[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Proposed Rules]
[Pages 48769-48778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23049]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-0893]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed official staff interpretation.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing for comment proposed revisions to the
official staff commentary to Regulation M which implements the Consumer
Leasing Act. The Consumer Leasing Act requires lessors to provide
uniform cost and other disclosures about consumer lease transactions.
The Board is issuing this proposal to revise the commentary that
applies and interprets the requirements of Regulation M pursuant to the
Board's policy of periodically reviewing its regulations and official
interpretations. A proposal to revise Regulation M is 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-0893, 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 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. General
The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, governs
consumer leasing transactions and is implemented by the Board's
Regulation M (12 CFR part 213). Effective May 13, 1982, an official
staff commentary (Supplement I-CL-1 to 12 CFR part 213) was published
to interpret the regulation. The commentary is designed to provide
guidance to lessors in applying the regulation to specific transactions
and is intended to be updated periodically to address significant
questions that arise. It is anticipated that the proposed revisions to
the Regulation M commentary 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.
II. The Review of Regulation M
The Board's Regulatory Planning and Review Program calls for the
periodic review of a regulation and its official interpretations 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. The official staff
commentary has never been
[[Page 48770]]
substantially revised or reviewed. The Board initially began a review
of Regulation M according to the goals of its review program in
November 1993, when it published an advance notice of proposed
rulemaking on Regulation M (58 FR 61035, November 19, 1993). In its
advance notice, the Board solicited comments generally on the
provisions of Regulation M and the CLA, including coverage, exempt
transactions, and general format and disclosure requirements. In
addition, the Board identified specific issues about disclosures of
early termination charges, broadcast media advertising of leases, and
segregation of leasing disclosures from other information. Most of the
seventy comment letters on the advanced notice addressed those issues.
The proposed revisions to the regulation are published elsewhere in
today's issue of the Federal Register.
III. Discussion of Proposed Revisions
The following discussion covers the proposed revisions to the
Regulation M commentary section-by-section. Most of the discussion
focuses on new comments and significant revisions to existing comments.
Introduction
Comments I-3, I-4, and I-6 are deleted as obsolete or unnecessary.
Section 213.1--Authority, Scope, Purpose, and Enforcement
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
1-2....... Deleted as unnecessary.
------------------------------------------------------------------------
Section 213.2--Definitions
2(a) Definitions
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
2(a)(2)-1.......................... 2(a)(2)-1 and -2.
2(a)(2)-2.......................... 2(a)(2)-3.
2(a)(3)-1 new.
2(a)(4)-1.......................... 2(a)(10)-1.
2(a)(4)-2.......................... 2(a)(10)-4.
2(a)(4)-3.......................... 2(a)(10)-2.
2(a)(6)-3 new.
2(a)(6)-3 through -6............... 2(a)(6)-4 through 7.
2(a)(7)-1.......................... 2(a)(9)-1.
2(a)(8)-1.......................... 2(a)(10)-3.
2(a)(9)-1.......................... 2(a)(12)-1.
2(a)(12)-1......................... 2(a)(14)-1.
2(a)(14)-1 through -6.............. 2(a)(15)-1 through -6.
2(a)(17)-1 incorporates list from
the regulatory definition of
security interest.
2(a)(15)-1 through -3.............. 2(a)(17)-2 through -4.
2(a)(17)-1 through -3.............. 2(a)(19)-1 through -4.
2(a)(17)-4 and -5.................. 2(a)(19)-5 and -6.
2(a)(18)-1 through -3.............. 2(a)(20)-1 through -3.
2(b)-1 and -2...................... Deleted.
------------------------------------------------------------------------
2(a)(2) Advertisement
Comment 2(a)(2)-1 would be revised to incorporate examples of
advertisements, currently in Sec. 213.2(a)(2).
2(a)(3) Agricultural Purpose
Proposed comment 2(a)(3)-1 incorporates the portion of current
Sec. 213.2(a)(3) and the statutory definition in section 103(s) of the
Truth in Lending Act which describes agricultural products.
2(a)(6) Consumer Lease
Comment 2(a)(6)-2 would be revised to provide additional guidance
on when a lease is deemed to exceed four months and, therefore, covered
under the act and regulation. An example has been added to clarify that
a month-to-month lease with a penalty for cancelling within the first
year is deemed to be a consumer lease subject to the act and
regulation.
Proposed comment 2(a)(6)-3 provides guidance on the total
contractual obligation for purposes of determining whether a lease is
covered under the regulation, and clarifies that the total contractual
obligation may be different from the total lease obligation which
applies only to open-end leases.
Comment 2(a)(6)-7, currently comment 2(a)(6)-6, would be revised to
add another example of a lease deemed incidental to a service. The
narrow list of exceptions in the existing commentary of leases
incidental to a service is exhaustive, rather than illustrative.
Questions have arisen about Regulation M coverage of cellular phones
leased in conjunction with obtaining cellular service. Cellular service
providers typically offer customers the opportunity to lease or
purchase cellular telephones when subscribing for cellular service. The
leasing of a cellular telephone is not incidental to obtaining cellular
service and is, thus, covered under the regulation.
2(a)(7) Estimated Lease Charge
Proposed comment 2(a)(7)-1 clarifies that a 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
Proposed comment 2(a)(8)-1 provides guidance in making the proposed
disclosure in Sec. 213.5(p). Amounts consisting of fees and other
charges paid out of pocket at consummation by the lessee are included
in the gross cost figure.
2(a)(10) Lessor
Proposed comment 2(a)(10)-1 incorporates the existing regulatory
definition of ``arrange for leasing of personal property'' (in
Sec. 213.2(a)(4) and provisions in the current commentary) into the
proposed commentary under the definition of lessor.
Section 213.4--General Disclosure Requirements
4(a) General requirements
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
4(a)-1......... Revised to adopt ``legal obligation'' terminology of
Regulation Z.
4(a)-2......... Moved to proposed Sec. 213.4(f) of the regulation on
minor variations that may be disregarded in making
disclosures.
4(a)-3......... 4(a)(1)-1.
4(a)-5......... Deleted as no longer applicable.
4(a)(1)-1...... 4(a)-2 (deleted the word ``or format''); 4(a)-3.
4(a)(1)-2...... Deleted as no longer applicable.
4(a)(2)-1...... Deleted.
4(a)(2)-2...... 4(a)(1)-2.
4(a)(2)-3...... 4(a)(1)-3.
4(a)(2)-4...... 4(a)(1)-4.
4(a)(2)-5...... 4(a)(1)-5.
4(a)(2)-1 new.
4(a)(4)-1...... Deleted as unnecessary because of revised position in
proposed Sec. 213.4(a)(5).
4(a)(4)-2...... Deleted as unnecessary because of revised position in
proposed Sec. 213.4(a)(5).
------------------------------------------------------------------------
4(a)(2) Segregation of Certain Disclosures
Proposed comment 4(a)(2)-1 provides guidance in making the
segregated disclosures required by Sec. 213.4(a)(2).
4(b) Additional Information
Comment 4(b)-1 would be revised by deleting the second sentence.
4(d)(2) Open-End Purchase Option Lease
Comment 4(d)(2)-1, currently comment 4(d)-6, would be revised to
clarify that this paragraph only applies to open-end leases. No
substantive change is intended.
[[Page 48771]]
4(e) Effect of Subsequent Occurrence
Proposed comment 4(e)-3 incorporates the first sentence of footnote
1 of the regulation.
Section 213.5--Content of Disclosures
All of the comments in Sec. 213.4(g) would be redesignated
according to a new proposed Sec. 213.5.
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
4(g)-1............................. Deleted as unnecessary.
4(g)-2............................. 5-1.
4(g)(1)-1.......................... Deleted as unnecessary.
4(g)(2)-1.......................... Deleted as unnecessary 5(b)-1 new
(incorporated from the
instructions to the model form in
the current appendix C-2).
4(g)(2)-2.......................... 5(b)-2 (incorporates current
comment 2(b)-2).
4(g)(2)-3.......................... 5(b)-3.
4(g)(3)-1 and -2................... 5(c)-1 and -2.
4(g)(4)-1.......................... 5(d)-1.
4(g)(5)-1.......................... 5(e)-1 and -2.
4(g)(5)-2.......................... Deleted as unnecessary.
4(g)(5)-3.......................... 5(e)-3 and -4.
4(g)(5)-4.......................... 5(e)-5.
4(g)(6)-1 and -2................... 5(f)-1 and -2.
5(f)-3 new.
4(g)(7)-1 through -3............... 5(g)-1 through -3.
4(g)(8)-1.......................... 5(h)-1.
4(g)(9)-1.......................... 5(i)-1.
4(g)(10)-1 through -5.............. 5(j)-1 through -5.
4(g)(11)-1 through -3.............. 5(k)-1 through -3.
4(g)(12)-1 through -3.............. 5(l)-1 through -3; the word
``capitalized'' in comment 2 is
deleted.
5(l)-4 new.
5(l)-5 new.
4(g)(14)-1 through -3.............. 5(n)-1 through -3.
4(g)(15)-1......................... 5(o)-1.
4(g)(15)-2......................... 5(o)(1)-1.
4(g)(15)-3......................... 5(o)(1)-2.
4(g)(15)-4......................... 5(o)-2.
4(g)(15)-5......................... 5(o)(2)-1.
4(g)(15)-6......................... 5(o)(2)-2; the word ``capitalized''
is deleted.
5(o)(2)-3 new.
5(p)-1 new.
------------------------------------------------------------------------
5(b) Total Amount Due at Lease Signing
Proposed comment 5(b)-1 incorporates a definition of ``capitalized
cost reduction'' from the instructions in current appendix C-1.
Comment 5(b)-2 would incorporate the first sentence of current
comment 2(b)-2.
5(d) Fees and Taxes
Comment 5(d)-1 is revised to provide guidance on taxes that should
be disclosed pursuant to this paragraph. If the tax is payable by the
lessor (such as a gas guzzler tax), but the tax is passed on to the
consumer and the existence of the tax is indicated in the consumer's
lease documents--for example on the lease agreement--or the sticker or
tag affixed to the personal property--then the tax should be disclosed
pursuant to this paragraph. However, if the existence of the tax is not
indicated, and the tax is absorbed by the lessor as a cost of doing
business, then the tax should not be disclosed under this section.
5(f) Insurance
Proposed comment 5(f)-3 is added to indicate that this paragraph
applies to voluntary and required insurance provided in connection with
a lease transaction.
5(l) Early Termination
Proposed comment 5(l)-4 provides guidance in disclosing a full
description of the method used to determine the amount of an early
termination charge. 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 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 also 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. A lessor referring to a named
method in this manner must provide a written explanation of that method
if requested by the consumer.
Proposed comment 5(l)-5 provides guidance on what value such as the
fair market value or the wholesale value should be used when
calculating the required example of an early termination charge based
on termination at the end of the first year.
5(o) Liability at End of Lease Term Based on Estimated Value
The proposed regulation reformats this section, currently section
213.4(g)(15), for clarity. The commentary has been similarly
reformatted.
Proposed comment 5(o)(2)-3 states the intent of section 183(a) of
the CLA that lessors must pay the lessees' attorney's fees in all
actions brought by lessors under this subsection, even if those actions
are decided in favor of the lessee.
5(s) Statement Referencing Nonsegregated Disclosures
Proposed comment 5(s)-1 provides guidance in making the proposed
new disclosure referencing and alerting consumers to read CLA required
disclosures not included among the segregated disclosures. It is only
necessary to refer to the applicable items, thus, the lessor may delete
inapplicable items from the disclosure.
Section 213.6--Renegotiations, Extensions, and Assumptions
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
4(h)-1...... 6-1.
4(h)-2...... First sentence moved to regulation; second sentence moved
to 6-1.
4(h)-3...... Moved to the regulation.
4(h)-4...... Moved to the regulation.
4(h)-5...... 6(b)-1.
6(b)-2 new.
4(h)-6...... 6-2.
4(h)-7...... Moved to the regulation.
4(h)-8...... Moved to the regulation.
4(h)-9...... Moved to the regulation.
------------------------------------------------------------------------
Section 213.6 of the proposed regulations contain the disclosure
rules governing leases that are renegotiated, extended or assumed
(currently in section 213.4(h) and the commentary). Many of the
commentary provisions have been moved to the regulation. For example,
the definitions of a renegotiation and an extension would be included
in the regulation. (This change parallels the approach under Regulation
Z for refinancings and assumptions, section 226.20.) Other commentary
provisions have been reformatted to conform to the proposed regulatory
changes.
Comment 6(b)-1, currently comment 4(h)-5, would be revised to
clarify that where a consumer lease is extended on a month-to-month
basis for more than 6 months, new disclosures are required at the
beginning of the seventh month, and also at the start of each seventh
month thereafter. This revision incorporates into the commentary a
longstanding interpretation originally issued under leasing provisions
that were a part of Regulation Z (Truth in Lending) prior to 1982.
Proposed comment 6(b)-2 also incorporates a longstanding
interpretation originally issued under the pre-1982 leasing provisions
in Regulation Z that disclosures for a consumer lease, as defined by
the
[[Page 48772]]
regulation, extended on a month-to-month basis for more than 6 months
should reflect the month-to-month nature of the transaction.
Section 213.8--Advertising
------------------------------------------------------------------------
Current Proposed
------------------------------------------------------------------------
5(a)-1............................. 8(a)-1.
5(a)-2............................. 8(a)-2.
5(b)-1............................. 8(c)-1.
5(b)-2............................. 8(c)-2.
5(c)-1............................. 8(b)-1.
8(b)-2 new.
5(c)-2............................. 8(d)(1)-1.
8(d)(2)-1 new.
5(d)-1............................. 8(e)-1.
8(e)-2 new.
8(f)-1 new.
8(f)(1)-2 new.
------------------------------------------------------------------------
8(b) Clear and Conspicuous Standard
Proposed 8(b)-2 provides that lease disclosures must appear on a
television screen for at least five seconds, which parallels the ``five
second rule'' adopted by the Federal Trade Commission.
8(e) Alternative Disclosures--Merchandise Tags
Proposed comment 8(e)-2 clarifies that merchandise tags are
generally considered a multiple item lease.
8(f) Alternative Disclosures--Television or Radio Advertisements
8(f)(1) Toll-Free Number or Print Advertisement
Proposed comment 8(f)(1)-1 clarifies that a newspaper circulated
nationally qualifies as a publication in general circulation.
Section 213.10 Relations to State Laws
Section 213.10 in the proposed regulation combines and simplifies
current Secs. 213.7 and 213.8. The comments to these sections have been
deleted as unnecessary.
Appendix A Model Forms
Under the proposed rule, the model forms are moved to appendix A.
Comment app. A-2 would be deleted. Minor revisions would be made to
other comments in this appendix. For example, comment app. A-1 would be
revised to indicate that changes to the headings, format, and the
content of the segregated disclosures should be minimal. Also the
definition of a closed-end lease in comment app. A-3 would be deleted
because a definition would be added in the regulation.
IV. Form of Comment Letters
As discussed above, comment letters should refer to Docket No. R-
0893. 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.
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, 12 CFR part 213, as
proposed to be amended by a document published elsewhere in today's
issue of the Federal Register, is further proposed to be amended 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. Supplement I-CL-1 to Part 213--Official Staff Commentary to
Regulation M would be revised to read as follows:
Supplement I-CL-1 to Part 213--Official Staff Commentary to Regulation
M
Introduction
1. Official status. This commentary is the vehicle by which the
staff of the Division of Consumer and Community Affairs of the
Federal Reserve Board issues official staff interpretations of
Regulation M (12 CFR part 213). Good faith compliance with this
commentary affords protection from liability under section 130(f) of
the Truth in Lending Act (15 U.S.C. 1640). Section 130(f) protects
lessors from civil liability for any act done or omitted in good
faith in conformity with any interpretation issued by a duly
authorized official or employee of the Federal Reserve System.
2. Procedures for requesting interpretations. Under appendix C
of Regulation M, anyone may request an official staff
interpretation. Interpretations that are adopted will be
incorporated in this commentary following publication in the Federal
Register. No official staff interpretations are expected to be
issued other than by means of this commentary.
3. Comment designations. Each comment in the commentary is
identified by a number and the regulatory section or paragraph that
it interprets. The comments are designated with as much specificity
as possible according to the particular regulatory provision
addressed. For example, some of the comments to Sec. 213.4(a) are
further divided by subparagraph, such as comment 4(a)(1)-1 and
comment 4(a)(1)-2. In other cases, comments have more general
application and are designated, for example, as comment 4(a)-1. This
introduction may be cited as comments I-1 through I-3. An appendix
may be cited as comments app. A-1.
Section 213.1--Authority, Scope, Purpose, and Enforcement
1. Foreign applicability. Regulation M applies to all persons
(including branches of foreign banks or leasing companies located in
the United States) that offer consumer leases to residents
(including resident aliens) of any state as defined in
Sec. 213.2(a)(18). The regulation does not apply to a foreign branch
of a U.S. bank or leasing company leasing to a U.S. citizen residing
or visiting abroad or to a foreign national abroad.
Section 213.2--Definitions
2(a) Definitions
2(a)(2) Advertisement
1. Coverage. Only commercial messages that promote consumer
lease transactions requiring disclosures are advertisements.
Messages inviting, offering, or otherwise announcing generally to
prospective customers the availability of consumer leases, whether
in visual, oral, or print media, are covered by the definition. The
term includes the following:
i. Print media.
ii. Broadcast media, including radio and television messages.
iii. Catalogs and fliers.
iv. Direct mail literature.
v. Printed material on any interior or exterior sign or display,
in any window display, in any point-of-transaction literature or
price tag which is delivered or made available to a lessee or
prospective lessee in any manner whatsoever.
vi. Telephone solicitations.
2. Exceptions. The term does not include the following:
i. Direct personal contacts, such as follow-up letters, cost
estimates for individual lessees, or oral or written communications
relating to the negotiation of a specific transaction.
ii. Informational material distributed only to businesses.
iii. Notices required by federal or state law, if the law
mandates that specific information be displayed and only the
information so mandated is included in the notice.
iv. News articles, the use of which is controlled by the news
medium.
v. Market research or educational materials that do not solicit
business.
3. Persons covered. See the commentary to Sec. 213.8(a).
2(a)(3) Agricultural purpose
1. Agricultural products. Agricultural products include
horticultural, viticultural, and dairy products, livestock,
wildlife, poultry, bees, forest products, fish and shellfish, and
any products thereof, including processed and manufactured products,
and any and all products raised or produced on farms and any
processed or manufactured products thereof.
[[Page 48773]]
2(a)(6) Consumer lease
1. Primary purposes. A lessor must determine in each case if the
leased property will be used primarily for personal, family, or
household purposes. If some question exists as to the primary
purpose for a lease, the lessor is, of course, free to make the
disclosures, and the fact that disclosures are made in such
circumstances is not controlling on the question of whether the
transaction was exempt. The primary purpose of a lease is generally
determined before or at consummation and a lessor need not provide
Regulation M disclosures where there is a subsequent change in
primary usage.
2. Period of time. To be a consumer lease, the initial term of
the lease must be more than four months. Thus, a lease of personal
property for four months, three months or on a month-to-month or
week-to-week basis (even though the lease actually extends beyond
four months) is not a consumer lease and is not subject to the
disclosure requirements of the regulation. A lease with a penalty
for cancelling during the first four months is considered to have a
term of more than four months. A month-to-month or week-to-week
extension of a lease that was originally for four months or less is
not a consumer lease, even if the extension actually lasts for more
than four months. See the comments on Sec. 213.6(b) for guidance on
extensions of covered leases. To illustrate:
i. A month-to-month lease with a penalty for terminating before
one year, such as the forfeiture of a security deposit, is a
consumer lease covered by this definition.
ii. A three-month lease extended on a month-to-month basis and
terminated after one year is not a consumer lease covered by this
definition.
3. Total contractual obligation. The term total contractual
obligation includes all nonrefundable amounts a lessee is
contractually obligated to pay under a lease for the purpose of
determining whether the lease is covered by this regulation. The
total contractual obligation is not necessarily the same as the
total lease obligation defined in Sec. 213.2(a)(19).
4. Organization. A consumer lease does not include a lease made
to an organization, such as a corporation or a government agency or
instrumentality. A lease to an organization is outside the
requirements of the regulation even if the property is used (by an
employee, for example) primarily for personal, family or household
purposes. Likewise, a lease made to an organization is not a
consumer lease even if it is guaranteed by or subsequently assigned
to a natural person.
5. Credit sale. A lease that meets the definition of a credit
sale in Regulation Z, 12 CFR 226.2(a)(16), is not a consumer lease.
Regulation Z defines a credit sale, in part, as ``a bailment or
lease (unless terminable without penalty at any time by the
consumer) under which the consumer:
i. Agrees to pay as compensation for use a sum substantially
equivalent to, or in excess of, the total value of the property and
services involved; and
ii. Will become (or has the option to become), for no additional
consideration or for nominal consideration, the owner of the
property upon compliance with the agreement.''
6. Safe deposit boxes. A lease of a safe deposit box is not a
consumer lease for purposes of this regulation.
7. Leases of personal property incidental to a service. The
following leases of personal property are deemed incidental to a
service and are not consumer leases subject to the requirements of
the regulation:
i. Home entertainment systems requiring the consumer to lease
equipment that enables a television to receive the transmitted
programming.
ii. Burglar alarm systems requiring the installation of leased
equipment that triggers a telephone call when a home is burglarized.
iii. Propane gas service where the consumer is required to lease
a propane tank to receive the service.
2(a)(7) Estimated lease charge
1. Advance periodic payment and refundable charges. A first
monthly (or other periodic payment) paid at or before consummation
which is included in the total periodic payment disclosure and
refundable charges are not included in the calculation of the
estimated lease charge.
2(a)(8) Gross cost
1. Fees and other charges paid at lease signing. This figure
includes all nonrefundable fees and charges required to be paid
before or at lease signing as well as those fees and charges which
are capitalized over the lease term.
2(a)(9) Lessee
1. Guarantors. Guarantors are not lessees for purposes of the
regulation.
2(a)(10) Lessor
1. Arranger of a lease. To ``arrange'' for the lease of personal
property means to provide or offer to provide a lease which is or
will be extended by another person under a business or other
relationship pursuant to which the person arranging the lease (a)
receives or will receive a fee, compensation, or other consideration
for the service; or (b) has knowledge of the lease terms and
participates in the preparation of the contract documents required
in connection with the lease.
To illustrate:
i. An automobile dealer who, pursuant to a business
relationship, completes the necessary lease agreement before
forwarding it to the leasing company (to whom the obligation is
payable on its face) for execution is ``arranging'' for the lease.
ii. An automobile dealer who, receiving no fee for the service,
refers a customer to a leasing company that will prepare all
relevant contract documents is not ``arranging'' for the lease.
2. Consideration. The term ``other consideration'' used in the
definition of arranger in comment 2(a)(10)-1 refers to an actual
payment corresponding to a fee or similar compensation. It does not
refer to intangible benefits, such as the advantage of increased
business, which may flow from the relationship between the parties.
3. Assignees. An assignee may be a lessor for purposes of the
regulation in circumstances such as those described in Ford Motor
Credit Co. v. Cenance, 452 U.S. 155 (1981). In that case, the U.S.
Supreme Court held that an assignee was a creditor for purposes of
previous Regulation Z because of its substantial involvement in the
credit transaction.
4. Multiple lessors. See the commentary to Sec. 213.4(c).
2(a)(12) Organization
1. Coverage. The term includes joint ventures and persons
operating under a business name.
2(a)(14) Personal property
1. Coverage. Whether property is considered personal property
depends on state or other applicable law. For example, a mobile home
or houseboat may be considered personal property in one state but
real property in another.
2(a)(15) Realized value
1. General. Realized value is not a required disclosure. It
refers to the value of the property at early termination or at the
end of the lease term. It may be either the retail or wholesale
value. Realized value is relevant only to leases in which the
lessee's liability at early termination or at the end of the lease
term is the difference between the estimated value of the property
and its realized value.
2. Options. Subject to the contract and to state or other
applicable law, the lessor may choose any of the three methods for
calculating the realized value in determining the lessee's liability
at the end of the lease term or at early termination. If the lessor
sells the property prior to making that determination, the price
received for the property is the realized value. If the lessor does
not sell the property prior to making that determination, the lessor
may choose either the highest offer or the fair market value as the
realized value.
3. Exclusions. The realized value may exclude any amount
attributable to taxes.
4. Disposition charges. Disposition charges may not be
subtracted in determining the realized value. If the lessor charges
the lessee a fee to cover the disposition expenses, the fee must be
disclosed at consummation under Sec. 213.5(e). Disposition charges
may be estimated in accordance with Sec. 213.4(d), and this does not
prevent the lessor from collecting the actual disposition costs
incurred.
5. Offers. In determining the highest offer for disposition, the
lessor need not consider offers that an offeror has withdrawn or is
unable or unwilling to perform.
6. Appraisals. The lessor may obtain an appraisal of the leased
property to determine its realized value. Such an appraisal,
however, is not the one addressed in section 183(c) of the act and
Sec. 213.5(n); those provisions refer to the lessee's right to an
independent professional appraisal.
2(a)(17) Security interest and security
1. Coverage. The terms include, but are not limited to, security
interests under the Uniform Commercial Code, real property
mortgages, deeds of trust, and other consensual or confessed liens
whether or not recorded, mechanic's, materialman's, artisan's, and
other similar liens, vendor's liens in both real and personal
property, any
[[Page 48774]]
lien on property arising by operation of law, and any interest in a
lease when used to secure payment or performance of an obligation.
2. State or other applicable law. Other than those listed, only
interests that are security interests under state or other
applicable law are encompassed by the definition. For example, any
interest the lessor may have in the leased property falls within
this definition only if it is considered a security interest under
state or other applicable law.
3. Disclosable interests. For purposes of the regulation, a
security interest is an interest taken by the lessor to secure
performance of the lessee's obligation. For example, if a bank that
is not a lessor makes a loan to a leasing company and takes
assignments of consumer leases generated by that company to secure
the loan, the bank's security interest in the lessor's receivables
is not a security interest for purposes of this regulation.
4. Insurance. The lessor's right to insurance proceeds or
unearned insurance premiums is not a security interest for purposes
of this regulation.
2(a)(19) Total lease obligation
1. Disclosure. The total lease obligation is disclosed under
Sec. 213.5(o)(1). It is relevant only to open-end leases.
2. Periodic payments; disclosure distinguished. Certain items
that may be paid periodically are not part of the lessee's total
lease obligation. Therefore, the amount of the scheduled periodic
payments for purposes of calculating the total lease obligation may
be less than the amount of the periodic payments disclosed under
Sec. 213.5(c).
3. Periodic payments; inclusions. The total of scheduled
periodic payments under the lease for purposes of calculating the
total lease obligation is composed of the following items:
i. Any portion of the periodic payments attributable to
depreciation, cost of money, and profit.
ii. Taxes in some cases. See the commentary to Sec. 213.5(o)(1).
iii. The cost of mechanical breakdown protection contracts.
4. Periodic payments; exclusions. The total of scheduled
periodic payments under the lease for purposes of calculating the
total lease obligation does not include the following:
i. Any amount not paid periodically.
ii. Any portion of periodic payments attributable to official
fees, registration, certificate of title, or license fees.
iii. Taxes in some cases. See the commentary to
Sec. 213.5(o)(1).
iv. At the lessor's option, the capitalized cost of service
contracts and insurance premiums may be either included or excluded
from this calculation.
5. Initial payments. The following amounts are not included
among the payments at consummation when calculating the total lease
obligation:
i. Refundable security deposits.
ii. Official fees and charges disclosable under Sec. 213.5(d).
iii. Other charges disclosable under Sec. 213.5(e).
iv. The cost of a mechanical breakdown protection contract
purchased at consummation.
6. Estimated value. See the commentary to Sec. 213.4(d)
regarding the use of estimates and section 183(a) of the act
regarding the criteria for estimating the value of the leased
property at the end of the lease term.
2(a)(20) Value at consummation
1. Disclosure. The value at consummation is relevant only to
open-end leases and is disclosed and subtracted from the total lease
obligation under Sec. 213.5(o)(1).
2. Taxes. The value at consummation includes taxes paid by the
lessor in connection with the acquisition of leased property and
amortized over the lease term. See the commentary to
Sec. 213.5(o)(1).
3. Other amounts. The definition of the value at consummation
explicitly permits the lessor to include a profit or markup (without
separate itemization). The lessor may include costs of doing
business, such as insurance that the lessor purchases on its own
behalf. See the commentary to Sec. 213.5(f). The lessor may not
include in this amount other items (such as maintenance or extended
warranty insurance) that are purchased by the lessee.
Section 213.4--General Disclosure Requirements
4(a) General requirements
1. Basis of disclosures. The disclosures must reflect the terms
of the legal obligation between the parties. For example:
i. In a three-year lease with a one-year minimum term after
which there is no penalty for termination, disclosures should be
based on the full three-year term of the lease. The one-year minimum
term is only relevant to the early termination provisions of
Secs. 213.5(l), (m) and (n).
2. Clear and conspicuous standard. The clear and conspicuous
standard requires that disclosures be in a reasonably understandable
form. For example, while the regulation requires no mathematical
progression, the disclosures must be presented in a way that does
not obscure the relationship of the terms to each other. Appendix A
contains model forms that meet this standard, although lessors are
not required to use the forms. In addition, although no minimum
typesize is mandated, the disclosures must be legible, whether
typewritten, handwritten, or printed by computer.
3. Multipurpose disclosure forms. Lessors are not precluded from
using a multipurpose disclosure form that enables a lessor to
designate the specific disclosures applicable to a given
transaction, consistent with the requirement that disclosures be
clearly and conspicuously provided.
4. Number of transactions. Lessors have flexibility in handling
lease transactions that may be viewed as multiple transactions. For
example:
i. When a lessor leases two items to the same lessee on the same
day, the lessor may disclose the leases as either one or two lease
transactions.
ii. When a lessor sells insurance or other incidental services
in connection with a lease, the lessor may disclose in one of two
ways: a single lease transaction or a lease and a credit sale
transaction.
4(a)(1) Form of disclosures
1. Form of disclosures. In making disclosures lessors may cross-
reference rather than repeat items that are disclosed among the
segregated disclosures. In addition, when a required disclosure
consists of a total amount only, lessors need not separately itemize
each component part of the total charge. Similarly, if a required
disclosure must be separately itemized, a total amount is not
required.
2. Identification of parties. While disclosures must always be
made clearly and conspicuously, lessors are not required to use the
word ``lessor'' and ``lessee'' when identifying those parties.
3. Multiple lessors and multiple lessees. In transactions
involving multiple lessors and lessees, the disclosure statement
must identify all the lessors and lessees; however, Sec. 213.4(c)
permits a single lessor to make all the disclosures for a single
lessee.
4. Lease disclosures integrated in lease contract. Contract
terms or disclosures that are not required by the regulation may be
added to the disclosure statement so long as the required
disclosures are made together and the lessor adheres to the limits
of Sec. 213.4(b) governing the inclusion of additional information.
5. Lessee's signature. The regulation does not require the
lessee to sign the disclosure statement, whether disclosures are
separately provided or are part of the lease contract.
Nevertheless, for contract or evidentiary purposes, the lessor
may want a lessee to sign the disclosure statement or an
acknowledgement of receipt.
4(a)(2) Segregation of certain disclosures
1. Permissible related or additional information among
segregated disclosures. The disclosures required to be segregated
under this paragraph must contain only the information required or
permitted to be included among the segregated disclosures (see
Sec. 213.5 and its commentary for guidance on information required
or permitted in the segregated disclosures.) The segregated
disclosures in Sec. 213.4(a)(2) may be provided on a separate
document and other CLA disclosures provided in the lease contract,
so long as all disclosures are given at the same time.
4(b) Additional information
1. State law disclosures. If state law disclosures are not
inconsistent with the act and regulation under Sec. 213.10, in
accordance with the standard set forth in Sec. 213.4(b) for
providing additional information, the lessor may make those
disclosures along with the nonsegregated disclosures required under
the regulation.
4(c) Multiple lessors or lessees
1. Multiple lessors. If a lease transaction involves more than
one lessor, the lessors may choose which of them will make the
disclosures. All disclosures for the transaction must be given, even
if the lessor making the disclosures would not otherwise have been
obligated to make a particular disclosure.
[[Page 48775]]
4(d) Use of estimates
4(d)(1) Standard
1. Time of estimated disclosure. The lessor may use estimates to
make disclosures if necessary information is unknown or unavailable
at the time the disclosures are made. For example:
i. Section 213.5(d) requires the lessor to disclose the total
amount payable by the lessee during the lease term for official and
license fees, registration, certificate of title fees, or taxes. If
these amounts are subject to indeterminable increases or decreases
over the course of the lease, the lessor may estimate its
disclosures based on the rates or charges in effect at the time of
the disclosure.
2. Basis of estimates. Estimates must be made on the basis of
the best information reasonably available at the time disclosures
are made. The ``reasonably available'' standard requires that the
lessor, acting in good faith, exercise due diligence in obtaining
information. The lessor normally may rely on the representations of
other parties in obtaining information. For example, the lessor
might look to the consumer to determine the purpose for which leased
property will be used, to insurance companies for the cost of
insurance, or to an automobile manufacturer or dealer for the date
of delivery.
3. Estimated value of leased property at termination. When the
lessee's liability at the end of the lease term is based on the
estimated value of the leased property (see Sec. 213.5(o)), the
estimate must be reasonable and based on the best information
reasonably available to the lessor. That standard permits a lessor
to use a generally accepted trade publication listing estimated
current or future market prices for the leased property, rather than
investing in the most sophisticated computer equipment to determine
the estimated value at the end of the lease term. The lessor should
rely on other information, its experience, or reasonable belief, if
those sources provide the best information. For example:
i. An automobile lessor offering a three-year open-end lease
intends to assign a wholesale value to the vehicle at the end of the
lease term. The lessor may disclose as an estimate a wholesale value
derived from a generally accepted trade publication listing current
wholesale values, if the trade publication is the best information
available.
ii. Same facts as above, except that the lessor discloses an
estimated value derived by adjusting the value quoted in the trade
publication because, in its experience, the trade publication values
either understate or overstate the prices actually received in local
used-vehicle markets. The lessor may adjust estimated values quoted
in trade publications based on the lessor's experience or reasonable
belief that the values will be understated or overstated.
4. Retail or wholesale value. The lessor may choose either a
retail or a wholesale value in estimating the value of leased
property at termination, provided that choice is consistent with the
lessor's general practice or intention when determining the value of
the property at the end of the lease term.
5. Labelling estimates. Generally, only the disclosure for which
the exact information is unknown is labelled as an estimate.
Nevertheless, when several disclosures are affected because of the
unknown information, the lessor has the option of labelling as an
estimate either every affected disclosure or only the disclosure
primarily affected.
4(d)(2) Open-end purchase option lease
1. Understating the estimated value. In non-purchase-option
open-end leases, the lessor must not use a value lower than that
indicated by the best information available when disclosing the
estimated value of leased property at the end of the lease term
under Sec. 213.5(o).
4(e) Effect of subsequent occurrence
1. Subsequent occurrences. Examples of subsequent occurrences
include:
i. An agreement between the lessee and lessor to change from a
monthly to a weekly payment schedule.
ii. The addition of insurance or a security interest by the
lessor because the lessee has not performed obligations contracted
for in the lease.
iii. An increase in official fees or taxes.
iv. An increase in insurance premiums or coverage caused by a
change in the law.
v. Late delivery of an automobile caused by a strike.
2. Redisclosure. When a disclosure becomes inaccurate because of
a subsequent occurrence, the lessor need not make new disclosures
unless new disclosures are required under Sec. 213.6.
3. Lessee's failure to perform. The act is not violated if a
previously given disclosure becomes inaccurate when a lessee fails
to perform obligations under the contract and a lessor takes actions
that are necessary and proper in such circumstances to protect its
interest.
Section 213.5--Content of Disclosures
1. Other required disclosures. The disclosure statement must
include the date and identify the lessor and the lessee. See the
commentary to Sec. 213.4(a)(1). The lessor need only be identified
by name; an address may be provided but is not required.
5(b) Total amount due at lease signing
1. Capitalized cost reduction. Capitalized cost reduction is a
payment in the nature of a downpayment which reduces the amount of
the leased property to be amortized over the term of the lease.
2. Consummation. When a contractual relationship is created
between the lessor and the lessee is a matter to be determined under
state or other applicable law; the regulation does not make that
determination.
3. Fees payable upon delivery. This provision does not apply to
fees paid at delivery, when delivery occurs after consummation. For
example, the lessee agrees to pay registration fees, sales taxes,
and a delivery charge in one lump sum on the date the automobile is
delivered, sometime after consummation. None of these charges is an
initial payment under Sec. 213.5(b) because they are paid after
consummation of the lease. The registration fees and sales taxes are
disclosed under Sec. 213.5(d), and the delivery charge is disclosed
as an ``other charge'' under Sec. 213.5(e).
5(c) Payment schedule
1. Itemization not required. Although the model forms in
appendix A itemize the components of the periodic payments, a lessor
may but is not required to do so. Some of the components must be
disclosed separately if their disclosure is required by other
provisions of the regulation, such as official fees and lessee's
insurance.
2. Periodic payments. The phrase ``number, amount, and due dates
or periods of payments'' requires the disclosure of all payments
made periodically. The disclosed payments must include all amounts,
such as maintenance and insurance charges, that are paid
periodically. In addition, the lessor must disclose the total of the
periodic payments. In an open-end lease, however, the lessor may
disclose as the total of periodic payments the sum of the scheduled
periodic payments referred to in Sec. 213.2(a)(19). See the
commentary to Sec. 213.2(a)(19).
5(d) Fees and taxes
1. Taxes. Taxes that are included in the value at consummation
are not disclosed pursuant to this paragraph. See the commentary to
Sec. 213.2(a)(20). Taxes payable by the lessor that are separately
imposed on the consumer and thus noted in the lease documentation
must be disclosed under this paragraph. However, taxes payable by
the lessor and absorbed as a cost of doing business are not
disclosed under this paragraph.
5(e) Other charges
1. Coverage. Section 213.5(e) requires the disclosure of charges
that are anticipated by the parties as incident to the normal
operation of the lease agreement.
2. Excluded charges. This section does not require disclosure of
charges that are imposed when the lessee terminates early or fails
to abide by the lease agreement, such as charges for:
i. Late payment.
ii. Default.
iii. Early termination.
iv. Deferral of payments.
v. Extension of the lease.
3. Relationship to other provisions. The other charges mentioned
in Sec. 213.5(e) are charges that are not required to be disclosed
under another provision of Sec. 213.5.
4. Other charges. Examples of charges not disclosed under this
section include:
i. A delivery charge that is paid after consummation is
disclosed as an ``other charge.'' A delivery charge that is paid at
consummation, however, is disclosed as part of the total initial
charges under Sec. 213.5(b), not as an ``other charge.''
ii. Occasionally, the price of a mechanical breakdown protection
(MBP) contract is disclosed as an ``other charge.'' More often, the
price of MBP is reflected in the periodic payment disclosure under
Sec. 213.5(c), in which case it is not disclosed as an ``other
charge.'' In states where MBP is regarded as insurance, however, the
cost should be disclosed in accordance with Sec. 213.5(f), not as an
``other charge.'' See the commentary to Sec. 213.5(f).
[[Page 48776]]
5. Lessee's liabilities at the end of the lease term.
Liabilities that the lease imposes upon the lessee at the end of the
scheduled lease term and that must be disclosed under this section
include, but are not limited to, disposition and ``pick-up''
charges.
5(f) Insurance
1. Lessor's insurance. Insurance that is purchased by the lessor
primarily for its own benefit, and that is absorbed as a business
expense and not separately charged to the lessee, need not be
disclosed under this section even if it provides an incidental
benefit to the lessee.
2. Mechanical breakdown protection. Whether mechanical breakdown
protection (MBP) purchased in conjunction with a lease should be
treated as insurance is determined by state or other applicable law.
In states that do not treat MBP as insurance, the lessor need not
make Sec. 213.5(f) disclosures. The lessor may, however, disclose
the Sec. 213.5(f) information in such cases in accordance with the
additional information provision in Sec. 213.4(b).
3. Voluntary Insurance. Insurance not required but provided by
the lessor must be disclosed under this section.
5(g) Warranties or guarantees
1. Brief identification. The statement identifying warranties
may be brief and need not describe or list all warranties applicable
to specific parts such as for air conditioning, radio, or tires in
an automobile. For example, manufacturer's warranties may be
identified simply by a reference to the standard manufacturer's
warranty.
2. Warranty disclaimers. A disclaimer of warranties is not
required by the regulation, but the lessor may give a disclaimer as
additional information in accordance with Sec. 213.4(b).
3. State law. Whether an express warranty or guaranty exists is
determined by state or other law.
5(h) Maintenance responsibilities
1. Standards for wear and use. No disclosure is required for
lessors that do not set standards for wear and use (such as excess
mileage.) See the commentary to Sec. 213.5(o).
5(i) Security interest
1. Disclosable security interests. See Sec. 213.2(a)(17) and
accompanying commentary to determine what security interests must be
disclosed.
5(j) Penalties and other charges for delinquency
1. Collection costs. The automatic imposition of collection
costs or attorney fees upon default must be disclosed under
Sec. 213.5(j). Collection costs or attorney fees that are not
imposed automatically, but are contingent upon expenditure of
amounts in conjunction with a collection proceeding or upon the
employment of an attorney to effect collection, need not be
disclosed.
2. Charges for early termination. When default is a condition
for early termination of a lease, default charges must also be
disclosed under Sec. 213.5(l). The Sec. 213.5 (j) and (l)
disclosures may be combined. Examples of combined disclosures are
provided in the model lease disclosure forms in appendix A.
3. Simple-interest leases. In a simple-interest accounting
lease, the additional lease charge that accrues on the lease balance
when a periodic payment is made after the due date does not
constitute a penalty or other charge for late payment. Similarly,
continued accrual of the lease charge after termination of the lease
because the lessee fails to return the leased property does not
constitute a default charge. In either case, if the additional
charge accrues at a rate higher than the normal lease charge, the
lessor must disclose the amount of or the method of determining the
additional charge under Sec. 213.5(j).
4. Extension charges. Extension charges that exceed the lease
charge in a simple-interest accounting lease or that are added
separately are disclosed under Sec. 213.5(j).
5. Reasonableness of charges. Pursuant to section 183(b) of the
act, penalties or other charges for delinquency, default, or early
termination may be specified in the lease but only in an amount that
is reasonable in light of the anticipated or actual harm caused by
the delinquency, default, or early termination, the difficulties of
proof of loss, and the inconvenience or nonfeasibility of otherwise
obtaining an adequate remedy.
5(k) Purchase option
1. Mandatory disclosure of no purchase option. Although
generally the lessor need only make the specific required
disclosures that apply to a transaction, it must disclose
affirmatively that the lessee has no option to purchase the leased
property when the purchase option is inapplicable.
2. Existence of purchase option. Whether a purchase option
exists is determined by state or other applicable law. The lessee's
right to submit a bid to purchase property at termination of the
lease is not an option to purchase under Sec. 213.5(k) if the lessor
is not required to accept the lessee's bid and the lessee does not
receive preferential treatment.
3. Purchase option fees. A purchase option fee must be disclosed
under this paragraph unless the lessor discloses the fee under
Sec. 213.5(e) as an ``other charge.''
5(l) Early termination
1. Default. When default is also a condition for early
termination of a lease, default charges must be disclosed under this
paragraph. See the commentary to Sec. 213.5(j).
2. Lessee's liability at early termination. When the lessee is
liable for the difference between the unamortized cost and the
realized value at early termination, the amount or the method of
determining the amount of the difference must be disclosed under
this paragraph.
3. Reasonableness of charges. See the commentary to
Sec. 213.5(j).
4. Description of the method. A full description of the method
of determining any early termination charge is required by the act
and this regulation. Lessors should attempt to provide clear and
understandable descriptions to consumers of their early termination
charges. Descriptions that are full, accurate, and not intended to
be misleading are in compliance with the act and this regulation,
even if complex. (And, of course, the statute requires that the
early termination charges themselves be reasonable.) In providing a
full description of an early termination method, a lessor may use
the name of a generally accepted method of computing the unamortized
cost (also known as the ``adjusted lease balance'') portion of its
early termination charges. For example, a lessor may state that the
``constant yield'' method would be utilized in obtaining the
adjusted lease balance, 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 imposed upon the consumer.
Additionally, if a lessor refers to a named method in this manner,
the lessor would have to provide a written explanation of that
method if requested by the consumer.
5. Example. The figure used to calculate the early termination
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 to estimate the value of the property at
the end of the lease, the example must also be calculated using the
fair market value.
5(n) Right of appraisal
1. Disclosure inapplicable. When the lessee is liable at the end
of the lease term or at early termination for unreasonable wear or
use but not for the estimated value of the leased property, the
lessor need not disclose the lessee's right to an independent
appraisal. For example:
i. The automobile lessor may reasonably expect a lessee to
return an undented car with four good tires at the end of the lease
term. Even though it holds the lessee liable for the difference
between a dented car with bald tires and the value of a car in
reasonably good repair, the lessor is not required to disclose the
lessee's appraisal right.
2. Lessor's appraisal. The lessor may obtain an appraisal of the
leased property to determine its realized value. Such an appraisal,
however, is not the one addressed in section 183(c) of the act and
in Sec. 213.5(o) of the regulation, and the lessor still must
disclose the lessee's independent right to an appraisal under
Sec. 213.5(n).
3. Time restriction on appraisal. Neither the act nor the
regulation specifies any time period in which the lessee must
exercise the appraisal right. The lessor may require a lessee to
obtain the appraisal within a reasonable time after termination of
the lease. The regulation does not define what is a ``reasonable
time.''
5(o) Liability at end of lease term based on estimated value
1. Coverage. The disclosure under Sec. 213.5(o) limiting the
lessee's liability for the value of the leased property does not
apply at early termination.
2. Leases with a minimum term. If a lease has an alternative
minimum term, the Sec. 213.5(o) disclosures governing the liability
limitation are not applicable for the minimum term. See the
commentary to Sec. 213.4(a).
5(o)(1) Value at consummation and total lease obligation
1. Total lease obligation. The requirement that the total lease
obligation be itemized is satisfied by disclosing the three
components
[[Page 48777]]
in the definition of total lease obligation in Sec. 213.2(a)(19) with
their corresponding amounts. The lessor may cross-reference the
individual components disclosed in the segregated disclosures, as
done in the model forms in appendix A-1.
2. Taxes. Taxes included in the value at consummation are
included in the total lease obligation. Taxes not included in the
value at consummation may, but need not, be included in the total
lease obligation at the lessor's option. See the commentary to
Sec. 213.2(a)(20).
5(o)(2) Excess liability
1. Average payment allocable to a monthly period. The phrase
``average payment allocable to a monthly period'' is based on the
periodic payment used to compute the total lease obligation. See the
commentary to Sec. 213.2(a)(19).
2. Charges not subject to rebuttable presumption. The limitation
on liability applies only to liability that is based on the
estimated value of the property at the end of the lease term. The
lessor also may recover additional charges from the lessee at the
end of the lease term. Examples of such additional charges include:
i. Disposition charges.
ii. Excess mileage charges.
iii. Late payment and default charges.
iv. Amounts by which the unamortized cost exceeds the estimated
residual value that have accrued in simple interest accounting
leases because the lessee has made late payments.
3. Lessor's payment of attorney's fees. Section 183(a) of the
act requires that the lessor pay the lessee's attorney's fees in all
actions brought by the lessor under this paragraph, whether
successful or not.
5(p) Gross cost
1. Basis. 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.
5(s) Statement referencing nonsegregated disclosures
1. Content. A lessor may delete inapplicable items, for example,
when the contract documents contain no information regarding a
purchase option.
Section 213.6--Renegotiations, Extensions and Assumptions
1. Coverage. Section 213.6 applies only to existing leases that
are covered by the requirements of the regulation. It therefore does
not apply to the renegotiation or extension of leases with an
initial term of four months or less, because such leases are not
covered by the definition of consumer lease in Sec. 213.2(a)(6).
Whether and when a lease is satisfied and replaced by a new lease is
determined by state or other applicable law.
2. Inapplicable disclosures. Disclosures that are inapplicable
to the terms of a renegotiation or extension need not be given. For
example:
i. If the term for which extension disclosures are given is one
month and the lessee will pay no official fees and taxes during that
month, no disclosure of those amounts is necessary.
ii. If a renegotiation involves no initial charges, no
disclosure of initial charges is necessary.
6(b) Extensions
1. Time of extension disclosures. If a consumer lease is
extended for a specified term greater than six months, at the time
the extension is agreed to, new disclosures are required. If the
lease is extended on a month-to-month basis and exceeds six months,
new disclosures are required at the commencement of the seventh
month, and at the commencement of each seventh month thereafter. If
a consumer lease is extended for several terms, one of which will
exceed six months beyond the originally scheduled termination date
of the lease, new disclosures are required at the commencement of
the term that will exceed 6 months beyond the originally scheduled
termination date.
2. Content of disclosures for month-to-month extensions. The
disclosures for a lease extended on a month-to-month basis for more
than six months should reflect the month-to-month nature of the
transaction.
Section 213.8--Advertising
8(a) General rule
1. Persons covered. All ``persons'' must comply with the
advertising provisions in this section, not just those that meet the
definition of lessor in Sec. 213.2(a)(10). Thus, automobile dealers,
merchants, and others who are not themselves lessors must comply
with the advertising provisions of the regulation if they advertise
consumer lease transactions. Pursuant to section 184(c) of the act,
the owner and personnel of the medium in which an advertisement
appears or through which it is disseminated, however, are not
subject to civil liability for violations under section 185(b) of
the act.
2. ``Usually and customarily.'' This paragraph does not prohibit
the advertising of a single item or the promotion of new leasing
programs, but prohibits the advertising of terms that are not and
will not be available. Thus, an advertisement may state terms that
will be offered for only a limited period or terms that will become
available at a future date.
8(b) Clear and conspicuous standard
1. Standard. Section 213.8 prescribes no specific rules for the
format of the necessary disclosures. The terms need not be printed
in a certain type size and need not appear in any particular place
in the advertisement.
2. Television advertisements. In lease television
advertisements, the lease disclosures required under paragraph 8(d)
or the alternate disclosures under paragraph 8(f)(1) must be visible
for at least five seconds to satisfy the requirements of this
paragraph.
8(c) Catalogs and multi-page advertisements
1. General rule. The multiple-page advertisements referred to in
this paragraph are advertisements consisting of a numbered series of
pages--for example, a supplement to a newspaper. A mailing comprised
of several separate flyers or pieces of promotional material in a
single envelope is not a single multiple-page advertisement.
2. Cross-references. A multiple-page advertisement is a single
advertisement (requiring only one set of lease disclosures) if it
contains a table, chart, or schedule clearly stating sufficient
information for the reader to determine the disclosures required
under Sec. 213.8(d)(2) (i) through (vi). If one of the triggering
terms listed in Sec. 213.8(d)(1) appears on another page of the
catalog or other multiple-page advertisement, that page must clearly
refer to the specific page where the table, chart, or schedule
begins.
8(d)(1) Triggering terms
1. Triggering terms. When triggering terms appear in lease
advertisements, the additional terms enumerated in Sec. 213.8(d)(2)
(i) through (vi) must also appear. An example of one or more typical
leases with a statement of all the terms applicable to each may be
used. The additional terms must be disclosed even if the triggering
term is not stated explicitly, but is readily determinable from the
advertisement. For example, if an advertisement states a five-year
lease term with monthly payments, the number of required payments--a
triggering term--is readily apparent.
8(d)(2) Additional terms
1. Lease transaction. An advertisement must clearly and
conspicuously disclose that the transaction is a lease.
8(e) Alternative disclosures--merchandise tags
1. Alternative disclosure rule. This section provides a method
for using merchandise tags without including all the required
disclosures on the tags. As an alternative to this disclosure
method, a merchandise tag may state all the necessary terms on one
or both sides of the tag. If the terms are on both sides of the tag,
both sides must be accessible to the consumer.
2. Multiple item leases. Multiple item leases which utilize
merchandise tags requiring additional disclosures may use the
alternate disclosure rule.
8(f) Alternative disclosures--television or radio advertisements
8(f)(1) Toll-free number or print advertisement
1. Publication in general circulation. A referral to a written
advertisement appearing in a newspaper circulated nationally, for
example, The Wall Street Journal, meets the general circulation
requirement in Sec. 213.8(f)(1)(ii).
2. Toll-free number, local or collect calls. In complying with
the disclosure requirement of this paragraph, generally a lessor
must provide a toll-free number for nonlocal calls made from an area
code other than the one used in the lessor's dialing area.
Alternatively, a lessor may provide any telephone number that allows
a consumer to call for information and reverse the phone charges.
Section 213.9--Record Retention
1. Manner of retaining evidence. A lessor must retain evidence
of having performed required actions and of having made required
disclosures. Such records may be retained on microfilm, microfiche,
computer, or by any
[[Page 48778]]
other method designed to reproduce records accurately, as well as paper
form. The lessor need retain only enough information to reconstruct
the required disclosures or other records.
Appendix A--Model Forms
1. Permissible changes. Although use of the model forms is not
required, lessors using them properly will be deemed to be in
compliance with the regulation. The content, format, and headings
for the segregated disclosures must be substantially similar to
those contained in the model forms, therefore, any changes in the
segregated disclosures should be minimal. Generally, lessors may
make certain changes in the format or content of the forms and may
delete any disclosures that are inapplicable to a transaction
without losing the act's protection from liability. The changes to
the model forms may not be so extensive as to affect the substance
and the clarity of the forms.
2. Examples of acceptable changes.
i. Using the first person, instead of the second person, in
referring to the lessee.
ii. Using ``lessee,'' ``lessor,'' or names instead of pronouns.
iii. Rearranging the sequence of the nonsegregated disclosures.
iv. Incorporating certain state ``plain English'' requirements.
v. Deleting inapplicable disclosures by whiting out, blocking
out, filling in ``N/A'' (not applicable) or ``0,'' crossing out,
leaving blanks, checking a box for applicable items, or circling
applicable items. (This should permit use of multi-purpose standard
forms.)
vi. Adding language or symbols to indicate estimates.
3. Model closed-end or net vehicle lease disclosure. Model A-2
is designed for a closed-end or net lease of a vehicle. Item 9(c) is
included for those closed-end leases in which the lessee's liability
at early termination is based on the vehicle's estimated value. (See
section 213.5(n))
4. Model furniture lease disclosures. Model A-3 is a closed-end
lease disclosure statement designed for a typical furniture lease.
It does not include a disclosure of the appraisal right at early
termination that is required under Sec. 213.5(n) because few closed-
end furniture leases base the lessee's liability at early
termination on the estimated value of the leased property. Of
course, the disclosure should be added, if it is applicable.
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-23049 Filed 9-19-95; 8:45 am]
BILLING CODE 6210-01-P
