cost figure (which is prominently displayed in the
disclosure statement) could, in some instances, invite misleading
comparisons between competing leases or between a lease and a financed
purchase. For example, assume a consumer and an auto dealer negotiate a
$17,000 purchase price and a 9 percent APR to finance a car. The dealer
then suggests that the consumer consider leasing the car instead.
Assuming that potential lessees are likely to attach significance to
the gross cost of the leased car, the dealer could agree to base the
monthly lease payments on a gross cost figure of $17,000. The dealer
could then apply a higher interest rate of 14 percent to calculate the
monthly payments, and this rate would not be disclosed to the consumer.
Even using this 14 percent interest rate, the monthly payments on the
lease may be less than the monthly payments if the car were financed.
The consumer might prefer the financing alternative if he or she
realized that the implicit interest rate on the lease was 14 percent.
However, absent a lease rate disclosure, the consumer could conclude
that the lease was a better deal. On the other hand, since the dollar
amount of the increase attributable to the lessor's use of a higher
interest rate would be reflected in the estimated lease charge, this
could be sufficient to inform the consumer. In addition, there may be
competitive and operational pressures upon lessors that could prevent
them from artificially decreasing the gross cost, such as limits on
dealer markups in interest rates. Thus any deception that would be
associated with disclosure of a low gross cost may be minimal.
While an annualized lease rate may improve comparison shopping
between leases, some believe that the disclosure of the estimated lease
charge would be sufficient for these purposes (assuming that consumers
comparison shop items with similar gross costs and lease durations),
and thus the disclosure of a lease rate would be unnecessary. Moreover,
disclosure of a uniform lease rate disclosure may significantly
increase the cost of complying with the requirements of the CLA and
Regulation M, and this burden may outweigh any benefit to consumers of
such a disclosure.
In light of the above discussion, the Board has not proposed
requiring the disclosure of a lease rate. However, comment is solicited
on this matter, including the advantages and disadvantages of such a
disclosure to consumers. In the event that the Board were to require
disclosure of a lease rate, the Board further solicits comment on
whether the rate should be defined in such a way as to make it more
comparable to the APR in a credit transaction (such as by excluding
insurance charges from the calculation in certain circumstances). The
Board also solicits comment on whether the gross cost (and therefore
the estimated lease charge) figures should be de-emphasized or removed
from the required disclosures to avoid potential manipulation of these
figures in order to mislead consumers; or whether in commenters' views,
this type of manipulation would not arise. Finally, the Board solicits
comments on how and whether the costs of imposing a lease rate
disclosure would outweigh the consumer benefit of having such a rate
disclosed.
5(s) Statement Referencing Nonsegregated Disclosures
It is important that the value of the nonsegregated CLA disclosures
not be diminished. Therefore, the Board proposes to add a statement
among the segregated disclosures to alert consumers to other CLA-
required disclosures (not contained among the segregated disclosures)
that they should read in the lease documents. The disclosures include
information about conditions for and the amount or method of
determining early termination charges, charges for delinquency, default
or late payments, maintenance responsibilities, any purchase option
prior to the end of the lease term, insurance, total taxes and official
fees, warranties, liability at the end of the lease term, and any
security interest in the leased property.
Section 213.6--Renegotiations, Extensions, and Assumptions
Section 213.6 contains all the redisclosure rules governing leases
that are renegotiated, extended, or assumed, including the exceptions,
which currently are generally contained in Sec. 213.4(h). The section
has been rearranged and revised for clarity. For example, rules on
assumptions in the current staff commentary have been moved to this
section. Proposed Sec. 213.6(d) retains the substance of the exceptions
found in the current regulation, but has been rephrased. Several
exceptions located in the current commentary under current comments 3,
7, and 8 to Sec. 213.4(h) have also been moved to proposed
Sec. 213.6(d).
Section 213.7--Reserved
Section 213.7 has been reserved. Section 213.7 in the current
regulation has been moved to Sec. 213.10.
Section 213.8--Advertising
Section 213.5 in the current regulation is proposed Sec. 213.8.
Some of the language of the existing provisions have been revised for
simplicity.
Under the CLA, if a lease advertisement states certain cost
information (such as the amount of a monthly lease payment) as many as
six additional disclosures must be clearly and conspicuously given. The
Board proposes to make several clarifications and substantive revisions
in this section that it believes will ease the compliance concerns of
lessors while providing
[[Page 48759]]
uniform and more meaningful information to consumers and furthering the
CLA mandate that disclosures in advertisements be clearly and
conspicuously displayed.
8(b) Clear and Conspicuous Standard
For clarity and simplicity, the Board proposes to state the clear
and conspicuous standard in this section in one place; currently in
Sec. 213.5 references to the clear and conspicuous standard are made in
several places.
Several representatives of state attorneys general and others have
questioned the way advertisements of automobile leases display the
required Regulation M disclosures. Lessors sometimes conspicuously
advertise low or no downpayments when, in much smaller print, other
upfront charges such as an acquisition fee, a security deposit, or the
first monthly lease payment may be given. Some leasing representatives
have expressed concern about their possible exposure to liability due
to the potential for differing state interpretations of what is clear
and conspicuous. The Board is therefore proposing that a reference in
an advertisement to any component of the total amount of payments due
at consummation, such as the downpayment (or that there is no
downpayment), may not be more prominently displayed in the
advertisement than the required disclosure in Sec. 213.8(d)(2)(ii) of
the total amount of payments due at lease signing. The Board believes
this rule would address some of the concerns about lease advertisements
without adding significant burdens on lessors or interfering with the
effective marketing of their products. The proposed rule would not
control what terms are to be advertised, but only that components of
the total amount due at lease signing could not be emphasized without
giving equal prominence to the disclosure of the total amount due
itself. It should be noted that lessors can advertise lease
transactions without including any CLA disclosures. Disclosures are
only required when certain ``trigger'' terms are included in the
advertisement, for example, a payment amount.
8(c) Catalogs and Multi-Page Advertisements
Section 8(c), currently Sec. 213.5(b), has been simplified. No
substantive change is intended.
8(d) Advertisement of Terms That Require Additional Disclosure
Section 8(d) incorporates current Sec. 213.5(c). The introductory
language of current Sec. 213.5(c) is simplified. No substantive change
is intended.
Currently, some advertisements do not provide a total of payments
required at or before consummation, but instead give an itemization of
each charge due at that time. In paragraph 8(d)(2)(ii), the Board
proposes to clarify that the CLA requires only that the total of
payments due by the consumer before or at lease signing be stated in an
advertisement in which a trigger term has been used. (The language of
the statute is somewhat ambiguous on this point.) Lessors may provide
an itemized list of the payments due by lease signing but would not be
required to under the proposed rule. Full disclosure of these initial
fees by type and amount are among the required disclosures given to
consumers who actually enter into lease transactions.
In paragraph 8(d)(2)(iv), the Board proposes to clarify that
disclosing the method for determining the purchase price is limited to
instances where the lessee has the option to purchase the leased
property prior to the end of the lease. Language is added to the second
sentence of this paragraph, consistent with the specific disclosure
requirements in Sec. 213.5(k), which the Board believes is consistent
with congressional intent to provide the price of the leased property
if the option to purchase is available at the end of the term.
Current Sec. 213.5(c)(5) contains two requirements. Under the first
requirement, lessors must disclose the amount of ``any liabilities''
that the lessee may be required to pay at the end of the term. To
remove any ambiguity as to the applicability of this provision to both
open- and closed-end leases, the Board proposes to incorporate this
portion of the current paragraph in paragraph 8(d)(2)(v). For example,
charges for excessive wear and use (such as an excessive mileage
charge) on an automobile lease under both open- and closed-end leases
would have to be disclosed in advertisements under this proposed
provision.
Under the second requirement in current Sec. 213.5(c)(5), lessors
must disclose whether the lessee is liable for any difference between
the estimated value of the leased property and its realized value at
the end of the lease, applies only to open-end leases. The Board has
moved this requirement to Sec. 213.8(d)(2)(vi).
8(e) Alternative Disclosures--Merchandise Tags
Section 213.8(e) broadens current Sec. 213.5(d) by allowing the use
of triggering terms on merchandise tags, for items normally used in
multiple-item leases, without providing full advertising disclosures on
the tag itself.
8(f) Alternative Disclosures--Telephone or Radio Advertisements
Section Sec. 213.8(f) implements amendments to section 184 of the
CLA made by section 336 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160).
Section 336 amended the CLA to provide an alternative disclosure scheme
for radio lease advertisements in order to reduce the amount of
information in such advertisements.
Before the statutory revisions, if any of the trigger terms (such
as a payment amount) were used in any type of lease advertisement, as
many as six additional disclosures had to be given. These disclosures
include statements specifying (1) whether or not the lessee has the
option to purchase the leased property, and at what price and time, (2)
the amount or method of determining the amount of any liabilities the
lease imposes at the end of the term, and (3) that the consumer is
liable for the difference between the estimated value of the leased
property and its realized value at the end of the term, if such
liability exists.
Under the statutory amendments, in radio advertisements, lessors
are permitted to substitute a reference to a toll-free telephone number
or to a specified print advertisement for the disclosures about the
purchase option and the end-of-term liability. If consumers call the
toll-free number, they must receive all the required disclosures (not
simply the ones omitted from the radio advertisement) orally, or in
writing if requested by the consumer. Alternatively, all of the
disclosures could be provided in a publication in general circulation
in the community served by the radio station.
Although the statutory amendment is limited to radio
advertisements, the legislative history takes note of the Board's
Regulation M review and states that, after public comment, the Board
should consider extending the new radio advertising provisions to
television and print advertisements. It stated that television
advertisements, for example, ``raise complex questions regarding the
content prominence, and duration of disclosures necessary to simplify
the process and to convey more meaningful information to consumers.''
The Board believes that television lease advertisements have time
constraints similar to those on radio; given these constraints, it is
generally agreed that consumers cannot comprehend all the disclosure
information provided
[[Page 48760]]
currently. It is not clear that similar concerns exist with print
advertisements. Therefore, in Sec. 213.8(f), pursuant to its authority
under section 105(a) of the TILA, the Board is proposing to apply the
new statutory disclosure alternative to lease advertisements in both
radio and television broadcasts to effectuate the purpose of the CLA
and to facilitate compliance. The Board specifically solicits comment
on this matter and on whether similar constraints exist for print
advertisements that would warrant their inclusion in any final rule.
When a television or radio advertisement includes any of the
trigger terms in Sec. 213.8(d)(1), the alternative disclosure rules
allow lessors to comply with Sec. 213.8(d)(2) by combining certain
required disclosures with a referral to either a toll-free number or a
written advertisement. Required information in Sec. 213.8(d)(2)(i)-
(iii) must be stated in the television or radio advertisement along
with the alternative disclosures in Sec. 213.8(f)(1). The remaining
disclosures in Sec. 213.8(d)(2)(iv)-(vi), are not required to be
disclosed. However, all the required disclosures in Sec. 213.8(d)(2)
must be given to consumers through the toll-free number or in a written
advertisement appearing in a publication of general circulation in the
community served by the media station on which the advertisement is
broadcast.
The Board solicits comment on its approach in implementing section
336 of the Riegle Community Development and Regulatory Improvement Act.
Section 213.9--Record Retention
Section 213.9, currently Sec. 213.6, has been revised for
simplicity. The language ``or action is required to be taken'' has been
added to cover circumstances requiring action by a lessor other than
providing disclosures. The language in current Sec. 213.6(b) is
eliminated as unnecessary. The caption ``Preservation and Inspection of
Evidence of Compliance'' has been changed to ``Record Retention'' to
conform with usage in other of the Board's regulations.
Section 213.10--Relation to State Laws
Section 213.10 combines and simplifies current Secs. 213.7 and
213.8. No substantive changes are intended. Information about
procedures and criteria for preemption or exemption determinations is
removed.
Appendix A--Model Forms
To simplify the regulation, the written information contained in
the current appendix about the procedures and criteria for an exemption
determination has been removed. Such information would be available
from the Board upon request.
Model forms, currently in appendix C of the regulation, have been
moved to this appendix and revised to illustrate the new segregated
disclosure scheme required by Sec. 213.4(a)(2). Instructions to the
current model forms have been deleted as repetitive of the regulation
and unnecessary. The Board solicits comment on whether any additional
model forms or model clauses are warranted (such as for single or
``lump sum'' payment leases). Specific comment is also solicited on
whether the open-end lease model form is needed and to what extent such
leases are being offered.
Appendix B--Federal Enforcement Agencies
The list of federal agencies that enforce the CLA for particular
classes of businesses is moved from appendix D to this appendix. To
simplify the regulation, the written information contained in the
current appendix about the procedures and criteria for a preemption
determination has been removed. Such information would be available
from the Board upon request.
Appendix C--Issuance of Staff Interpretations
Current paragraph Sec. 213.1(d) is moved to this appendix. Model
forms have been moved to proposed appendix A.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-0892. The Board
requests that, when possible, comments be prepared using a standard
courier type-face with a type-size of 10 or 12 characters per inch.
This will enable the Board to convert the text into machine-readable
form through electronic scanning, and will facilitate automated
retrieval of comments for review. Comments may also be submitted on
3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-compatible
DOS-based format, but must be accompanied by an original document in
paper form.
V. Regulatory Flexibility Analysis
The Board's Office of the Secretary has prepared a preliminary
regulatory analysis of the proposal. A copy of the analysis may be
obtained from Publication Services, Board of Governors of the Federal
Reserve System, Washington, DC 20551, at (202) 452-3245.
Concerning the impact on small firms, the Board believes that most
consumer leasing subject to Regulation M is undertaken by large firms.
Therefore, elements of revised Regulation M that might increase burden
on lessors should not have much impact, if any, on small firms. There
is evidence from other regulations of economies of scale (that is, cost
conditions that lead to higher average costs at small firms than large
firms) in start-up costs for new regulations or for changes in
regulations. Thus, implementation of proposed revisions to Regulation M
could be disproportionately costly to small firms, to the extent that
they engage in covered consumer leasing.
Provisions of the CLA are similar to those of the credit provisions
of the TILA, and available evidence suggests also the existence of
economies of scale in on-going costs for Truth in Lending. Since the
requirements of the existing regulation and the proposed revised
regulation do not differ by size of firm, small firms would possibly
continue to face relatively higher costs under the proposed revised
rule.
It appears, however, that few, if any, firms that provide consumer
leases are small firms. Moreover, evidence on scale economies for other
regulations indicates that scale economies are exhausted at relatively
low levels of output. Therefore, it is unlikely that the proposed
revisions would cause any firms in the industry to incur
disproportionately higher costs because of their size.
VI. Paperwork Reduction Act
In accordance with section 3507 of the Paperwork Reduction Act of
1980 (44 U.S.C. 35; 5 CFR 1320.13), 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, Federal Reserve Board
Clearance Officer, Division of Research and Statistics, Mail Stop 97,
Board of Governors of the Federal Reserve System, Washington, DC 20551.
The third-party disclosure requirements contained in 12 CFR 213.5
will aid consumers in understanding leases they negotiate. The
respondents are for-profit institutions, including small businesses.
Because the notices are not provided to the Federal Reserve, no issue
of confidentiality under the Freedom of Information Act arises.
Institutions are not required to respond to this collection of
information unless it displays a currently valid OMB control number.
The OMB control
[[Page 48761]]
number is 7100-0202. OMB has deemed that inclusion of the OMB control
number in this preamble satisfies this requirement.
The Board estimates that the annual burden for state member banks
will increase from 9,272 hours to 10,786 hours. The Board estimates
that the average length of time to disclose the costs and terms to a
consumer will increase from fifteen minutes to seventeen minutes. The
Board also estimates that the average length of time to prepare basic
lease information for inclusion in all advertisements will decrease
from thirty minutes to twenty-five minutes.
The Board 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 been found that among state member banks that engage
in consumer leasing, only a very few advertise consumer leases. For
estimates of the annual burden imposed on other institutions that
engage in consumer leasing, please contact their regulator.
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 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. The table of contents to part 213 is revised to read as follows:
Sec.
213.1 Authority, scope, purpose, and enforcement.
213.2 Definitions.
213.3 Exempt transactions.
213.4 General disclosure requirements.
213.5 Content of disclosures.
213.6 Renegotiations, extensions, and assumptions.
213.7 [Reserved].
213.8 Advertising.
213.9 Record retention.
213.10 Relation to State laws.
Appendix A to Part 213--Model Forms
Appendix B to Part 213--Federal Enforcement Agencies
Appendix C to Part 213--Issuance of Staff Interpretations
Supplement I-CL-1 to Part 213--Official Staff Commentary to
Regulation M
3. Part 213 would be amended as follows:
a. Sections 213.1 through 213.6 are revised;
b. Section 213.7 is removed and reserved;
c. Section 213.8 is revised;
d. Sections 213.9 and 213.10 are added;
e. Appendices A through C are revised; and
f. Appendix D is removed.
The revisions and additions read as follows:
Sec. 213.1 Authority, scope, purpose, and enforcement.
(a) Authority. The regulation in this part, known as Regulation M,
is issued by the Board of Governors of the Federal Reserve System to
implement the consumer leasing provisions of the Truth in Lending Act,
which is Title I of the Consumer Credit Protection Act, as amended (15
U.S.C. 1601 et seq.).
(b) Scope and purpose. This part applies to all persons who are
lessors of consumer leases as defined in Sec. 213.2(a) (6) and (10).
The purpose of this part is:
(1) To ensure that lessees of personal property receive meaningful
disclosures that enable them to compare lease terms with other leases
and with credit transactions, where appropriate;
(2) To limit the amount of balloon payments in consumer lease
transactions; and
(3) To provide for the accurate disclosure of lease terms in
advertising.
(c) Enforcement and liability. Section 108 of the act contains the
administrative enforcement provisions. Sections 112, 130, 131, and 185
of the act contain the liability provisions for failing to comply with
the requirements of the act and this part.
Sec. 213.2 Definitions.
(a) Definitions. For the purposes of this part the following
definitions apply:
(1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
(2) Advertisement means a commercial message in any medium that
directly or indirectly promotes a consumer lease transaction.
(3) Agricultural purpose means a purpose related to the production,
harvest, exhibition, marketing, transportation, processing, or
manufacture of agricultural products including but not limited to the
acquisition of personal property and services used primarily in
farming.
(4) Board refers to the Board of Governors of the Federal Reserve
System.
(5) Closed-end lease means a consumer lease other than an open-end
lease as defined in this section.
(6) Consumer lease means a contract in the form of a bailment or
lease for the use of personal property by a natural person primarily
for personal, family, or household purposes, for a period exceeding
four months and for a total contractual obligation not exceeding
$25,000, whether or not the lessee has the option to purchase or
otherwise become the owner of the property at the expiration of the
lease. It does not include a lease that meets the definition of a
credit sale in Regulation Z, 12 CFR 226.2(a). It also does not include
a lease for agricultural, business, or commercial purposes or a lease
made to an organization. Unless the context indicates otherwise in this
part, ``lease'' shall be construed to mean ``consumer lease.''
(7) Estimated lease charge means the estimated total dollar amount
of the cost of the lease attributable to interest and other charges
regardless of when such charges are paid, as calculated under
Sec. 213.5(q).
(8) Gross cost means the total dollar amount of all items included
in the value of a lease at consummation, including but not limited to
the base price of the leased property and any other items added to that
price, such as any markup by the lessor, taxes, insurance, service
agreements, and any outstanding balance from a prior lease that is
included in the new lease.
(9) Lessee means a natural person who leases or who is offered a
consumer lease.
(10) Lessor means a person who regularly leases, offers to lease,
or arranges for the lease of personal property under a consumer lease.
A person who leased, offered, or arranged to lease personal property
more than five times in the preceding calendar year is subject to the
act and this part; if a person did not meet this numerical test in the
preceding calendar year, the numerical test is applied to the current
year.
(11) Open-end lease means a consumer lease in which the lessee's
liability at the end of the lease term is based on the difference
between the estimated value of the leased property and its realized
value.
(12) Organization means a corporation, trust, estate, partnership,
cooperative, association, or government entity or instrumentality.
(13) Person means a natural person or an organization.
(14) Personal property means any property that is not real property
under the law of the state where the property is located at the time it
is offered or made available for lease.
(15) Realized value means:
(i) The price received by the lessor for the leased property at
disposition;
[[Page 48762]]
(ii) The highest offer for disposition; or
(iii) The fair market value at the end of the lease term.
(16) Residual value means the amount determined at consummation to
be the value of the leased property at the end of the lease term.
(17) Security interest and security mean any interest in property
that secures the payment or performance of an obligation.
(18) State means any state, the District of Columbia, the
Commonwealth of Puerto Rico, and any territory or possession of the
United States.
(19) Total lease obligation applicable to an open-end lease, means
the total of:
(i) The scheduled periodic payments under the lease;
(ii) Any nonrefundable cash payment required of the lessee or
agreed upon by the lessor and lessee including any trade-in allowance
made at consummation; and
(iii) The estimated value of the leased property at the end of the
lease term.
(20) Value at consummation means the cost to the lessor of the
leased property including, if applicable, any increase or markup by the
lessor prior to consummation.
(b) [Reserved]
Sec. 213.3 Exempt transactions.
This part does not apply to consumer lease transactions of personal
property which are incident to the lease of real property and which
provide that:
(a) The lessee has no liability for the value of the property at
the end of the lease term except for abnormal wear and use; and
(b) The lessee has no option to purchase the leased property.
Sec. 213.4 General disclosure requirements.
(a) General requirements. A lessor shall make the disclosures
required by Sec. 213.5, as applicable. The disclosures shall be made
clearly and conspicuously in writing, and in accordance with this
section.
(1) Form of disclosures. Except as provided in paragraph (a)(4) of
this section, the disclosures required by Sec. 213.5 shall be given to
the lessee together on a dated statement that identifies the lessor and
the lessee. All the disclosures may be made either on a separate
statement that identifies the consumer lease transaction or on the
contract or other document evidencing the lease transaction. As an
alternative, the disclosures required under paragraph (a)(2) of this
section to be segregated from other information may be provided on a
separate statement that identifies the lease transaction and other
required disclosures provided in the lease contract.
(2) Segregation of certain disclosures. The following disclosures
shall be segregated from other information and shall contain only
permissible related or additional information: the disclosures required
by Sec. 213.5(b), (c), (e), (h)(3), (k)(1), (l)(2), (o)(1) and (p)
through (s). The content, format, and headings for these disclosures
shall be provided in a manner substantially similar to the applicable
model form in appendix A of this part.
(3) Timing of disclosures. A lessor shall provide disclosures to
the lessee prior to the consummation of a consumer lease.
(4) Multiple leased items. In a lease of multiple items, the
description required by Sec. 213.5(a) may be given on a separate
statement that is incorporated by reference in the disclosure statement
required by paragraph (a)(1) of this section.
(5) Language of disclosures. The disclosures required by Sec. 213.5
may be made in a language other than English, provided that the
disclosures are made available in English upon the lessee's request.
(b) Additional information. Additional information may be provided
with the disclosures that are not required by paragraph (a)(2) of this
section to be segregated from other information. The additional
information shall not be stated, used, or placed so as to mislead or
confuse the lessee or contradict, obscure, or detract attention from
any disclosures required by this part.
(c) Multiple lessors or lessees. When a transaction involves more
than one lessor, the disclosures required by this part may be made by
one lessor on behalf of all of the lessors. When a lease involves more
than one lessee, the disclosures may be provided to any lessee who is
primarily liable on the lease.
(d) Use of estimates--(1) Standard. At the time disclosures are
made, if an amount or other item required to be disclosed, or needed to
determine a required disclosure, is unknown or is not available to the
lessor and the lessor has made a reasonable effort to ascertain the
information, the lessor may use an estimate, provided that the estimate
is reasonable, is clearly identified as an estimate, is based on the
best information available to the lessor, and is not used to circumvent
or evade the disclosure requirements of this part.
(2) Open-end purchase option lease. Notwithstanding that an
estimate shall be based on the best information available, a lessor is
not precluded in an open-end lease with a purchase-option from
understating the estimated value of the leased property at the end of
the term in computing the total lease obligation required by
Sec. 213.5(o)(1).
(e) Effect of subsequent occurrence. If information required to be
disclosed becomes inaccurate because of an event occurring after
consummation of a lease, the inaccuracy is not a violation of this
part.
(f) Minor variations. A lessor may disregard the effects of the
following in making calculations and disclosures:
(1) That payments must be collected in whole cents;
(2) That dates of scheduled payments may be different because the
scheduled date is not a business day;
(3) That months have different numbers of days; and
(4) That February 29 occurs in a leap year.
Sec. 213.5 Content of disclosures.
For a consumer lease subject to this part, the lessor shall
disclose the following information, as applicable:
(a) Description of property. A brief description of the leased
property sufficient to identify the property to the lessee and lessor.
(b) Total amount due at lease signing. The total amount to be paid
by the lessee prior to or at consummation of the lease, using the term
``total amount due at lease signing.'' The lessor shall itemize each
payment by type and amount, including any refundable security deposit,
advance monthly or periodic payment, and any downpayment (capitalized
cost reduction), and shall disclose the means of payment, including any
trade-in allowance, payments in cash, or rebates, in a format
substantially similar to that contained in the model forms in appendix
A of this part.
(c) Payment schedule. The number, amount, and due dates or periods
of payments scheduled under the lease, and the total amount of the
periodic payments.
(d) Fees and taxes. The total dollar amount for all official and
license fees, registration, title, or taxes required to be paid by the
lessee in connection with the lease.
(e) Other charges. The total amount of other charges payable by the
lessee to the lessor, itemized by type and amount, that are not
included in the periodic payments. This total includes the amount of
any liability the lease imposes upon the lessee at the end of the term,
but excludes the potential difference between the estimated and
realized values referred to in paragraph (m) of this section.
[[Page 48763]]
(f) Insurance. A brief identification of insurance associated with
the consumer lease including:
(1) If provided or paid for by the lessor, the types and amounts of
coverage and cost to the lessee; or
(2) If not provided or paid for by the lessor, the types and
amounts of coverage required of the lessee.
(g) Warranties or guarantees. A statement identifying all express
warranties and guarantees available to the lessee made by the
manufacturer or lessor with respect to the leased property.
(h) Maintenance responsibilities. The following are required:
(1) A statement identifying the party responsible for maintaining
or servicing the leased property together with a brief description of
the responsibility;
(2) A statement of standards for wear and use, which must be
reasonable, if the lessor sets such standards; and
(3) A notice regarding wear and use which shall be substantially
similar to the following: ``wear and use: you may be charged for
excessive wear and use based on the lessor's standard for normal use.''
In a vehicle lease transaction, the notice shall also specify any
charge for excess mileage.
(i) Security interest. A description of any security interest,
other than a security deposit disclosed under paragraph (b) of this
section, held or to be retained by the lessor and a clear
identification of the property to which the security interest relates.
(j) Penalties and other charges for delinquency. The amount or the
method of determining the amount of any penalty or other charge for
delinquency, default, or late payments, which must be reasonable.
(k) Purchase option. A statement of whether or not the lessee has
the option to purchase the leased property and:
(1) If at the end of the lease term, the purchase price; and
(2) If prior to the end of the lease term, the purchase price or
the method for determining the price and when the lessee may exercise
this option.
(l) Early termination--(1) Conditions and disclosure of charges. A
statement of the conditions under which the lessee or lessor may
terminate the lease prior to the end of the lease term and the amount
or the description of the method of determining the amount of any
penalty or other charge for early termination, which must be
reasonable.
(2) Notice and example. A notice about any charge for terminating a
consumer lease early, and an example of a charge for terminating a
lease at the end of the first year, which shall be substantially
similar to the following: ``You may have to pay a substantial charge if
you end this lease early. For example, if you terminate this lease at
the end of the first year, you may owe the lessor [amount]. The actual
charge will vary depending on when the lease is terminated. Other
charges such as for excessive wear and use may also be imposed.''
(m) Liability between estimated and realized values. A statement
that the lessee is liable for the difference between the estimated
value of the leased property and its realized value at early
termination or at the end of the lease term, if such liability exists.
(n) Right of appraisal. If the lessee's liability at early
termination or at the end of the lease term is based on the realized
value of the leased property, a statement that the lessee may obtain at
the lessee's expense, a professional appraisal, by an independent third
party agreed to by the lessee and the lessor, of the value that could
be realized at sale of the leased property. The appraisal shall be
final and binding on the parties.
(o) Liability at end of lease term based on estimated value. If the
lessee's liability at the end of the lease term is based on the
estimated value of the leased property:
(1) Value at consummation and total lease obligation. The value of
the property at consummation, the itemized total lease obligation at
the end of the lease term, and the difference between them;
(2) Excess liability. A statement about the rebuttable presumption
that the estimated value of the leased property at the end of the lease
term is unreasonable and not in good faith to the extent that it
exceeds the realized value by more than three times the average payment
allocable to a monthly period; and that the lessor cannot collect the
excess amount unless the lessor brings a successful action in court in
which the lessor pays the lessee's attorney's fees;
(3) Exception for unreasonable wear. A statement that the provision
regarding the rebuttable presumption and attorney's fees does not apply
to the extent the excess of the estimated value over the realized value
is due to unreasonable or excessive wear or use; and
(4) Mutually agreeable final adjustment. A statement that the
requirements of this paragraph (o) do not preclude a willing lessee
from making any mutually agreeable final adjustment regarding such
excess liability.
(p) Gross cost. In a closed-end consumer lease, the gross cost,
using that term, with a brief description such as ``the agreed upon
acquisition value of the vehicle including but not limited to items
such as taxes, fees, service contracts, and insurance.''
(q) Estimated lease charge. The estimated lease charge.
(1) Closed-end lease. In a closed-end lease, the estimated lease
charge is calculated by subtracting the gross cost from the sum of the
total payment due at lease signing (less a first periodic payment and
any refundable charges), the total of periodic payments, the total of
other charges payable to the lessor and the price the leased property
may be purchased for at the end of the lease term. Where there is no
purchase option, the residual value shall be used in the calculation.
(2) Open-end lease. In an open-end lease, the estimated lease
charge is calculated in the same manner set forth in paragraph (q)(1)
of this section, except that the initial value of the leased property,
the value at consummation, is substituted for the gross cost, and the
estimated value of the leased property substitutes for the residual
value, to the extent there is any difference.
(r) Residual value. In a closed-end consumer lease, the residual
value.
(s) Statement referencing nonsegregated disclosures. A statement
that the lessee should refer to the lease documents for information on:
conditions for and the amount or method of determining early
termination charges; charges for delinquency, default, or late
payments; maintenance responsibilities; any purchase option prior to
the end of the lease term; insurance; total taxes and official fees
paid; warranties; liability at the end of the lease term; and any
security interest.
Sec. 213.6 Renegotiations, extensions, and assumptions.
(a) Renegotiations. A renegotiation occurs when a consumer lease
subject to this regulation is satisfied and replaced by a new lease
undertaken by the same consumer. A renegotiation is a new lease
requiring new disclosures, except as provided in paragraph (d) of this
section.
(b) Extensions. An extension is the continuation of an existing
consumer lease beyond the originally scheduled termination date that is
agreed to by the lessor and the lessee, except when the continuation is
the result of a renegotiation. An extension that exceeds six months is
a new lease requiring new disclosures, except as provided in paragraph
(d) of this section.
(c) Assumptions. New disclosures are not required when a consumer
lease is
[[Page 48764]]
assumed by another person, whether or not an assumption fee is charged.
(d) Exceptions. New disclosures under this part shall not be
required for the following, even if they meet the definition of a
renegotiation or an extension:
(1) The addition, deletion, or substitution of leased property in a
multiple-item lease, provided the average payment is not changed by
more than 25 percent;
(2) A lease that is extended for not more than six months on a
month-to-month basis or otherwise;
(3) A reduction in the lease charge;
(4) A substitution of leased property with property that has a
substantially equivalent or greater economic value, provided no other
lease terms are changed;
(5) An agreement involving a court proceeding; or
(6) The deferment of one or more payments, whether or not a fee is
charged.
Sec. 213.7 [Reserved]
Sec. 213.8 Advertising
(a) General rule. No advertisement for a consumer lease may state
that a specific lease of property at specific amounts or terms is
available unless the lessor usually and customarily leases or will
lease the property at those amounts or terms.
(b) Clear and conspicuous standard. Disclosures required by this
section shall be made clearly and conspicuously. Any reference to a
charge that is a part of the total of payments required prior to or at
consummation under Sec. 213.8(d)(2)(ii), such as the amount of any
downpayment (or that no downpayment is required), shall not be more
prominent than the disclosure of the total amount required to be paid
by the lessee prior to or at consummation of the lease.
(c) Catalogs and multi-page advertisements. If a catalog or other
multi-page advertisement provides a table or schedule of the
disclosures required by this section for the leased property being
advertised, the catalog or multi-page advertisement shall be considered
a single advertisement if, whenever any lease term not accompanied by
all the required disclosures is located elsewhere, it refers to the
page or pages on which the table or schedule appears.
(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;
(ii) The number of required payments; or
(iii) A statement of any downpayment or other payment required at
consummation, or that no payment is required.
(2) Additional terms. An advertisement containing any item under
paragraph (d)(1) of this section shall state the following items:
(i) That the transaction advertised is a lease;
(ii) The total amount required to be paid by the lessee prior to or
at consummation of the lease, or that no payment is required;
(iii) The number, amounts, due dates or periods of scheduled
payments, and the total of payments under the lease;
(iv) A statement of whether or not the lessee has the option to
purchase the leased property and at what price and time. The method of
determining the price may be substituted for the price in disclosing
that the lessee has the option to purchase the leased property prior to
the end of the lease;
(v) A statement of the amount or method of determining the amount
of any liabilities the lease imposes on the lessee at the end of the
term; and
(vi) A statement that the lessee will be liable for any difference
between the estimated value of the leased property and its realized
value at the end of the lease term, if the lessee has such liability.
(e) Alternative disclosures--merchandise tags. A merchandise tag
setting forth information listed under paragraph (d)(1) of this section
need not contain the disclosures required by paragraph (d)(2) of this
section, provided the tag refers to a sign or display prominently
posted in the lessor's showroom. The sign or display shall contain a
table or schedule of the information required to be disclosed by
paragraph (d)(2) of this section.
(f) Alternative disclosures--television or radio advertisements.--
(1) Toll-free number or print advertisement. An advertisement made
through television or radio containing any information listed in
paragraph (d)(1) of this section complies with paragraph (d)(2) of this
section if the advertisement states the information required by
paragraphs (d)(2)(i)-(iii) of this section; and:
(i) Lists a toll-free telephone number established in accordance
with paragraph (f)(2) of this section that may be used by consumers to
obtain the information required by paragraph (d)(2) of this section; or
(ii) Refers to a written advertisement appearing in a publication
of general circulation in the community served by the media station on
which the advertisement is broadcast, including the name and the date
of the publication, published beginning three days before and ending
ten days after the broadcast. The written advertisement shall include
the information required to be disclosed by paragraph (d)(2) of this
section.
(2) Establishment of toll-free number. If a toll-free telephone
number is referred to in a television or radio advertisement for the
purposes of complying with this section, the lessor shall:
(i) Establish the toll-free telephone number no later than the date
the advertisement is broadcast;
(ii) Maintain the telephone number for no less than ten days,
beginning on the date of the broadcast; and
(iii) Provide the information required by paragraph (d)(2) of this
section to any person who calls. The information shall be provided
orally, or in writing if requested by the consumer.
Sec. 213.9 Record retention.
A lessor shall retain evidence of compliance with the requirements
imposed under this part, other than the advertising requirements under
Sec. 213.8, for a period of not less than two years after the date
disclosures are required to be made or action is required to be taken.
Sec. 213.10 Relation to state laws.
(a) Inconsistent state laws. A state law that is inconsistent with
the requirements of the act and this part is preempted to the extent of
the inconsistency. If a lessor cannot comply with a state law without
violating a provision of this part the state law is inconsistent with
the requirements of the act and this part within the meaning of section
186(a) of the act and is preempted, unless the state law gives greater
protection and benefit to the consumer. A state, through an appropriate
official having primary enforcement or interpretative responsibilities
for its consumer leasing law, may apply to the Board for a preemption
determination.
(b) Exemptions.--(1) Applications. A state may apply to the Board
for an exemption from the requirements of the act and this part for any
class of lease transactions within the state. The Board will grant such
an exemption if the Board determines that:
(i) The class of leasing transactions is subject to state law
requirements substantially similar to the act and this
[[Page 48765]]
part or that lessees are afforded greater protection under state law;
and
(ii) There is adequate provision for state enforcement.
(2) Enforcement and liability. After an exemption has been granted,
the requirements of the applicable state law (except for additional
requirements not imposed by federal law) will constitute the
requirements of the act and this part. No exemption will extend to the
civil liability provisions of sections 130, 131, and 185 of the act.
(c) Procedures and criteria for preemptions and exemptions. The
procedures and criteria for requesting a preemption or an exemption
determination are available from the Board upon request.
Appendix A to Part 213--Model Forms
A-1 Model Open-End or Finance Vehicle Lease Disclosures
A-2 Model Closed-End or Net Vehicle Lease Disclosures
A-3 Model Furniture Lease Disclosures
A-1 Model Open-End or Finance Vehicle Lease Disclosures
Federal Consumer Leasing Act Disclosure Statement
Date ____________________
1. LESSOR(S)
----------------------------------------------------------------------
LESSEE(S)
----------------------------------------------------------------------
2. Description of leased property
----------------------------------------------------------------------------------------------------------------
Year Make Model Body style Vehicle ID#
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
3. a. Initial Value of Vehicle....................... $________
b. Total Payment Due at Lease Signing.............. $________
(Total of the itemized costs should equal the means
of paying itemized costs)
Itemized Costs Means of paying Itemized
Costs
Downpayment.............. $________ Net Trade-in Allowance.... $________
Registration Fee......... $________ Rebate....................
________________......... $________ Cash...................... $________
*First Monthly Payment... $________ ........................
*Refundable Security $________ ........................
Deposit.
c. Total of Monthly Payments....................... $________
Base Payment....................................... $________
Use/Lease Tax...................................... $________
Insurance.......................................... $________
________________...................................
Total Monthly Payment.............................. $________
Payment Schedule: The first monthly payment of
$________ is due on ____, followed by ____
payments of ____ due on the ____ of each month.
d. Total of Other Charges Payable to Lessor (not
included in b or c)............................... $________
Disposition Fee.................................... $________
________________................................... $________
e. Estimated [Retail/Wholesale] Value of Vehicle... $________
(Your liability for this sum may be limited, see
item 6)
f. Purchase Option: You have __ /do not have __ an
option to purchase the leased property at the end
of the lease term. If you purchase the property at
that time, the price will be $________
g. Total Lease Obligation (Downpayment, trade-in +
c + e)............................................ $________
h. Estimated Lease Charge.......................... $________
(Cost of the lease attributable to interest and
other charges obtained by adding b (less less
*first monthly payment and *any refundable
charges) + c + d + f (but if no purchase option is
available then e) -a))
Early Termination. You may have to pay a substantial charge if you
end this lease early. For example, if you terminate this lease at
the end of the first year, you may owe the lessor $________. The
actual charge will vary depending on when the lease is terminated.
Other charges such as for excessive wear and use may also be
imposed.
Excessive Wear and Use. You may be charged for excessive wear and
use of the vehicle based on the lessor's standards for normal use.
[In addition, you will be charged ________ cents per mile for each
mile in excess of ________ miles shown on the odometer.]
Other Important Terms. Before signing this lease, please read your
lease documents for further information about Conditions for and the
Amount or Method of Determining Early Termination Charges, Charges
for Delinquency, Default, or Late Payments, Maintenance
Responsibilities, Any Purchase Option Prior to the End of the Lease
Term, Insurance, Total Taxes and Official Fees Paid, Warranties,
Liability at the End of the Lease Term, and Any Security Interest,
if applicable.
4. Official Fees and Taxes
The total amount you will pay for official and license fees,
registration, title and taxes during the lease term is $________.
5. Insurance
The following types and amounts of insurance will be acquired in
connection with this lease:--------------------------------------------
______________________________________________________________________
__________.
____ We (lessor) will provide the insurance coverage quoted above
for a total premium cost of $________.
____ You (lessee) agree to provide insurance coverage in the amounts
and types indicated above.
6. End of Term Liability
(a) The estimated value of the vehicle stated in item 3(e) is
based on a reasonable, good faith estimate of the value of the
vehicle at the end of the lease term. If the actual value of the
vehicle at that time is greater than the estimated value, you will
have no further liability under this lease, except for other charges
already incurred [and are entitled to a credit or refund of any
surplus]. If the actual value of the vehicle is less than the
estimated value, you will be liable for any difference up to $
________ (3 times the monthly payment). For any difference in excess
of that amount, you will be liable only if
[[Page 48766]]
1. Excessive use or damage [as described in item 7]
[representing more than normal wear and tear] resulted in an
unusually low value at the end of the term.
2. You voluntarily agree with us after the end of the lease term
to make a higher payment.
3. The matter is not otherwise resolved and we win a lawsuit
against you seeking a higher payment. Should we bring a lawsuit
against you, we must prove that our original estimate of the value
of the leased property at the end of the lease term was reasonable
and was made in good faith. For example, we might prove that the
actual was less than the original estimated value, although the
original estimate was reasonable, because of an unanticipated
decline in value for that type of vehicle. Unless we prove that the
excess amount owed was the result of excessive use or unreasonable
wear and use, we will pay your reasonable attorney's fees.
(b) If you disagree with the value we assign to the vehicle, you
may obtain, at your own expense, from an independent third party
agreeable to both of us, a professional appraisal of the ________
value of the leased vehicle which could be realized at sale. The
appraised value shall then be used as the actual value.
7. Standards for Wear and Use
The following standards are applicable for determining unreasonable
or excess wear and use of the leased vehicle---------------------------
______________________________________________________________________
__________.
8. Maintenance
[You are responsible for the following maintenance and servicing of
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]
[We are responsible for the following maintenance and servicing of
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]
9. Warranties
The leased vehicle is subject to the following express warranties:---
______________________________________________________________________
__________.
10. Early Termination and Default
(a) You may terminate this lease before the end of the lease term
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
The charge for such early termination is-----------------------------
______________________________________________________________________
__________.
(b) We may terminate this lease before the end of the lease term
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
Upon such termination we shall be entitled to the following charge(s)
for--------------------------------------------------------------------
______________________________________________________________________
__________.
(c) To the extent these charges take into account the value of
the vehicle at the end of the lease term, you have the same right to
a professional appraisal as that stated in item 6(b):
______________________________________________________________________
__________.
11. Security Interest
We reserve a security interest of the following type in the
property listed below to secure performance of your obligations
under this lease:
______________________________________________________________________
__________.
12. Late Payments
The charge for late payments is--------------------------------------
______________________________________________________________________
__________.
13. Option to Purchase
[You have an option to purchase the leased vehicle prior to the
end of the term. The price will be $________/or the method of
determining the price].
[You have no option to purchase the leased vehicle.]
A-2 Model Closed-End or Net Vehicle Lease Disclosures
FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT
Date ____________________
1. LESSOR(S)
----------------------------------------------------------------------
LESSEE(S)
----------------------------------------------------------------------
2. Description of leased property
----------------------------------------------------------------------------------------------------------------
Year Make Model Body style Vehicle ID#
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
3. a. Gross Cost..................................... $________
(The agreed upon acquisition value of the vehicle
including but not limited to items such as taxes,
fees, service contracts, and insurance. The gross
cost is commonly referred to by the industry as
the ``gross capitalized cost.'')
b. Total Payment Due at Lease Signing.............. $________
(Total of the itemized costs should equal the means
of paying itemized costs)
Itemized Costs ................. Means of Paying Itemized
Costs
Downpayment.............. $________ Net Trade-in Allowance.... $________
Registration Fee......... $________ Rebate.................... $________
$________ $________ Cash...................... $________
*First Monthly Payment... $________
*Refundable Security $________
Deposit.
c. Total of Monthly Payments....................... $________
Base Payment....................................... $________
Use/Lease Tax...................................... $________
Insurance.......................................... $________
[[Page 48767]]
$________________.................................. $________
Total Monthly Payment.............................. $________
Payment Schedule: The first monthly payment of
$________ is due on ____, followed by ____
payments of ________ due on the ____ of each
month.
d. Total of Other Charges Payable to Lessor (not
included in b or c)............................... $________
Disposition Fee.................................... $________
________________................................... $________
e. Residual Value.................................. $________
(The estimated value of the vehicle at the end of
the lease term)
f. Purchase Option: You have __ / do not have __ an
option to purchase the leased property at the end
of the lease term. If you purchase the property at
that time, the price will be $________
g. Estimated Lease Charge.......................... $________
(Cost of the lease attributable to interest and
other charges obtained by adding b (less *first
monthly payment and *any refundable charges) + c +
d + f (but if no purchase option is available,
then e) - a))
Early Termination. You may have to pay a substantial charge if you
end this lease early. For example, if you terminate this lease at
the end of the first year, you may owe the lessor $________. The
actual charge will vary depending on when the lease is terminated.
Other charges such as for excessive wear and use may also be
imposed.
Excessive Wear and Use. You may be charged for excessive wear and
use of the vehicle based on the lessor's standards for normal use.
[In addition, you will be charged ________ cents per mile for each
mile in excess of ________ miles shown on the odometer.]
Other Important Terms. Before signing this lease, please read your
lease documents for further information about Conditions for and the
Amount or Method of Determining Early Termination Charges, Charges
for Delinquency, Default, or Late Payments, Maintenance
Responsibilities, Any Purchase Option Prior to the End of the Lease
Term, Insurance, Total Taxes and Official Fees Paid, Warranties,
Liability at the End of the Lease Term, and Any Security Interest,
if applicable.
4. Official Fees and Taxes
The total amount you will pay for official and license fees,
registration, title and taxes during the lease term is $________.
5. Insurance
The following types and amounts of insurance will be acquired in
connection with this lease:--------------------------------------------
______________________________________________________________________
__________.
____We (lessor) will provide the insurance coverage quoted above for
a total premium cost of $________.
____You (lessee) agree to provide insurance coverage in the amounts
and types indicated above.
6. Standards for Wear and Use
The following standards are applicable for determining unreasonable
or excess wear and use of the leased vehicle:--------------------------
______________________________________________________________________
__________.
7. Maintenance
[You are responsible for the following maintenance and servicing of
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]
[We are responsible for the following maintenance and servicing of
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]
8. Warranties
The leased vehicle is subject to the following express warranties:---
______________________________________________________________________
__________.
9. Early Termination and Default
(a) You may terminate this lease before the end of the lease term
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
The charge for such early termination is-----------------------------
______________________________________________________________________
__________.
(b) We may terminate this lease before the end of the lease term
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
Upon such termination we shall be entitled to the following charge(s)
for:-------------------------------------------------------------------
______________________________________________________________________
__________.
(c) To the extent that these charges take into account the value
of the vehicle at the end of the lease term, if you disagree with
the value we assign to the vehicle, you may obtain, at your own
expense, from an independent third party agreeable to both of us, a
professional appraisal of the ________ value of the leased vehicle
which could be realized at sale. The appraised value shall then be
used as the actual value.
10. Security interest
We reserve a security interest of the following type in the
property listed below to secure performance of your obligations
under this lease:
______________________________________________________________________
__________.
11. Late Payments
The charge for late payments is:-------------------------------------
______________________________________________________________________
__________.
12. Option to Purchase
[You have an option to purchase the leased vehicle prior to the
end of the term. The price will be $________ / the method of
determining the price.]
[You have no option to purchase the leased vehicle.]
A-3 Model Furniture Lease Disclosures
FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT
Date ____________________
1. LESSOR(S)
----------------------------------------------------------------------
LESSEE(S)
----------------------------------------------------------------------
2. Description of leased property
[[Page 48768]]
----------------------------------------------------------------------------------------------------------------
Item Color Stock # Mfg. Qty.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
3. a. Gross Cost..................................... $________
(The agreed upon acquisition value of the furniture
including but not limited to items such as taxes,
fees, and insurance.)
b. Total Payment Due at Lease Signing.............. $ ________
(Total of the itemized costs should equal the means
of paying itemized costs)
Itemized Costs Means of Paying Itemized
Costs
Downpayment.............. $________ Net Trade-in Allowance.... $________
Delivery Fee............. $________ Rebate.................... $________
____________............. $________ Cash...................... $________
*First Monthly Payment... $________
*Refundable Security $________
Deposit.
c. Total of Monthly Payments....................... $________
Base Payment............. $________
Use/Lease Tax............ $________
____________............. $________
Total Monthly Payment.... $________
Payment Schedule: The first monthly payment of
$________ is due on ________, followed by ________
payments of $________ due on the ____ of each
month.
d. Total of Other Charges Payable to Lessor (not
included in b or c)............................... $________
Pick-up Charge........... $________
____________............. $________
e. Residual Value.................................. $________
(The estimated value of the furniture at the end of
the lease term)
f. Purchase Option: You have ____ / do not have
____ an option to purchase the leased property, at
the end of the lease term. If you purchase the
property at that time, the price will be $________
g. Estimated Lease Charge.......................... $________
(Cost of the lease attributable to interest and
other charges obtained by adding b (less *first
monthly payment and *any refundable charges) + c +
d + f (but if no purchase option is available,
then e)-a))
Early Termination. You may have to pay a substantial charge if you
end this lease early. For example, if you terminate this lease at
the end of the first year, you may owe the lessor $________. The
actual charge will vary depending on when the lease is terminated.
[Other charges such as for excessive wear and use may also be
imposed.]
Excessive Wear and Use. You may be charged for excessive wear and
use of the furniture based on the lessor's standards for normal use.
Other Important Terms. Before signing this lease, please read your
lease documents for further information about Conditions for and the
Amount or Method of Determining Early Termination Charges, Charges
for Delinquency, Default, or Late Payments, Maintenance
Responsibilities, Any Purchase Option Prior to the End of the Lease
Term, Insurance, Total Taxes and Official Fees Paid, Warranties,
Liability at the End of the Lease Term, and Any Security Interest,
if applicable.
4. Official Fees and Taxes
The total amount you will pay for official and license fees,
registration, title and taxes during the lease term is $________.
5. Insurance
The following types and amounts of insurance will be acquired in
connection with this lease: ________-----------------------------------
____ We (lessor) will provide the insurance coverage quoted above
for a total premium cost of $________.
____ You (lessee) agree to provide insurance coverage in the amounts
and types indicated above.
6. Maintenance
[You are responsible for the following maintenance of the leased
furniture:-------------------------------------------------------------
______________________________________________________________________
__________.]
[We are responsible for the following maintenance of the leased
furniture:-------------------------------------------------------------
______________________________________________________________________
__________.]
7. Warranties
The leased furniture is subject to the following express warranties:-
______________________________________________________________________
__________.
8. Standards for Wear and Use
The following standards are applicable for determining unreasonable
or excess wear and use of the leased furniture:------------------------
______________________________________________________________________
__________.
9. Early Termination and Default
(a) You may terminate this lease before the end of the lease term
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
The charge for such early termination is-----------------------------
______________________________________________________________________
__________.
(b) We may terminate this lease before the end of the lease term
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
Upon such termination we shall be entitled to the following charge(s)
for:-------------------------------------------------------------------
______________________________________________________________________
__________.
10. Security interest
We reserve a security interest of the following type in the property
listed below to secure performance of your obligations under this
lease:-----------------------------------------------------------------
______________________________________________________________________
__________.
[[Page 48769]]
11. Late Payments
The charge for late payments is:-------------------------------------
12. Option to Purchase
[You have an option to purchase the leased furniture prior to
the end of the term. The price will be $________/ the method of
determining the price].
[You have no option to purchase the leased vehicle.]
Appendix B to Part 213--Federal Enforcement Agencies
The following list indicates which federal agency enforces
Regulation M (12 CFR part 213) for particular classes of business.
Any questions concerning compliance by a particular business should
be directed to the appropriate enforcement agency. Terms that are
not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s))
shall have the meaning given to them in the International Banking
Act of 1978 (12 U.S.C. 3101).
1. National banks and federal branches and federal agencies of
foreign banks.
District office of the Office of the Comptroller of the Currency
for the district in which the institution is located.
2. State member banks, branches and agencies of foreign banks
(other than federal branches, federal agencies, and insured state
branches of foreign banks), commercial lending companies owned or
controlled by foreign banks, and organizations operating under
section 25 or 25A of the Federal Reserve Act.
Federal Reserve Bank serving the District in which the
institution is located.
3. Nonmember insured banks and insured state branches of foreign
banks.
Federal Deposit Insurance Corporation Regional Director for the
region in which the institution is located.
4. Savings institutions insured under the Savings Association
Insurance Fund of the FDIC and federally chartered savings banks
insured under the Bank Insurance Fund of the FDIC (but not including
state-chartered savings banks insured under the Bank Insurance
Fund).
Office of Thrift Supervision regional director for the region in
which the institution is located.
5. Federal credit unions.
Regional office of the National Credit Union Administration
serving the area in which the federal credit union is located.
6. Air carriers.
Assistant General Counsel for Aviation Enforcement and
Proceedings, Department of Transportation, 400 Seventh Street, S.W.,
Washington, DC 20590.
7. Those subject to Packers and Stockyards Act.
Nearest Packers and Stockyards Administration area supervisor.
8. Federal Land Banks, Federal Land Bank Associations, Federal
Intermediate Credit Banks, and Production Credit Associations.
Farm Credit Administration, 490 L'Enfant Plaza, S.W.,
Washington, DC 20578.
9. All other lessors (lessors operating on a local or regional
basis should use the address of the FTC regional office in which
they operate).
Division of Credit Practices, Bureau of Consumer Protection,
Federal Trade Commission, Washington, DC 20580.
Appendix C to Part 213--Issuance of Staff Interpretations
Officials in the Board's Division of Consumer and Community
Affairs are authorized to issue official staff interpretations of
this Regulation M (12 CFR part 213). These interpretations provide
the formal protection afforded under section 130(f) of the act.
Except in unusual circumstances, interpretations will not be issued
separately but will be incorporated in an official commentary to
Regulation M, which will be amended periodically. No staff
interpretations will be issued approving lessor's forms, statements,
or calculation tools or methods.
By order of the Board of Governors of the Federal Reserve
System, September 12, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-23048 Filed 9-19-95; 8:45 am]
BILLING CODE 6210-01-P
