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Federal R eserve Bank
OF DALLAS
ROBERT
D. M c T E E R , J R .
DALLAS, TEXAS
P R E S ID E N T
AND
C H IE F E X E C U T IV E
75265-5906
O F F IC E R
May 7, 1997
Notice 97-45
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Final Revisions to Regulation M and the
Official Staff Commentary to Regulation M
(Consumer Leasing)
DETAILS
The Board of Governors of the Federal Reserve System issued final revisions to
Regulation M to implement amendments to the Consumer Leasing Act. The revisions primarily
implement amendments to the act contained in the Economic Growth and Regulatory Paperwork
Reduction Act of 1996, which streamline the advertising disclosures for lease transactions. The
revisions make the disclosure of upfront costs in connection with a specific lease agreement
parallel to statutory changes to the advertising rules. In addition, the revisions contain several
technical amendments to the regulation.
The revisions were effective April, 1997, but compliance is optional until October 1,
1997.
The Board also issued a revised version of the official staff commentary to Regula
tion M. Regulation M was revised in September 1996 under the Board’s Regulatory Planning
and Review Program, which calls for the periodic review of Board regulations. The commentary
applies and interprets the requirements of Regulation M, as amended March 1997.
The revised commentary became effective April 1, 1997, but compliance is optional
until October 1, 1997.
ATTACHMENTS
Copies of the Board’s notices as they appear on pages 15364-72, Vol. 62, No. 62, of
the Federal Register dated April 1, 1997, and pages 16053-64, Vol. 62, No. 65, of the Federal
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston
Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
Register dated April 4, 1997, are attached.
MORE INFORMATION
For more information, please contact Eugene Coy at (214) 922-6201. For additional
copies of this Bank’s notice, please contact the Public Affairs Department at (214) 922-5254.
Sincerely yours,
Tuesday, April 1,1997
Final Rule
Regulation M
(Consumer Leasing)
Docket No. R-0952
15364
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Reg. M; Docket No. R -0 95 2 ]
Consumer Leasing
Board of Governors of the
Federal Reserve System.
ACTION: Final Rule.
AGENCY:
SUMMARY: The Board is publishing
revisions to Regulation M, which
implements the Consumer Leasing Act.
The act requires lessors to provide
uniform cost and other disclosures
about consumer lease transactions. The
revisions primarily implement
amendments to the act contained in the
Economic Growth and Regulatory
Paperwork Reduction Act of 1996,
which streamline the advertising
disclosures for lease transactions. In
addition, the final rule makes the
disclosure of upfront costs in
connection with a specific lease
agreement parallel statutory changes to
the advertising rules disclosing upfront
costs—which now include total
amounts due by lease signing or
delivery, if delivery occurs later. Several
technical amendments also have been
made to the regulation.
DATES: Effective date. April 1, 1997.
Compliance date. Compliance is
optional until October 1,1997.
official staff commentary interprets the
regulation.
The Board recently completed a
review of Regulation M, pursuant to its
policy of periodically reviewing its
regulations, and approved a final rule in
September 1996 substantially revising
the regulation to update the disclosure
requirements and to carry out more
effectively the purposes of the Act (61
FR 52246, October 7, 1996).
II. Revised Regulatory Provisions
In the September 1996 final rule, the
advertising provisions implemented
amendments to the CLA contained in
the Riegle Community Development and
Regulatory Improvement Act of 1994
(Pub. L. 103-325, 108 Stat. 2160); the
amendments allow a toll-free number or
a print advertisement to substitute for
certain lease disclosures in radio
commercials (which was expanded in
the final rule to television commercials).
The advertisement provisions were
amended and streamlined on September
30, 1996, by the Economic Growth and
Regulatory Paperwork Reduction Act of
1996 (Pub. L. 104-208, 110 Stat.
3009)(the 1996 Act). The Board issued
a proposal in December 1996 (62 FR 62,
January 2, 1997). Nineteen comments
were received. Based on the comments
and further analysis, the Board’s final
rule implements the statutory changes.
The final rule also revises the
requirement to disclose “upfront costs”
FOR FURTHER INFORMATION CONTACT:
to parallel the statutory change made to
Kyung H. Cho-Miller or Obrea O.
a similar advertising disclosure—now
Poindexter, Staff Attorneys, Division of
requiring the total amount due by lease
Consumer and Community Affairs,
signing to include amounts due by
Board of Governors of the Federal
delivery, whichever occurs later. The
Reserve System, Washington, DC 20551,
open- and closed-end model lease forms
at (202) 452-2412 or 452-3667. Users of
have been amended to reflect this
Telecommunications Device for the Deaf
change. This final rulemaking also
only may contact Diane Jenkins, at (202)
contains some technical amendments to
452-3544.
the regulation. For example, the model
SUPPLEMENTARY INFORMATION:
clause for providing a description of the
leased
property is added and the
I. Background on the Consumer Leasing
example of an annual charge as an other
Act and Regulation M
charge is deleted on the open- and
The Consumer Leasing Act (CLA), 15
closed-end vehicle lease model forms.
U.S.C. 1667-1667e, was enacted into
Although a limited number of
law in 1976 as an amendment to the
comments were received, generally all
Truth in Lending Act (TILA), 15 U.S.C.
the commenters supported the proposed
1601 et seq. The CLA generally applies
amendments. The final rule is discussed
to consumer leases of personal property in detail in the section-by-section
in which the contractual obligation does analysis below.
not exceed $25,000 and has a term of
III. Revisions to Regulation M
more than four months. An automobile
lease is the most common type of
Section 213.2 Definitions
consumer lease covered by the act.
2(f) Gross Capitalized Cost
Under the act, lessors are required to
Based on comments on the proposed
provide uniform cost and other
revisions to the Official Staff
information about consumer lease
transactions.
Commentary published in February
The Board was given rulewriting
1997, the Board is replacing the
authority, and its Regulation M (12 CFR reference in § 213.2(f) to an outstanding
part 213) implements the CLA. An
“loan” balance with the broader term
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
“credit” to encompass both loan and
credit sale balances. Consistent
revisions have also been made to
§ 213.4(f)(1) and the open- and closedend vehicle lease model forms.
Section 213.4
Content o f Disclosures
4(b) Amount Due at Lease Signing or
Delivery
The 1996 Act revised the advertising
disclosure of upfront fees to include
amounts due by delivery, if delivery
occurs after consummation, but the
Congress did not enact a conforming
change to the transaction disclosure.
The Board did not propose to amend
that transaction disclosure to make it
consistent with the statutory change to
the advertising rules. Several
commenters (including two Reserve
Banks, a lease trade association
representing mostly independent
lessors, and an association of state
attorneys general) urged the Board to
reconsider this issue, suggesting the
disclosure of upfront fees in advertising
and those given for specific transactions
should be consistent to avoid consumer
confusion. Major trade associations,
consumer interest representatives, and
the Federal Trade Commission,
responding to the proposed revisions to
the Official Staff Commentary, also
strongly recommended the revision.
Consumers would not normally
distinguish between charges paid at
lease signing and by delivery, if delivery
occurs later. Under the current rules any
charges payable after a lease is executed
would have to be disclosed as “other
charges.” A consistent rule on the
disclosure of upfront fees to include
amounts due at delivery would not
require lessors to retrain their personnel
to think of these post-consummation
fees as “other charges” and not “upfront
fees,” thus reducing the potential for
technical violations of the law that
could give rise to civil liability.
The Board believes that having a
consistent rule for the advertising and
the transaction disclosures would
benefit both consumers and lessors.
Consumers would have in one place the
total sum necessary to take possession
of the leased property, and the risk of
making technical errors would be
reduced for lessors. Pursuant to its
authority under section 105(a) of the
TILA and section 187 of the CLA, the
Board is revising the disclosure of the
total amount due at or prior to
consummation to include amounts due
at delivery, when delivery occurs after
consummation, to parallel the changes
that the Congress made to the
advertising disclosure. The open- and
closed-end vehicle lease model forms
also reflect this change. Section 105(a)
of the TILA provides that the Board’s
regulations “may contain such
classifications, differentiations, or other
provisions, and may provide for such
adjustments and exceptions for any
class of transactions, as the judgment of
the Board are necessary or proper to
effectuate the purposes of (the CLA), to
prevent circumvention or evasion
thereof, or to facilitate compliance
therewith.”
4(f) Payment Calculation
4(f)(1) Gross Capitalized Cost
As discussed in § 213.2(f), “loan” is
replaced by “credit” in § 213.4(f)(1).
4(n) Fees and Taxes
In the September 1996 final rule,
§ 213.4(n) stated that the lessor must
disclose the total dollar amount of all
official and license fees, registration,
title, or taxes required to be paid “to the
lessor” in connection with the lease.
Adding “paid to the lessor” narrowed
the scope of the disclosure from the
previous requirement. No substantive
change to the requirement was
intended. Thus, the phrase “to the
lessor” has been deleted from this
section.
15365
5(d)(1) new disclosures are not required
if the “lease charge” is reduced in a
renegotiation or an extension of an
existing lease. This exception was
moved from the official staff
commentary to the regulation in the
final rule approved in September 1996.
Two commenters objected to the use of
the term “rent” stating that the term
implies the entire lease payment and
not a portion of the lease payment. The
Board believes that it is defined
differently by the regulation and noted
as such on the open- and closed-end
vehicle lease model forms. For clarity
and consistency in terminology
throughout the regulation, the Board has
replaced the term “lease charge” with
the term “rent charge.”
Section 213.7 Advertising
Prior to the 1996 Act, the advertising
provisions required additional
disclosure if an advertisement stated
any of the following terms: the amount
of any payment; the number of required
payments; or a statement of any
capitalized cost reduction or other
payment required prior to or at
consummation, or that no payment is
required. Under the amendments to the
CLA contained in the 1996 Act, an
advertisement that states the number of
4(o) Insurance
required payments would no longer
The Board has revised the captions for trigger additional disclosures.
The 1996 Act also makes changes in
paragraph 4(o)(l) and (2) to change the
all but one of the items that must be
focus from voluntary and required
disclosed when a triggering term is
insurance. The new captions more
stated in an advertisement, as follows:
accurately reflect the requirement for
the insurance disclosure—that
(1) That the transaction advertised is a
insurance obtained through the lessor or lease. No change w as m ade in this disclosure.
through a third party, regardless of
(2) The total am ount due at lease signing,
or that no paym ent is required. This
whether it is required or voluntary,
disclosure has been expanded to include
must be disclosed.
4(t) Gross Capitalized Cost and Residual
Value
The final rule required the disclosure
of the gross capitalized cost and residual
value for motor vehicle open-end leases
in place of the previous requirements to
disclose the value at consummation, the
total lease obligation, and other related
disclosures pursuant to section 182(10)
of the statute. Although such consumer
leases are extremely rare, similar
disclosures are required for non-motor
vehicle open-end leases in order to
comply with the CLA. Section 213.4(t)
includes that requirement.
Section 213.5 Renegotiations,
Extensions, and Assumptions
5(d) Exceptions
Under Regulation M, new disclosures
generally are required where a covered
lease transaction is renegotiated or
extended; however, under paragraph
am ounts due at delivery if delivery occurs
after consum mation. The requirem ent to state
that no paym ent is required has been
eliminated.
(3) The num ber, am ounts, due dates or
periods of scheduled paym ents, and total of
such paym ents u nd er the lease. The total of
scheduled paym ents has been elim inated as
a required disclosure.
(4) A statem ent of w hether or not the lessee
has the option to purchase the leased
property, and w here the lessee has the option
to purchase at the end of the lease term, the
purchase-option price. This disclosure has
been elim inated entirely.
(5) A statem ent of the am ount, or the
m ethod for determ ining the amount, of the
lessee’s liability (if any) at the end of the
lease term. This disclosure has been
elim inated entirely.
(6) For an open-end lease, a statem ent of
the lessee’s liability (if any) for the difference
betw een the residual value of the leased
property and its realized value at the end of
the lease term. This disclosure has been
simplified to require a short statem ent that an
additional charge may be imposed.
15366
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
The 1996 Act adds an additional
disclosure requirement: a statement of
whether or not a security deposit is
required. The final rule implements the
statutory changes.
7(b) Clear and Conspicuous Standard
7(b)(1) Amount Due at Lease Signing or
Delivery
The general rule in this paragraph
states that any reference to a charge that
is part of the total amount due at lease
signing or delivery may not be more
prominent than the disclosure of the
total amount due at lease signing or
delivery. The amount of any capitalized
cost reduction (or no capitalized cost
reduction) provided as an example of an
amount that is a part of the total amount
due at lease signing or delivery has been
deleted. The example will be included
in the Official Staff Commentary.
7(d) Advertisement of Terms That
Require Additional Disclosure
7(d)(1) Triggering Terms
Pursuant to the 1996 Act, the Board
has deleted paragraph 7(d)(l)(ii). Merely
stating in an advertisement the number
of required lease payments, for example,
“36 payments,” no longer “triggers” the
additional disclosures in paragraph
7(d)(2). Paragraph 7(d)(l)(iii) has been
redesignated as paragraph 7(d)(l)(ii).
7(d)(2) Additional Terms
An advertisement stating any item
listed in paragraph 7(d)(1) is required to
state the additional disclosures in
paragraph 7(d)(2), as applicable. As
discussed previously, the 1996 Act
amends many of the required additional
disclosures in this paragraph. The
following changes implement the
statutory amendments.
The 1996 Act expands the disclosure
of the total amount due at lease signing
in paragraph 7(d)(2)(ii) to include
“amounts paid at delivery, whichever
occurs later.” Prior to the amendments,
a delivery charge paid after
consummation was not included in the
total amount due at lease signing in
§ 213.4(b) or in this section. Under the
changes to implement the statutory
amendment, the delivery charge is
included in the total even if it is paid
after consummation.
The requirement to disclose under
paragraph 7(d)(2)(ii) that no upfront
payment is required was deleted by the
1996 Act. This requirement,
inadvertently retained in the proposal,
has been eliminated from paragraph
7(d)(2)(h).
The total of scheduled payments
disclosure from paragraph 7(d)(2)(iii),
all of paragraph 7(d)(2)(iv), and all of
paragraph 7(d)(2)(v) have been deleted.
A statement of whether or not a security
deposit is required is added by the
statute and is contained in paragraph
7(d)(iv). For an open-end lease, the
amended statute requires a statement
that an extra charge may be imposed at
the end of the lease term; the regulatory
provision is redesignated as paragraph
7(d)(2)(v).
Few comments were received on the
statutory changes to the advertising
provisions. One commenter, however,
requested that the Board retain the
disclosure on lease end charges in
paragraph 7(d)(2)(v), based on a belief
that deletion of paragraph 7(d)(2)(v)
could lead to deceptive advertisements
where certain costs are shifted from the
beginning to the end of the lease so that
a low monthly payment or low upfront
costs can be advertised and not any
significant fee required at the end of the
lease. Although the commenter raises a
valid concern, the Board believes that
retaining paragraph 7(d)(2)(v) would not
be consistent with the congressional
intent to streamline the advertising
disclosures. Paragraph 7(d)(2)(v) is
deleted as proposed.
7(f) Alternative Disclosures—Television
or Radio Advertisements
7(f)(1) Toll-free Number or Print
Advertisement
The 1996 Act deletes the “total of
scheduled payments” as a required
additional disclosure under section
184(a), the general advertising
disclosures, but not for radio
advertisements. The Board proposed to
delete the requirement for radio
advertisements based on its belief that
in streamlining the advertising rules
generally the Congress did not intend to
require more disclosures for radio
advertisements than advertisements
through other media. Pursuant to the
Board’s exception authority under
section 105(a), the Board is adopting as
proposed a final rule to delete the
disclosure of the “total of scheduled
payments” for radio advertisements as
well.
Appendices
Lessors are required to provide a
description of leased property under the
CLA and § 213.4(a) of Regulation M. The
Board has amended the model forms for
open- and closed-end vehicle leases
disclosures to add among the
nonsegregated disclosures a model
clause for describing leased property.
The Board has amended the model
forms for open- and closed-end vehicle
leases by deleting “annual tax” as an
example of an other charge. Third-party
fees or charges paid to the lessor but not
retained by the lessor such as taxes are
not included in the “other charges”
disclosure.
As discussed in § 213.2(f), “loan” is
replaced by “credit” in the disclosure of
the gross capitalized cost on the openand closed-end vehicle lease model
forms.
IV. Regulatory Flexibility Analysis
In accordance with section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
603), the Board’s Office of the Secretary
has reviewed the amendments to
Regulation M. Overall, the amendments
are not expected to have any significant
impact on small entities. The regulatory
revisions, primarily required to
implement the 1996 Act, ease
compliance by streamlining the
advertising provisions.
V. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506
et seq.), the Board reviewed the final
rule under the authority delegated to the
Board by the Office of Management and
Budget. 5 CFR part 1320 Appendix A.I.
The respondents Eire individuals or
businesses that regularly lease, offer to
lease, or arrange for the lease of personal
property under a consumer lease. The
purpose of the disclosures associated
with Regulation M is to ensure that
lessees of personal property receive
meaningful information that enables
them to compare lease terms with other
leases and, where appropriate, with
credit transactions. Records required to
evidence compliance with the
regulation must be retained for twentyfour months. The revisions to the
collection of information requirements
in this proposed rule are found in 12
CFR 213.4, 213.5, and 213.7 and
appendices A -l and 2.
Regulation M applies to all types of
financial institutions, not just state
member banks. Under the Paperwork
Reduction Act, however, the Federal
Reserve accounts for the paperwork
burden associated with Regulation M
only for state member banks. Any
estimates of paperwork burden for
institutions other than state member
banks affected by the amendments
would be provided by the federal
agency or agencies that supervise those
lessors. The Federal Reserve has found
that few state member banks engage in
consumer leasing and that while the
prevalence of leasing has increased in
recent years, it has not increased
substantially among state member
banks. It also has found that among state
member banks that engage in consumer
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
leasing, only a very few advertise
consumer leases.
The revisions to §§ 213.4 and 213.5
are estimated to have no effect on the
hour burden that the regulation
imposes. The revisions to § 213.7, while
more substantive, are expected to have
no net effect on the hour burden.
The current hour burden for state
member banks, as of the September
1996 final rule, is estimated to be
eighteen minutes for the disclosures and
twenty-five minutes for advertising. It is
estimated that there will be 310
respondents and an average frequency
of 120 responses per respondent each
year. The total amount of annual hour
burden at all state member banks is
estimated to be 11,179 hours. Start-up
cost burden associated with the
September 1996 final rule was estimated
to be $12,000 per respondent,
amounting to a total of $3,720,000 for
state member banks. The Federal
Reserve estimates that this amount is
sufficient to cover any costs of the final
rule. These estimates are the same as
those included in the notice of proposed
rulemaking since no comments
specifically addressing the burden
estimate were received.
The disclosures made by lessors to
consumers under Regulation M are
mandatory (15 U.S.C. 1667 et seq.).
Consumer lease information in
advertisements is available to the
public. Disclosures of the costs,
liabilities, and terms of consumer lease
transactions relating to specific leases
are not publicly available. Because the
Federal Reserve does not collect any
information, no issue of confidentiality
under the Freedom of Information Act
normally arises. If the Board were to
obtain information through examination
of a supervised institution, the
information would be kept confidential.
5 U.S.C. 552(b)(8).
An agency may not conduct or
sponsor, and an organization is not
required to respond to, this information
collection unless it displays a currently
valid OMB control number. The OMB
control number is 7100-0202.
The Federal Reserve has a continuing
interest in members of the public’s
opinions of our collections of
information. At any time, comments
regarding the burden estimate, or any
other aspect of this collection of
information, including suggestions for
reducing the burden, may be sent to:
Secretary, Board of Governors of the
Federal Reserve System, 20th and C
Streets, NW., Washington, DC 20551;
and to the Office of Management and
Budget, Paperwork Reduction Project
(7100-0202), Washington, DC 20503.
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 amends 12 CFR
part 213 as follows:
PART 213— CONSUMER LEASING
(REGULATION M)
1. The authority citation for part 213
continues to read as follows:
Authority: 15 U.S.C. 1604.
2. Section 213.1 is amended by
revising paragraph (a) to read as follows:
§ 213.1 Authority, scope, purpose, and
enforcem ent.
(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.).
Information collection requirements
contained in this regulation have been
approved by the Office of Management
and Budget under the provisions of 44
U.S.C. 3501 et seq. and have been
assigned OMB control number 71000202.
*
*
*
*
*
3. Section 213.2 is amended by
revising the first sentence of paragraph
(f) to read as follows:
§ 2 1 3.2
*
*
Definitions.
*
*
*
(f) Gross capitalized cost means the
amount agreed upon by the lessor and
the lessee as the value of the leased
property and any items that are
capitalized or amortized during the
lease term, including but not limited to
taxes, insurance, service agreements,
and any outstanding prior credit or lease
balance. * * *
*
*
*
*
§ 213.4
*
*
C ontent of disclosures.
*
*
consummation, using the term “amount
due at lease signing or delivery.” The
lessor shall itemize each component by
type and amount, including any
refundable security deposit, advance
monthly or other periodic payment, and
capitalized cost reduction; and in
motor-vehicle leases, shall itemize how
the amount due will be paid, by type
and amount, including any net trade-in
allowance, rebates, noncash credits, and
cash payments in a format substantially
similar to the model forms in appendix
A of this part.
*
*
(b) Am ount due at lease signing or
delivery. The total amount to be paid
prior to or at consummation or by
delivery, if delivery occurs after
*
*
*
*
(f) Payment calculation. * * *
(1) Gross capitalized cost. The gross
capitalized cost, including a disclosure
of the agreed upon value of the vehicle,
a description such as “the agreed upon
value of the vehicle [state the amount]
and any items you pay for over the lease
term (such as service contracts,
insurance, and any outstanding prior
credit or lease balance),” and a
statement of the lessee’s option to
receive a separate written itemization of
the gross capitalized cost. If requested
by the lessee, the itemization shall be
provided before consummation.
*
*
*
*
*
(n) Fees and taxes. The total dollar
amount for all official and license fees,
registration, title, or taxes required to be
paid in connection with the lease.
(0) Insurance. * * *
(1) Through the lessor. * * *
(2) Through a third party. * * *
*
*
*
*
*
(t) Non-motor vehicle open-end
leases. Non-motor vehicle open-end
leases remain subject to section 182(10)
of the act regarding end of term liability.
5. Section 213.5 is amended by
revising paragraph (d)(1) to read as
follows:
§ 213.5 Renegotiations, extensions, and
assum ptions.
*
*
*
*
*
(d) Exceptions. * * *
(1) A reduction in the rent charge;
*
4. Section 213.4 is amended as
follows:
a. Paragraph (b) is revised;
b. Paragraph (f)(1) is revised.
c. Paragraph (n) is revised;
d. The headings of paragraphs (o)(l)
and (o)(2) are revised; and
e. New paragraph (t) is added.
The revisions and additions read as
follows:
15367
*
*
*
*
*
6. Section 213.7 is amended as
follows:
a. Paragraph (b)(1) is revised;
b. Paragraph (d)(l)(i) is revised,
paragraph (d)(1)(h) is removed, and
paragraph (d)(l)(iii) is redesignated as
(d)(l)(ii) and republished;
c. Paragraphs (d)(2)(ii) and (d)(2)(iii)
are revised, paragraph (d)(2)(iv) is
removed, paragraphs (d)(2)(v) and
(d)(2)(vi) are revised and redesignated as
paragraphs (d)(2)(iv) and (d)(2)(v), and
paragraph (d)(2)(i) is republished
respectively.
The revisions and republications read
as follows:
15368
§ 2 1 3 .7
*
*
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
Advertising.
*
*
*
(b) Clear and conspicuous
standard. * * *
(1) Am ount due at lease signing or
delivery. Except for the statement of a
periodic payment, any affirmative or
negative reference to a charge that is a
part of the disclosure required under
paragraph (d)(2)(ii) of this section shall
not be more prominent than that
disclosure.
*
*
*
*
*
(d) Advertisement o f terms that
require additional disclosure—(1)
Triggering terms. An advertisement that
states any of the following items shall
contain the disclosures required by
(iii) The number, amounts, and due
paragraph (d)(2) of this section, except
dates or periods of scheduled payments
as provided in paragraphs (e) and (f) of
under the lease;
this section:
(1) The amount of any payment; or
(iv) A statement of whether or not a
(ii) A statement of any capitalized cost security deposit is required; and
reduction or other payment required
(v) A statement that an extra charge
prior to or at consummation or by
may be imposed at the end of the lease
delivery, if delivery occurs after
term where the lessee’s liability (if any)
consummation.
is based on the difference between the
(2) Additional terms. An
residual value of the leased property
advertisement stating any item listed in
and its realized value at the end of the
paragraph (d)(1) of this section shall
lease term.
also state the following items:
*
*
*
*
*
(i) That the transaction advertised is
7.
Appendix A to part 213 is amended
a lease;
by
revising
Appendix A—1 and
(ii) The total amount due prior to or
Appendix A-2 to read as follows:
at consummation or by delivery, if
BILLING CODE 6210-01-P
delivery occurs after consummation;
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
15369
Appendix A -l M odel O pen-End o r Finance Vehicle Lease Disclosures
Federal Consumer Leasing Act Disclosures
Date
Lessor(s)
Lessee(s)
Amount Due at
Lease Signing
or Delivery
(Itemized below)*
Monthly Payments
Your first monthly payment of $
is due on
payments of S
. followed bv
Other Charges (not p art o f your m onthly
Total of Payments
payment)
(The am ount you will have
paid by the end o f the lease)
Disposition fee (if you do
not piirrhaci- the whirl*!
ft
due on
the
of each month. The total of vour
monthly payments is $
You will owe an additional
amount if the actual value of
tbe vehicle is less than the
residual value.
* Itemization of Amount Due at Lease Signing or Delivery
How the Amount Due at Lease Signing or Deliver; will be paid:
Amount Due At Lease Signing or Delivery:
Capitalized cost reduction
F irst m onthly paym ent
Refundable security deposit
Title fees
Registration fees
N et trade-in allowance
Rebates and noncash credits
Am ount to be paid in cash
$ _________________
_________________
_________________
Total
Total
$
Your monthly payment is determined as shown below:
) and any item s
Gross capitalized cost. The agreed upon value o f the vehicle ($ _
you pay over the lease term (such as service contracts, insurance, and any outstanding prio r credit
or lease b a la n c e ).................................................................................................................................................................................................
$ -
If you want an item ization o f this am ount, please check this box. d
Capitalized cost reduction. T he am ount o f any net trade-in allowance, rebate, noncash credit, o r cash you pay
that reduces the gross capitalized c o s t ...................................................................................................................................................................
Adjusted capitalized cost. The am ount used in calculating your base m onthly p a y m e n t..............................................................
Residual value. The value o f the vehicle at the end o f the lease used in calculating your base m onthly p a y m e n t................
Depreciation and any amortized amounts. The am ount charged for the vehicle's decline in value
through norm al use and for other item s paid over the lease te r m .........................................................................................................
Rent charge. The am ount charged in addition to the depreciation and any am ortized a m o u n ts.................................................
Total of base monthly payments. The depreciation and any am ortized am ounts plus the rent c h a r g e ....................................
Lease term. The num ber o f m onths in your le a s e ...................................................................................................................................
Base monthly payment....................................................................................................................................................
Monthly sales/use ta x ......................................................................................................................................................
Total monthly payment..................................................................................................................................................
n
■■/ '- '■'i
i
, .,£*■• -■
m s* is’* i.
+
’+
=$'
<
Rent and other charges. T he total am ount o f rent and other charges im posed in connection with your lease $ _________
~ m
MS
. A S * ® * ® ’"
Early Termination. You may have to pay a substantial charge if you end this lease early. The charge may be up to several
thousand dollars. The actual charge will depend on when the lease is terminated. The earlier you end the lease, the greater
this charge is likely to be.
Excessive Wear and Use. You m ay be charged for excessive wear based on our standards for norm al use [and for mileage in excess
o f ___________m iles per year at the rate o f _________ per mile].
Purchase Option at End of Lease Term. [You have an option to purchase the vehicle at the end o f the lease term for $ _____________
[and a purchase option fee o f $ ___________________].] [You do not have an option to purchase the vehicle at the end o f the lease term .]
Other Important Terms. See your lease docum ents for additional inform ation on early term ination, purchase options and m aintenance
responsibilities, w arranties, late and default charges, insurance, and any security interest, if applicable.
15370
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
A ppendix A -l M odel O pen-End o r Finance V ehicle Lease D isclosures
Page 2 of 2
[The following provisions are the nonsegregated disclosures required under Regulation M.]
:‘
Y ear
:v “
M ake
D escription o f L eased P roperty
Model
:s
Body Style
V ehicle ID #
Official Fees and Taxes. The total amount you will pay for official and license fees, registration, title, and taxes over the term of your lease, whether
included with your monthly payments or assessed otherwise: $ _________________
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 amount and types indicated above.
End of Term Liability, (a) The residual value ( $ ______________ ) of the vehicle is based on a reasonable, good faith estimate of the value o f the vehicle at the
end of the lease term. If the actual value of the vehicle at that time is greater than the residual 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 residual 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:
1. Excessive use or damage [as described in paragraph____] [representing more than normal wear and use] resulted in an unusually low value at the end of
the term.
2. The matter is not otherwise resolved and we win a lawsuit against you seeking a higher payment.
3. You voluntarily agree with us after the end of the lease term to make 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. We must also pay your 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 th e____________ value of the leased vehicle which could be realized at sale. The appraised value shall then be used as the actual value.
Standards for Wear and Use. The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle:
Maintenance.
[You are responsible for the following maintenance and servicing of the leased vehicle:
-— — --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- —
------ ].
[We are responsible for die following maintenance and servicing of the leased vehicle:
------------------------------------------------------------------------------- ].
Warranties. The leased vehicle is subject to the following express warranties:
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 termination, 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 th e ___________________ value of the leased vehicle
which could be realized at sale. The appraised value shall then be used as the actual value.
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:
Late Payments. The charge for late payments is:
Option to Purchase Leased Property Prior to the End of the Lease. [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 do not have an option to purchase the leased vehicle.]
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
15371
Appendix A-2 M odel Closed-End o r Net Vehicle Lease D isclosures
Federal Consumer Leasing Act Disclosures
D a te _________________________
Lessor(s) _____ ___________________________________________
Amount Due at
Lease Signing
or Delivery
Monthly Payments
(Itemized below)*
is due on
payments of $
$
Your first monthly payment of $
Lessee(s) _____________
Other Charges (not p art o f your monthly
Total of Payments
paym ent)
(The am ount you will have
paid by the end o f the lease)
Disposition fee (if you do
, followed bv
due on
the
of each month. The total of vour
monthly payments is $
n m p n r r h a s f . t h p v e h i c le }
*
$
Total
S
* Itemization of Amount Due at Lease Signing or Delivery
How the Amount Due at Lease Signing or Delivery will be paid:
Amount Due At Lease Signing or Delivery:
Capitalized cost reduction
F irst monthly paym ent
Refundable security deposit
T itle fees
R egistration fees
$
Total
N et trade-in allow ance
Rebates and noncash credits
Am ount to be paid in cash
$
$ _________________
_________________
_________________
Total
$
Your monthly payment is determined as shown below:
Gross capitalized cost. The agreed upon value o f the vehicle ( $ .
) and any item s
you pay over the lease term (such as service contracts, insurance, and any outstanding p rio r credit
o r lease b a la n c e )................................................................................................................................................................................................
$.
I f you want an itemization o f this amount, please check this box.lZ]
Capitalized cost reduction. The am ount o f any net trade-in allow ance, rebate, noncash credit, o r cash you pay
that reduces the gross capitalized c o s t ...................................................................................................................................................................
Adjusted capitalized cost. The am ount used in calculating your base m onthly p a y m e n t.......................................................................
Residual value. The value o f the vehicle at the end o f the lease used in calculating your base m onthly p a y m e n t................
Depreciation and any amortized amounts. The am ount charged for the vehicle's decline in value
through norm al use and for other item s paid over the lease te r m .........................................................................................................
Rent charge. The amount charged in addition to the depreciation and any am ortized a m o u n ts.................................................
Total of base monthly payments. The depreciation and any am ortized am ounts plus the rent c h a r g e ....................................
L ease te rm . The num ber o f months in your le a s e ....................................................................................................................................
Base monthly payment...................................................................................................................................................
Monthly sales/use ta x ......................................................................................................................................................
Total monthly payment .
+
'+
=$'
Early Termination. You may have to pay a substantial charge if you end this lease early. The charge may be up to several
thousand dollars. The actual charge will depend on when the lease is terminated. The earlier you end the lease, the greater
this charge is likely to be.
Excessive Wear and Use. You m ay be charged for excessive wear based on our standards for norm al use [and for mileage in excess
o f ___________ miles per year at the rate o f _________ per m ile].
Purchase Option at End of Lease Term. [You have an option to purchase the vehicle at the end o f the lease term for $ _____________
[and a purchase option fee o f $ ___________________].] [You do not have an option to purchase the vehicle at the end of the lease term .]
Other Important Terms. See your lease docum ents for additional inform ation on early term ination, purchase options and m aintenance
responsibilities, warranties, late and default charges, insurance, and any security interest, if applicable.
15372
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Rules and Regulations
A ppendix A -2 M o del C lo sed -E n d o r N et V ehicle L ease D isc lo su res
Page 2 of 2
[The following provisions are the nonsegregated disclosures required under Regulation M .]
'■
Y ear
M ake
D e sc rip tio n o f L eased P ro p e rty
M odel
B ody Style
V ehicle ID #
Official Fees and Taxes. The total amount you will pay for official and license fees, registration, title, and taxes over the term o f your lease, whether
included with your monthly payments or assessed otherwise: $ __________________
Insurance. The following types and amounts o f insurance will be acquired in connection with this lease:
_________
We (lessor) will provide the insurance coverage quoted above for a total premium cost o f $ -----------------------------
_________
You (lessee) agree to provide insurance coverage in the amount and types indicated above.
Standards for Wear and Use. The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle:
Maintenance.
[You are responsible for the following maintenance and servicing o f the leased vehicle:
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ].
[We are responsible for the following maintenance and servicing of the leased vehicle:
___________________________________________________________________________________
Warranties. The leased vehicle is subject to the following express warranties:
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 termination, 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 th e ____________________ value o f the leased vehicle
which could be realized at sale. The appraised value shall then be used as the actual value.
Security Interest. We reserve a security interest of the following type in the property listed below to secure performance o f your obligations under this lease:
Late Payments. The charge for late payments i s : _______________________________________________________________________________ __ ___ -____ _
Option to Purchase Leased Property Prior to the End of the Lease. [You have an option to purchase the leased vehicle prior to the end o f the term.
The price will be [$ ________________________ /[the method of determining the price].] [You do not have an option to purchase the leased vehicle.]
By order of the Board of Governors of
the Federal Reserve System, March 27,
1997.
Jennifer J. Johnson,
D eputy Secretary o f the Board.
[FR Doc. 97-8200 Filed 3-31-97; 8:45 am]
BILLING CODE 6210-01-C
]•
16053
Rules and Regulations
Federal Register
Vol. 62, No. 65
Friday, April 4, 1997
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R -0 96 1 ]
Consumer Leasing
Board of Governors of the
Federal Reserve System.
ACTION: Final rule; official staff
interpretation.
AGENCY:
SUMMARY: The Board is publishing
revisions to the official staff
commentary to Regulation M, which
16054
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
implements the Consumer Leasing Act.
The act requires lessors to provide
uniform cost and other disclosures
about consumer lease transactions.
Regulation M was revised in September
1996 under the Board’s Regulatory
Planning and Review program, which
calls for the periodic review of Board
regulations. The commentary applies
and interprets the requirements of
Regulation M. The revisions to the
commentary provide guidance on the
final rule issued in September 1996, as
amended in April 1997.
DATES: This rule is effective April 1,
1997. Compliance is optional until
October 1, 1997.
FOR FURTHER INFORMATION CONTACT:
Kyung H. Cho-Miller or Obrea Otey
Poindexter, Staff Attorneys, Division of
Consumer and Community Affairs,
Board of Governors of the Federal
Reserve System, Washington, DC 20551,
at (202) 452-2412 or 452-3667. For
users of Telecommunications Devices
for the Deaf (TDD) only, contact Diane
Jenkins, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Consumer Leasing Act (CLA), 15
U.S.C. 1667—1667e, was enacted into
law in 1976 as an amendment to the
Truth in Lending Act (TILA), 15 U.S.C.
1601 et seq. The CLA is implemented by
the Board’s Regulation M (12 CFR part
213). An official staff commentary
(Supplement I-CL-1 to 12 CFR part 213)
provides guidance to lessors in applying
the regulation to specific transactions.
The CLA requires lessors to provide
consumers with uniform cost and other
disclosures about consumer lease
transactions. The act generally applies
to consumer leases of personal property
in which the contractual obligation does
not exceed $25,000 and has a term of
more than four months. An automobile
lease is the most common type of
consumer lease covered by the act.
In September 1996, the Board
approved a final rule revising
Regulation M, after a review of the
regulation and consumer leasing
generally. The review was conducted
under the Board’s Regulatory Planning
and Review Program, which calls for the
periodic review of Board regulations
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 September 1996 final rule
includes new disclosures to supplement
the act’s requirements (61 FR 52246,
October 7,1996). The major changes
primarily affect motor-vehicle leasing.
They include a mathematical
progression on how scheduled
payments are derived (using figures
such as the gross capitalized cost of a
lease, the vehicle’s residual value, the
amount of depreciation, and the rent
charge) and a warning statement about
charges for terminating a lease early.
General changes in the format of the
disclosures require that certain lease
disclosures be segregated from other
information. A lessor is not required to
disclose the cost of a lease expressed as
a percentage rate; however, if a rate is
disclosed or advertised, a special notice
must accompany the rate stating that it
may not measure the overall cost of
financing the lease. Further, a rate in an
advertisement cannot be more
prominent than any other Regulation M
disclosure.
The final rule also revises the
advertising rules and implements
amendments to the CLA contained in
the Riegle Community Development and
Regulatory Improvement Act of 1994
(Pub. L. 103-325, 108 Stat. 2160); those
amendments allow a toll-free number or
a print advertisement to substitute for
certain lease disclosures in radio
commercials (which was expanded in
the final rule to television commercials).
The CLA’s advertising rules were
further amended and streamlined on
September 30, 1996, by the Economic
Growth and Regulatory Paperwork
Reduction Act of 1996 (Pub. L. 104-208,
110 Stat. 3009). The Board issued a
proposal to implement those changes.
(62 FR 62, January 2, 1997). A final rule
has been issued with a mandatory
compliance date of October 1, 1997.
The Board published an updated
proposal to the commentary in February
1997 (62 FR 7361, February 19, 1997).
Comment letters were received from
representatives of the major lease trade
associations, state agencies, consumer
representatives, and the Federal Trade
Commission, among others. The final
revisions to the commentary include
guidance on material that was published
for comment in September 1995,
incorporate guidance on the September
1996 final rule, and address certain
questions raised following public
review of the final rule, incorporating
many suggestions made by the
commenters.
change, are not discussed. Most of the
discussion focuses on new comments
and significant revisions to existing
comments.
Introduction
Comments 1-3 and 1-6 are deleted as
obsolete or unnecessary. Comments I—1,
1-2,1—4, and 1-5 are redesignated
accordingly.
Section 213.1—Authority, Scope,
Purpose, and Enforcement
Former
New
1-1 .............................
1-2 .............................
1-1.
Deleted as unneces
sary (see appendix
C).
Comment 1-1 is revised to clarify
persons covered by the regulation.
Section 213.2—Definitions
2(a) Definitions
Former
New
2(a)(2)—1 .....................
2(b)—1 and -2 ; includ
ing text from former
§213.2(a)(2).
2(b)-3.
2(d)—1 new.
2 (h )-1; includes text
from former
§213.2(a)(4).
2(h)-4.
2(h)—2.
2 (e )-1.
2(e)-2.
2(e)-3 new.
2(e)-6.
2(e)—4.
2(e)-5 new; includes
text from former
§213.2(a)(3).
2(e)—8.
2(e)-7.
2(g)—1.
2(h)—3.
2(j)-12(0-12(m)-1.
2(m)-2.
2(m)-3.
2(m)—4.
4(1)—2.
2(o)-2.
2 (o )-1; includes text
from former
§213.2(a)(15).
2(o)-3.
Deleted as unneces
sary.
Deleted as unneces
sary.
Deleted as unneces
sary.
3(a)(3)—1.
2 (a )(2 )-2 .....................
2(a)(4)—1 .....................
2(a)(4)- 2 .....................
2(a)(4)—3 .....................
2(a)(6)—1 .....................
2 (a )(6 )-2 .....................
2(a)(6)—3 .....................
2(a)(6)—4 .....................
2(a)(6)—5 .....................
2(a)(6)—6 .....................
2(a)(7)—1 .....................
2(a)(8)—1 .....................
2(a)(9)—1 .....................
2(a)(12)-1 ..................
2(a)(14)—1 ..................
2(a)(14)-2 ..................
2(a)(14)-3 and - 4 ....
2(a)(14)—5 ..................
2(a)(14)—6 ..................
2(a)(15)-1 ..................
2 (a )(1 5 )-2 ..................
2(a)(15)—3 ..................
2(a)(17)—1 throu gh-5
2(a)(18)—1 through -3
2(b)—1 .........................
II. Discussion of Final Revisions
The following discussion covers the
revisions to the Regulation M
commentary section-by-section.
Comments that have been revised for
further clarity, without substantive
2(b)—2 .........................
2(b) Advertisement
Comment 2(b)—1, former comment
2(a)(2)-!, is revised to include examples
16055
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
of advertisements formerly in
§ 213.2(a)(2) and to indicate that the
term “advertisement” includes
electronic messages.
2(d) Closed-End Lease
Comment 2(d)-l provides general
guidance on the definition of a “closedend lease.”
2(e) Consumer Lease
Comment 2(e)-2, former comment
2(a)(6)—2, is revised to clarify that leases
with penalties for not continuing
beyond an initial four months are
covered under the regulation. Comment
2(e)-3 provides guidance on the total
contractual obligation for purposes of
determining whether a lease is covered
under the regulation. Comment 2(e)—5
incorporates former § 213.2(a)(3), the
statutory definition of agricultural
purpose in section 103(s) of the TILA.
Comment 2(e)-7, former comment
2(a)(6)-6, includes an additional
example of a lease deemed incidental to
a service, and thus not covered by the
regulation.
2(f) Gross Capitalized Cost
Proposed comment 2(f)—1 has been
deleted as unnecessary.
2(h) Lessor
Comment 2(h)-l, former comment
2(a)(4)—1, is revised to include the
definition of the phrase “arrange for
leasing of personal property” in former
§ 213.2(a)(4).
2(m) Realized Value
Comment 2(m )-l has been revised for
accuracy to add a reference to the
adjusted lease balance.
Based on comment, comment 2(m)-2
has been revised to add fair market
value to the second sentence so as not
to exclude the use of this method of
determining the realized value, if
appropriate, where the leased property
is sold.
Comment 2(m)-3 provides guidance
for determining the realized value,
combining former comments 2(a)(14)-3
and -4. Based on comment, to more
closely track the language of the former
comments, the comment has been
revised from the proposal. The second
and third sentences of former comment
2(a)(14)—4 are deleted as unnecessary.
2(o) Security Interest and Security
Comment 2(o)-2, former comment
2(a)(15)-2, is revised to include
examples of a security interest formerly
in § 213.2(a)(15).
Questions have arisen about whether
interest that accrues on a security
deposit is a security interest for
purposes of this regulation and thus
required to be disclosed under
§ 213.4(r). Under Regulation M, whether
or not a security deposit is a security
interest under state or other applicable
law, a deposit disclosed under
§ 213.4(b) is not disclosed under
§ 213.4(r). Interest on a security deposit,
however, is disclosable under § 213.4(r)
if it is considered a security interest
under state or other applicable law.
Section 213.3— General Disclosure
Requirements
3(a) General Requirements
Former
4(a)-1
4(a)-2
4(a)-3
4(a)-4
4(a)-5
.........................
.........................
.........................
.........................
.........................
4(a)(1)-1 .....................
4 (a )(1 )-2 .....................
4(a)(2)-1 .....................
4 (a )(2 )-2 .....................
4 (a )(2 )-3 .....................
4(a)(2)—4 .....................
4 (a )(2 )-5 .....................
4(a)(4)—1 .....................
4 (a )(4 )-2 .....................
4(b)—1
4(c)—1
4(d)—1
4(d)-6
.........................
.........................
through - 5 ....
.........................
4(e)-1 and - 2 ............
New
3 (a )-1 .
Moved to §213.3(f).
3(a)(1)—1.
3(a)-4.
Deleted as unneces
sary.
3(a)-2 and -3 .
Deleted as unneces
sary.
4(b)—1.
3(a)(1)-2.
3(a)(1)-3 new.
3(a) (1)-4.
Deleted as unneces
sary.
3(a)(1)-5.
3(a)(2)—1 through - 3
new.
Deleted as unneces
sary, see revised
§213.3(a)(4).
Deleted as unneces
sary, see revised
§213.3(a)(4).
3(b)—1.
3(C)-1.
3(d)(1)—1 through -5 .
Deleted as unneces
sary.
3(e)-1 and -2 .
3(e)-3 new; text from
footnote 1 of former
regulation.
3(a) General Requirements
Comment 3(a)-l, former comment
4(a)-l, is revised to clarify that leasing
disclosures must reflect the terms of the
legal obligation.
Comment 3(a)-4, former comment
4(a)-4, is revised to provide guidance on
disclosing a prior lease or credit balance
added to a lease transaction.
Commenters also asked the Board to
clarify that where a prior lease or credit
balance is rolled into a lease and the
transaction is disclosed as a single lease,
Regulation M disclosures (not
Regulation Z) are required. Based on
comment and further analysis, language
has been added to indicate that
Regulation M disclosures are required
where a lease transaction includes
incidental services or when a prior lease
or credit balance is part of a single lease
transaction. Accordingly, the
illustrations have been revised.
3(a)(1) Form of Disclosures
Comment 3(a)(l)-3, which provides
guidance on disclosing the lessor’s
address, is adopted substantially as
proposed. Some commenters expressed
concern that requiring the disclosure of
the lessor’s name only would not
adequately identify the lessor. A lessor
may add an address or other
information such as a telephone number
to the identification.
Comment 3(a)(1)—5, former comment
4(a)(2)-5, is revised to provide guidance
on ways in which lessors may
demonstrate compliance with the
requirement that lessees receive
disclosures prior to becoming obligated
on the lease transaction.
3(a)(2) Segregation of Certain
Disclosures
Comment 3(a)(2)-l provides general
guidance on the location of the
segregated disclosures referenced in
§ 213.3(a)(2). Comment 3(a)(2)-2 restates
the general rule on including additional
information among the segregated
disclosures referenced in § 213.3(a)(2).
Comment 3(a)(2)-3 provides a crossreference to the commentary to
appendix A which provides guidance
on designing lease forms that are
substantially similar to the regulation’s
model forms.
3(b) Additional Information;
Nonsegregated Disclosures
Comment 3(b)—1, former comment
4(b)—1, on state law disclosures is
revised to add clarifying language; the
second sentence has been deleted as
unnecessary.
3(d) Use of Estimates
Comment 3(d)(1)—4, former comment
4(d)—4, is revised to provide that in
disclosing the estimate of the value of
leased property at termination of an
open-end lease, a lessor must indicate
whether the retail or wholesale value is
used. This provision was previously
contained in Regulation M in the
instructions to the model forms. In
addition, the reference to “intention”
has been deleted as not helpful.
3(e) Effect of Subsequent Occurrence
Comment 3(e)-3 incorporates the first
sentence of footnote 1 of the former
regulation.
Section 213.4— Content o f Disclosures
Former
New
4(a)-1 new.
16056
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
Former
New
4(g)—1 .........................
Deleted as unneces
sary.
3(a)(1)-2 and -3 ;
date requirement
moved to
§213.3(a)(1).
Deleted as unneces
sary.
Deleted as unneces
sary.
4(b)—1 (cross ref
erences former
comment 2(b)-2).
Deleted.
4(b)-2 new (incor
porated from the in
structions to the
model form in
former appendix C 2).
4(b)-3 through - 6
new.
Deleted as unneces
sary.
4 (c)-1 ; reference to
open-end lease de
leted.
deleted.
4(d)-1 and -2 .
Deleted as unneces
sary; see
§213.3(a)(2).
4(d)-3 new.
4(d)—4.
4(d)-5.
4(d)—6 new.
4(e)-1 new.
4(f)—1 new.
4(f)(1 )-1 and -2 new.
4(f)(8)—1 new.
4(o)-1 new.
4(o)-2.
4(o)-3.
4(p)-1 through -3 .
4(h)—1.
4(r)—1.
4(q)-1 through -5 .
4(i)-1 through -3 .
4(i)—4 and - 5 new.
4(g)(1)—4.
4(g)(1)—5.
4(g)(1)—1.
4(g)(1)-2 new.
4(g)(1)—3 new.
4(j)-1 new.
4(l)-1 and -2 .
4(l)-3 new.
4(l)-4.
4(m)-1 and - 2 new.
4(m)(2)-1.
Deleted.
4(m)(1)-1 new.
Deleted.
4(m)(2)-2.
Deleted.
4(m)(2)-3.
4(n)-1 new.
4(s)-1 new.
4 ( g ) - 2 .........................
4(g)(1)—1 .....................
4(g)(2)—1 .....................
4 (g )(2 )-2 .....................
4(g)(2) 3 ....................
4(g)(3)—1 .....................
4 (g )(3 )-2 .....................
4(g)(4)—1 .....................
4(g)(5)-1 .....................
4 (g )(5 )-2 .....................
4 (g )(5 )-3 .....................
4 (g )(5 )-4 .....................
4 ( g ) ( 6 H .....................
4(g)(6)-2 .....................
4(g)(7)-1 through - 3
4 < g )(8 )-i.....................
4(g)(9)—1 .....................
4(g)(10)-1 through-5
4(g)(11)—1 through -3
4 ( g ) ( i2 ) - i..................
4(g)(12)-2 ..................
4 (g )(1 2 )-3 ..................
4(g)(14)-1 a n d -2
4 (g )(1 4 )-3 ..................
4 ( g ) ( i5 ) - i..................
4(g)(15)-2 ..................
4 (g )(1 5 )-3 ..................
4(g)(15) 4 ..................
4(g)(15)-5 ..................
4(g)(15)-6 ..................
4(a) Description of Property
Comment 4(a)-l clarifies that the
description of leased property cannot be
among the segregated disclosures.
4(b) Total Amount Due at Lease
Signing or Delivery
disclosure of optional “disposition”
fees.
A number of commenters, including
consumer and leasing representatives,
urged the Board to amend the
transaction disclosures to require
amounts due at delivery, if delivery
occurs after consummation, to be
included in the amount due at lease
signing disclosure. The Economic
Growth and Regulatory Paperwork
Reduction Act of 1996 revised the
advertising disclosure of the total
amount due at lease signing to add
amounts due at delivery, if delivery
occurs after consummation. The
regulation has been revised accordingly
to parallel the changes that the Congress
made to the advertising disclosure.
Comment 4(b)-2 incorporates a
definition of “capitalized cost
reduction” from the instructions in
former appendix C -l of the regulation.
Comment 4(b)-3 provides guidance on
the disclosure of negative net trade-in
allowances where the amount owed on
a prior credit or lease balance exceeds
an agreed-upon trade-in value.
Comment 4(b)-4 clarifies that a rebate is
included in the itemization under this
section only when it is used to reduce
an amount due at lease signing or
delivery. Comment 4(b)-5 clarifies that
where the balance sheet method is
required, in motor-vehicle leases, the
totals in each column must equal one
another.
4(e) Total of Payments
Comment 4(e)-l explains the
additional statement in the total of
payments disclosure for open-end
leases.
4(c) Payment Schedule and Total
Amount of Periodic Payments
Comment 4(c)—1 provides guidance in
disclosing periodic payments.
Commenters asked for guidance on
whether all periodic payments required
to be paid under a lease, for example an
annually assessed tax, must be disclosed
under § 213.4(c). To facilitate
compliance, only payments made at
regular intervals and generally derived
from capitalized and amortized
amounts, rent, and amounts that are
collected by the lessor at the same
interval(s) must be disclosed under
§ 213.4(c). Based on comment and
further analysis, the comment has been
revised to clarify what payments should
be included in the payment schedule
and total amount of periodic payments.
4(d)
Other Charges
Comment 4(d)-l, former comment
4(g)(5)—1, is revised to provide
flexibility in making the “other charges”
disclosure. Comment 4(d)-3 clarifies
that third-party charges are not
disclosed under § 213.4(d). Comment
4(d)—6 provides guidance on the
4(f) Payment Calculation
Comment 4(f)—1 clarifies that lessors
should look to state or other applicable
law in determining whether the leased
property is a motor vehicle.
4(f)(1) Gross Capitalized Cost
Comment 4(f)(1)—1 provides guidance
on disclosing the agreed-upon value of
a leased motor vehicle.
Comment 4(f)(1)—2 addresses the
itemization of the gross capitalized cost.
A few commenters suggested that
lessors that provide an itemization as a
matter of course be allowed to include
the itemization among the segregated
disclosures. Given that some
itemizations may be lengthy, an
itemization may not be included in the
segregated disclosures so as not to
distract from other information.
4(f)(2) Capitalized Cost Reduction
Comment 4(f)(2)—1 provides guidance
on the amounts not included in the
capitalized cost reduction disclosure.
4(f)(8) Lease Term
Comment 4(f)(8)—1 clarifies the
meaning of the phrase “lease term”
referenced under § 213.4(f)(8).
4(g) Early Termination
Comment 4(g)(1)—2 provides guidance
on disclosing the method used to
determine the amount of an early
termination charge. Comment 4(g)(l)-3
provides guidance on the timing for
disclosing a written explanation of the
method used to calculate the adjusted
lease balance.
4(h) Maintenance Responsibilities
Comment 4(h)-l has been revised for
clarity, based on comment. Proposed
comment 4(h)-2, regarding the
disclosure of excess mileage charges, is
deleted as unnecessary.
4(i) Purchase Option
Several commenters on the September
1995 proposal requested clarification on
whether lessors are allowed to disclose
a purchase-option fee (and other fees
and taxes applicable to the purchase
option) separately from the purchaseoption price. Comments 4(i)-3 and -4,
former comment 4(g)(ll)-3, are revised
to allow lessors flexibility in disclosing
fees associated with a purchase-option
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
price. Further, with the September 1996
final rule regarding the disclosure
format, and since a lessee is not
obligated to purchase the leased
property, the purchase-option fee and
any other fee associated with exercising
the purchase option must be disclosed
under § 213.4(i) and not § 213.4(d).
Comment 4(i)-5 provides guidance on
disclosing the price of a purchase option
in a “fair market value” lease. Based on
comment, the comment has been
revised to indicate that the independent
source must be readily available.
4(s)
Limitation on Rate Information
Comment 4(s)-l clarifies that a lease
rate may not be included among the
segregated disclosures referenced in
§ 213.3(a)(2).
16057
Economic Growth and Regulatory
Paperwork Reduction Act of 1996.
7(b) Clear and Conspicuous Standard
Comment 7(b)-l provides guidance
on the clear and conspicuous standard.
A comment in the September 1995
Section 213.5—Renegotiations,
proposal provided that lease disclosures
Extensions, and Assumptions
must appear on a television screen for
Section 213.5, formerly § 213.4(h),
at least five seconds. The comment was
contains the disclosure rules governing
not meant to provide a safe harbor, as
leases that are renegotiated, extended, or five seconds is inadequate as a test for
assumed. Many of the commentary
determining full compliance with the
provisions have been moved to the
clear and conspicuous standard. The
regulation. For example, the definitions
comment has been deleted.
4(j) Statement Referencing
of a renegotiation and an extension have
7(b)(1) Amount Due at Lease Signing
Nonsegregated Disclosures
been included in the regulation.
or Delivery
Comment 4(j)-l clarifies that
New
Comment 7(b)(l)-l clarifies that an
Former
inapplicable information may be deleted
itemization of the amount due at lease
from the §213.4(j) disclosure, which
4(h)—1 ......................... 5-1.
signing or delivery is not required under
references and alerts consumers to read
4(h)—2 ......................... First sentence moved
§ 213.7(d)(2). Comment 7(b)(1)—2
CLA required disclosures not included
to §213.5(a); sec
provides general guidance on the
among the segregated disclosures.
ond sentence de
prominence rule in § 213.7(b)(1).
leted; third sen
4(1) Right of Appraisal
tence moved to 5 7(b)(2) Advertisement of a Lease Rate
Comment 4(1)—2, former comment
1.
Comment 7(b)(2)-l provides guidance
4(g)(14)—2, is revised to provide that a
4(h)-3 ......................... Moved to §213.5(d).
on the location of the statement that
lessor must indicate whether an
4(h)-4 ......................... Moved to §213.5(b).
must accompany any percentage rate
appraisal will be based on the wholesale 4(h)-5 ......................... 5(b)—1.
5(b)-2 new.
stated in an advertisement.
or retail value. This provision was
4(h)-6 ......................... Deleted as unneces
contained in the former regulation in
7(d) Advertisement of Terms that
sary.
the instructions to the model forms.
Require Additional Disclosure
4(h)-7 ......................... Moved to
4(m) Liability at End of Lease Term
§213.5(d)(6).
7(d)(1) Triggering Terms
4(h)-8 ......................... Moved to
Based on Estimated Value
Comment 7(d)(1)—1, former comment
§213.5(d)(2).
The regulation reformats § 213.4(m),
5(c)—2, is revised to provide guidance
4(h)-9 ......................... Moved to §213.5(c).
former § 213.4(g)(15), for clarity. The
for disclosing examples of a typical
commentary has been similarly
lease. The last sentence of the proposed
5(b)
Extension
reformatted.
comment has been deleted as
Comment 4(m)-2 clarifies that under
Comment 5(b)-l, former comment
unnecessary.
section 183(a) of the CLA lessors must
4(h)-5, is revised to clarify the
7(d)(2) Additional Terms
pay the lessees’ attorney’s fees.
circumstances in which disclosures are
required
when
a
consumer
lease
is
Commenters requested clarification
4(n) Fees and Taxes
extended on a month-to-month basis for on how third-party fees that vary by
Comment 4(n)-l provides guidance
more than six months. This comment
jurisdiction such as taxes, licenses, and
on the treatment of certain taxes,
and comment 5(b)—2 incorporate into
registration fees should be reflected in
including taxes disclosed under
the commentary longstanding Board
the disclosure of the total amount due
§ 213.4(n) and elsewhere.
interpretations that were originally
at lease signing or delivery under
issued when leasing provisions were
§ 213.7(d)(2)(ii). Comment 7(d)(2)-l
4(o) Insurance
contained in Regulation Z (Truth in
clarifies that lessors have flexibility in
Comment 4(o)-l clarifies that
Lending) prior to 1982.
disclosing such fees.
§ 213.4(o) applies to voluntary and
required insurance provided in
Section 213.7—Advertising
7(e) Alternative Disclosures—
connection with a lease transaction.
Merchandise Tags
New
Former
Comment 4(o)-3, former comment
Comment 7(e)—1 provides general
4(g)(6)—2, is revised to provide
guidance on disclosing multiple-item
7(a)-1.
5(a)-1
.........................
additional guidance on the disclosure of
leases with merchandise tags.
5(a)-2 ......................... 7(a)-2.
mechanical breakdown protection and,
5(b)-1 and 2 .............. 7(c)—1 and 2.
based on comments, other products,
7(f) Alternative Disclosures—
5(c)—1 ......................... 7(b)—1.
(such as guaranteed automobile
Television or Radio Advertisements
7(b)(1)—1 a n d - 2
protection) as insurance under
new.
7(f)(1) Toll-free Number or Print
§213.4(0).
7(b)(2)—1 new.
Advertisement
5(c)-2 ......................... 7(d)(1)—1.
4(p) Warranties or Guarantees
Comment 7(f)(1)—1 clarifies that a
7(d)(2)—1 new.
newspaper circulated nationally may
Comment 4(p)-l, former comment
5(d)—1 ......................... 7(e)-1 new.
qualify as a publication in general
4(g)(7)—1, is revised to provide further
7(f)(1)—1 through -4
new.
circulation in the community served by
guidance on identifying warranties
the media station. Comment 7(f)(1)—2
under § 213.4(p) when a lessor provides
The CLA advertising provisions were
provides guidance on establishing a
a list that includes warranties not
amended on September 30, 1996 by the
number for consumers to call for
available to the lessee.
16058
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
disclosure information. Comment
7(f)(1)—3 provides guidance on the use
of a multi-function toll-free number to
provide disclosures. Comment 7(f)(1)—4
provides general guidance on the
statement that must accompany a tollfree number instructing consumers to
call the number for details about costs
and terms.
Section 213.8— Record Retention
Former
fi-1
New
8-1.
Section 213.8 of the regulation was
formerly § 213.6.
Section 213.9—Relations to State Laws.
Section 213.9 of the regulation
combines and simplifies former §§ 213.7
and 213.8. The comments to these
sections, as well as references in former
appendices A and B, have been deleted
as unnecessary.
Comment 9-1 has been added to
include the states that are exempt from
Regulation M—Maine and Oklahoma.
A ppendix A Model Forms
Former
New
C-1 .............................
C -2 .............................
C -3 .............................
A -1 , A-2.
Deleted.
A -3; closed-end defi
nition moved to
§213.2(d)
A—4.
C—4 .............................
Under the final rule, the model forms
are moved from appendix C to appendix
A. Former comment app. C-2 is deleted
as unnecessary. Minor revisions are
made to other comments in this
appendix. For example, comment app.
A -l, former comment C -l, is 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. C-3 is deleted because a
definition has been added in the
regulation.
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 is 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 to Part 213—Official consum er leases, w hether in visual, oral,
prin t or electronic media. Examples include:
Staff Commentary to Regulation M is
1. Messages in new spapers, magazines,
revised to read as follows:
SUPPLEMENT I TO PART 2 1 3 OFFICIAL STAFF COMMENTARY TO
REGULATION M
Introduction
1. Official status. The com mentary in
S upplem ent I is the vehicle by w hich 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 com pliance
w ith this com mentary affords protection from
liability u n d er section 130(f) of the Truth in
Lending Act (15 U.S.C. 1640(f)). Section
130(f) protects lessors from civil liability for
any act done or omitted in good faith in
conformity w ith any interpretation issued by
a duly authorized official or employee of the
Federal Reserve System.
2. Procedures fo r requesting
interpretations. U nder appendix C of
Regulation M, anyone may request an official
staff interpretation. Interpretations that are
adopted w ill be incorporated in this
com m entary following publication in the
Federal Register. No official staff
interpretations are expected to be issued
other than by m eans of this commentary.
3. C om m ent designations. Each com ment
in the com mentary is identified by a num ber
and the regulatory section or paragraph that
it interprets. The com ments are designated
w ith as m uch specificity as possible
according to the particular regulatory
provision addressed. For example, some of
the com ments to § 213.4(f) are further
divided by subparagraph, such as com ment
4(f)(1)—1 and com m ent 4(f)(2)—1. In other
cases, com ments have more general
application and are designated, for example,
as com m ent 4(a)—1. This introduction may be
cited as com ments 1-1 through 1-4. An
appendix may be cited as com m ent app. A 1.
4. Illustrations. Lists that appear in the
com mentary may be exhaustive or
illustrative; the appropriate construction
should be clear from the context. Illustrative
lists are introduced by phrases such as
“including,” “such as,” “ to illustrate,” and
“for exam ple.”
Section 213.1—A uthority, Scope, Purpose,
a nd Enforcem ent
1. Foreign applicability. Regulation M
applies to all persons (including branches of
foreign banks or leasing com panies located in
the U nited States) that offer consum er leases
to residents of any state (including foreign
nationals) as defined in § 213.2(p). The
regulation does not apply to a foreign branch
of a U.S. bank or to a leasing com pany
leasing to a U.S. citizen residing or visiting
abroad or to a foreign national abroad.
Section 213.2—D efinitions
2(b) A dvertisem ent
1. Coverage. The term advertisem ent
includes messages inviting, offering, or
otherwise generally announcing to
prospective customers the availability of
leaflets, catalogs, and fliers.
ii. Messages on radio, television, and
public address systems.
iii. Direct m ail literature.
iv. Printed m aterial on any interior or
exterior sign or display, in any w indow
display, in any point-of-transaction literature
or price tag that is delivered or made
available to a lessee or prospective lessee in
any m anner whatsoever.
v. Telephone solicitations.
vi. On-line messages, such as those on the
Internet.
2. E xclusions. The term does not apply to
the following:
i. Direct personal contacts, including
follow-up letters, cost estimates for
individual lessees, or oral or w ritten
com m unications relating to the negotiation of
a specific transaction.
ii. Informational m aterial distributed only
to businesses.
iii. Notices required by federal or state law,
if the law m andates that specific inform ation
be displayed and only the m andated
inform ation is included in the notice.
iv. News articles controlled by the news
m edium.
v. Market research or educational materials
that do not solicit business.
3. Persons covered. See the com mentary to
§ 213.7(a).
2(d) Closed-End Lease
1. General. In closed-end leases, sometimes
referred to as “w alk-away” leases, the lessee
is not responsible for the residual value of
the leased property at the end of the lease
term.
2(e) Consum er lease
1. Prim ary purposes. A lessor m ust
determ ine in each case if the leased property
w ill be used prim arily for personal, family,
or household purposes. If a question exists as
to the prim ary purpose for a lease, the fact
that a lessor gives disclosures is not
controlling on the question of w hether the
transaction is covered. The prim ary purpose
of a lease is determ ined before or at
consum m ation and a lessor need not provide
Regulation M disclosures w here there is a
subsequent change in the prim ary use.
2. Period o f time. To be a consum er lease,
the initial term of the lease m ust be more
than four m onths. Thus, a lease of personal
property for four m onths, three m onths or on
a m onth-to-m onth or week-to-week basis
(even though the lease actually extends
beyond four m onths) is n ot a consum er lease
and is no t subject to the disclosure
requirem ents of the regulation. However, a
lease that im poses a penalty for not
continuing the lease beyond four m onths is
considered to have a term of more than four
months. To illustrate:
i. A three-m onth lease extended on a
m onth-to-m onth basis and term inated after
one year is n ot subject to the regulation.
ii. A m onth-to-m onth lease w ith a penalty,
such as the forfeiture of a security deposit for
term inating before one year, is subject to the
regulation.
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
3. Total contractual obligation. The total
contractual obligation is no t necessarily the
same as the total of paym ents disclosed
u nd er § 213.4(e). The total contractual
obligation includes nonrefundable am ounts a
lessee is contractually obligated to pay to the
lessor, b u t excludes item s such as:
i. Residual value am ounts or purchaseoption prices;
ii. Am ounts collected by the lessor but
paid to a th ird party, such as taxes, licenses,
and registration fees.
4. Credit sale. The regulation does not
cover a lease that meets the definition of a
credit sale in Regulation Z, 12 CFR
226.2(a)(16), w hich is defined, in part, as a
bailm ent or lease (unless term inable w ithout
penalty at any tim e by the consum er) under
w hich the consumer:
i. Agrees to pay as com pensation 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 nom inal consideration, the owner of the
property u p on com pliance w ith the
agreement.
5. Agricultural purpose. Agricultural
purpose means a purpose related to the
production, harvest, exhibition, marketing,
transportation, processing, or m anufacture of
agricultural products by a natural person
w ho cultivates, plants, propagates, or
nurtures those agricultural products,
including b ut n ot lim ited to the acquisition
of personal property and services used
prim arily in farming. Agricultural products
include horticultural, viticultural, and dairy
products, livestock, w ildlife, poultry, bees,
forest products, fish and shellfish, and any
products thereof, including processed and
m anufactured products, and any and all
products raised or produced on farms and
any processed or m anufactured products
thereof.
6. O rganization or other entity. A consum er
lease does not include a lease m ade to an
organization such as a corporation or a
governm ent agency or instrum entality. Such
a lease is not covered by the regulation even
if the leased property is used (by an
employee, for example) prim arily for
personal, family or household purposes, or is
guaranteed by or subsequently assigned to a
natural person.
7. Leases o f personal property incidental to
a service. The following leases of personal
property are deem ed incidental to a service
an d thus are no t subject to the regulation:
i. Home entertainm ent systems requiring
the consum er to lease equipm ent that enables
a television to receive the transm itted
programming.
ii. Security alarm systems requiring the
installation of leased equipm ent intended to
m onitor unlaw ful entries into a hom e and in
some cases to provide fire protection.
iii. Propane gas service w here the
consum er m ust lease a propane tank to
receive the service.
8. Safe deposit boxes. The lease of a safe
deposit box is not a consum er lease under
§ 213.2(e).
2(g) Lessee
1. Guarantors. Guarantors are not lessees
for purposes of the regulation.
2(h) Lessor
1. Arranger o f a lease. To “ arrange” for the
lease of personal property m eans to provide
or offer to provide a lease that is or w ill be
extended by another person under a business
or other relationship pursuant to w hich the
person arranging the lease (a) receives or w ill
receive a fee, com pensation, or other
consideration for the service or (b) has
knowledge of the lease terms and participates
in the preparation of the contract docum ents
required in connection w ith the lease. To
illustrate:
1. An automobile dealer who, pursuant to
a business relationship, com pletes the
necessary lease agreement before forwarding
it for execution to the leasing com pany (to
w hom the obligation is payable on its face)
is “arranging” for the lease.
ii. An autom obile dealer w ho, w ithout
receiving a fee for the service, refers a
customer to a leasing com pany that w ill
prepare all relevant contract docum ents is
not “arranging” for the lease.
2. Consideration. The term “ other
consideration” as used in com m ent 2(h)—1
refers to an actual paym ent corresponding to
a fee or sim ilar com pensation and not to
intangible benefits, such as the advantage of
increased business, w hich m ay flow from the
relationship betw een the parties.
3. Assignees. A n assignee m ay be a lessor
for purposes of the regulation in
circum stances w here the assignee has
substantial involvem ent in the lease
transaction. See cf. Ford M otor Credit Co. v.
Cenance, 452 U.S. 155 (1981) (held that an
assignee was a creditor for purposes of the
pre-1980 T ruth in Lending A ct and
Regulation Z because of its substantial
involvem ent in the credit transaction).
4. M ultiple lessors. See the com m entary to
§ 213.3(c).
2(j) Organization
1. Coverage. The term “organization”
includes joint ventures and persons operating
under a business name.
2(1) Personal Property
1. Coverage. W hether property is personal
property depends on state or other applicable
law. For example, a mobile hom e or
houseboat may be considered personal
property in one state b ut real property in
another.
2(m ) R ealized Value
1. General. Realized value refers to either
the retail or w holesale value of the leased
property at early term ination or at the end of
the lease term. It is not a required disclosure.
Realized value is relevant only to leases in
w hich the lessee’s liability at early
term ination or at the end of the lease term
typically is based on the difference betw een
the residual value (or the adjusted lease
balance) of the leased property and its
realized value.
2. Options. Subject to the contract an d to
state or other applicable law, the lessor may
calculate the realized value in determ ining
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the lessee’s liability at the end of the lease
term or at early term ination in one of the
three ways stated in § 213.2(m). If the lessor
sells the property prior to making the
determ ination about liability, the price
received for the property (or the fair market
value) is the realized value. If the lessor does
not sell the property prior to making that
determ ination, the highest offer or the fair
market value is the realized value.
3. D eterm ination o f realized value.
D isposition charges are not subtracted in
determ ining the realized value b ut am ounts
attributable to taxes may be subtracted.
4. Offers. In determ ining the highest offer
for disposition, the lessor may disregard
offers that an offeror has w ithdraw n or is
unable or unw illing to perform.
5. Lessor’s appraisal. See com mentary to
§213.4(1).
2(o) Security Interest and Security
1. Disclosable interests. For purposes of
disclosure, 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
com pany and takes assignments of consum er
leases generated by that com pany to secure
the loan, the b ank’s security interest in the
lessor’s receivables is not a security interest
for purposes of this regulation.
2. General coverage. A n interest the lessor
may have in leased property m ust be
disclosed only if it is considered a security
interest u nd er state or other applicable law.
The term includes, bu t is not lim ited to,
security interests u nd er the Uniform
Commercial Code; real property mortgages,
deeds of trust, and other consensual or
confessed liens w hether or not recorded;
m echanic’s, m aterialm an’s, artisan’s, and
other sim ilar liens; vendor’s liens in both real
and personal property; liens on property
arising by operation of law; and any interest
in a lease w hen used to secure paym ent or
performance of an obligation.
3. Insurance exception. The lessor’s right
to insurance proceeds or unearned insurance
prem ium s is not a security interest for
purposes of this regulation.
Section 213.3— General Disclosure
Requirem ents
3(a) General Requirem ents
1. Basis o f disclosures. Disclosures m ust
reflect the terms of the legal obligation
between the parties. For example:
1. In a three-year lease w ith no penalty for
term ination after a one-year m inim um term,
disclosures are based on the full three-year
term of the lease. The one-year m inim um
term is only relevant to the early term ination
provisions of §§ 213.4 (g)(1), (k) and (1).
2. Clear and conspicuous standard. The
clear and conspicuous standard requires that
disclosures be reasonably understandable.
For exam ple, the disclosures m ust be
presented in a way that does not obscure the
relationship of the term s to each other;
appendix A of this part contains m odel forms
that m eet this standard. In addition, although
no m inim um typesize is required, the
disclosures m ust be legible, w hether
typew ritten, handw ritten, or p rinted by
computer.
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3. M ultipurpose disclosure form s. A lessor
may use a m ultipurpose disclosure form
provided the lessor is able to designate the
specific disclosures applicable to a given
transaction, consistent w ith the requirem ent
that disclosures be clearly and conspicuously
provided.
4. N um ber o f transactions. Lessors have
flexibility in handling lease transactions that
may be view ed as m ultiple transactions. For
example:
i. W hen 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. W hen a lessor sells insurance or other
incidental services in connection w ith a
lease, the lessor may disclose in one of two
ways: as a single lease transaction (in w hich
case Regulation M, no t Regulation Z,
disclosures are required) or as a lease
transaction and a credit transaction.
iii. W hen a lessor includes an outstanding
lease or credit balance in a lease transaction,
the lessor may disclose the outstanding
balance as part of a single lease transaction
(in w hich case Regulation M, not Regulation
Z, disclosures are required) or as a lease
transaction and a credit transaction.
3(a)(1) Form o f Disclosures
1. Cross-references. Lessors may include in
the nonsegregated disclosures a crossreference to item s in the segregated
disclosures rather th an repeat those items. A
lessor may include in the segregated
disclosures num eric or alphabetic
designations as cross-references to related
inform ation so long as such references do not
obscure or detract from the segregated
disclosures.
2. Identification o f parties. While
disclosures m ust be m ade clearly and
conspicuously, lessors are not required to use
the w ord “lessor” and “lessee” to identify
the parties to the lease transaction.
3. Lessor’s address. The lessor m ust be
identified by name; an address (and
telephone number) may be provided.
4. M ultiple lessors an d lessees. In
transactions involving m ultiple lessors and
m ultiple lessees, a single lessor may make all
the disclosures to a single lessee as long as
the disclosure statem ent identifies all the
lessors and lessees.
5. L essee’s signature. The regulation does
not require that the lessee sign the disclosure
statement, w hether disclosures are separately
provided or are part of the lease contract.
Nevertheless, to provide evidence that
disclosures are given before a lessee becomes
obligated on th e lease transaction, the lessor
may, for example, ask the lessee to sign the
disclosure statem ent or an acknowledgement
of receipt, may place disclosures that are
included in the lease docum ents above the
lessee’s signature, or include instructions
alerting a lessee to read the disclosures prior
to signing the lease.
3(a)(2) Segregation o f Certain Disclosures
1. Location. The segregated disclosures
referred to in § 213.3(a)(2) may be provided
on a separate docum ent and the other
required disclosures may be provided in the
lease contract, so long as all disclosures are
given at the same time. Alternatively, all
disclosures may be provided in a separate
docum ent or in the lease contract.
2. A dd ition al inform ation am ong
segregated disclosures. The disclosures
required to be segregated may contain only
the inform ation required or perm itted to be
included among the segregated disclosures.
3. Substantially similar. See com mentary
to appendix A of this part.
3(a)(3) Tim ing o f Disclosures
1. C onsum m ation. W hen a contractual
relationship is created betw een the lessor and
the lessee is a m atter to be determ ined under
state or other applicable law.
3(b) A d ditional Inform ation; Nonsegregated
D isclosures
1. State law disclosures. A lessor may
include in the nonsegregated disclosures any
state law disclosures that are not inconsistent
w ith the act and regulation u n der § 213.9 as
long as, in accordance w ith the standard set
forth in § 213.3(b) for additional information,
the state law disclosures are not used or
placed to m islead or confuse or detract from
any disclosure required by the regulation.
3(c) M ultiple Lessors or Lessees
1. M ultiple lessors. If a single lessor
provides disclosures to a lessee on behalf of
several lessors, all disclosures for the
transaction m ust be given, even if th e lessor
making the disclosures w ould n ot otherwise
have been obligated to make a particular
disclosure.
3(d)
Use o f Estim ates
3(d)(1) Standard
1. Tim e o f estim ated disclosure. The lessor
may, after making a reasonable effort to
obtain information, use estimates to make
disclosures if necessary inform ation is
unknow n or unavailable at the tim e the
disclosures are m ade. For example:
1. Section 213.4(n) requires the lessor to
disclose the total am ount payable by the
lessee during the lease term for official and
license fees, registration, certificate of title
fees, or taxes. If these am ounts are subject to
increases or decreases over the course of the
lease, the lessor may estimate the disclosures
based on the rates or charges in effect at the
tim e of the disclosure.
2. Basis o f estim ates. Estimates m ust be
m ade on the basis of the best inform ation
reasonably available at the tim e disclosures
are made. The “reasonably available”
standard requires that the lessor, acting in
good faith, exercise due diligence in
obtaining information. The lessor may rely
on the representations of other parties. For
example, the lessor m ight look to the
consum er to determ ine the purpose for
w hich leased property w ill be used, to
insurance com panies for the cost of
insurance, or to an automobile m anufacturer
or dealer for the date of delivery.
3. R esidual value o f leased property at
term ination. In an open-end lease w here the
lessee’s liability at the end of the lease term
is based on the residual value of the leased
property as determ ined at consum m ation, the
estim ate of the residual value m ust be
reasonable and based on the best information
reasonably available to the lessor (see
§ 213.4(m)). A lessor should generally use an
accepted trade publication listing estimated
current or future m arket prices for the leased
property unless other inform ation or a
reasonable belief based on its experience
provides the better information. For example:
i. A n automobile lessor offering a threeyear open-end lease assigns a w holesale
value to the vehicle at the end of the lease
term. The lessor m ay disclose as an estimate
a w holesale value derived from a generally
accepted trade publication listing current
w holesale values.
ii. Same facts as above, except that the
lessor discloses an estim ated value derived
by adjusting the residual 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 estim ated values quoted in trade
publications if the lessor reasonably believes
based on its experience that the values are
understated or overstated.
4. R etail or wholesale value. The lessor
may choose either a retail or a w holesale
value in estimating the value of leased
property at term ination of an open-end lease
provided the choice is consistent w ith the
lessor’s general practice w hen determining
the value of the property at the end of the
lease term. The lessor should indicate
w hether the value disclosed is a retail or
w holesale value.
5. Labelling estim ates. Generally, only the
disclosure for w hich the exact inform ation is
unknow n is labelled as an estimate.
Nevertheless, w hen several disclosures are
affected because of the unknow n
information, the lessor has the option of
labelling as an estimate every affected
disclosure or only the disclosure primarily
affected.
3(e) Effect o f Subsequent Occurrence
1. Subsequent occurrences. Examples of
subsequent occurrences include:
1. A n agreement betw een the lessee and
lessor to change from a m onthly to a weekly
paym ent schedule.
ii. An increase in official fees or taxes.
iii. An increase in insurance prem ium s or
coverage caused by a change in the law.
iv. Late delivery of an automobile caused
by a strike.
2. Redisclosure. W hen a disclosure
becomes inaccurate because of a subsequent
occurrence, the lessor need n ot make new
disclosures unless new disclosures are
required u n d er § 213.5.
3. Lessee’s failure to perform . The lessor
does not violate the regulation if a previously
given disclosure becomes inaccurate w hen a
lessee fails to perform obligations und er the
contract and a lessor takes actions that are
necessary and proper in such circumstances
to protect its interest. For example, the
addition of insurance or a security interest by
the lessor because the lessee has not
performed obligations contracted for in the
lease is not a violation of the regulation.
Section 213.4—Content of Disclosures
4(a) D escription o f Property
1. P lacem ent o f description. A lthough the
description of leased property m ay not be
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
included among the segregated disclosures, a
lessor may choose to place the description
directly above the segregated disclosures.
4(b) A m o u n t Due at Lease Signing or
Delivery
1. Consum m ation. See com mentary to
§ 213.3(a)(3).
2. C apitalized cost reduction. A capitalized
cost reduction is a paym ent in the nature of
a dow npaym ent on the leased property that
reduces the am ount to be capitalized over the
term of the lease. This am ount does not
include any am ounts included in a periodic
paym ent p aid at lease signing or delivery.
3. “N egative" equity trade-in allowance. If
an am ount ow ed on a prior lease or credit
balance exceeds the agreed u po n value of a
trade-in, the difference is not reflected as a
negative trade-in allowance und er § 213.4(b).
The lessor may disclose the trade-in
allow ance as zero or not applicable, or may
leave a blank line.
4. Rebates. O nly rebates applied tow ard an
am ount due at lease signing or delivery are
required to be disclosed u n der § 213.4(b).
5. Balance sheet approach. In motorvehicle leases, the total for the colum n
labeled “total am ount due at lease signing or
delivery” m ust equal the total for the colum n
labeled “how the am ount due at lease signing
or delivery w ill be p aid .”
6. A m o u n ts to be p a id in cash. The term
cash is intended to include paym ents by
check or other paym ent m ethods in addition
to currency; however, a lessor may add a line
item u n der the colum n “how the am ount due
at lease signing or delivery w ill be p aid ” for
non-currency paym ents such as credit cards.
4(c) P aym ent Schedule and Total A m o u n t
o f Periodic P aym ents
1. Periodic paym ents. The phrase “number,
am ount, and due dates or periods of
paym ents” requires the disclosure of all
paym ents that are m ade at regular intervals
and generally derived from rent, capitalized
or am ortized am ounts such as depreciation,
and other am ounts that are collected by the
lessor at the same interval(s), including for
exam ple taxes, m aintenance, and insurance
charges. Other periodic paym ents may, but
need not, be disclosed u n d er § 213.4(c).
4(d) O ther charges
1. Coverage. Section 213.4(d) requires the
disclosure of charges that are anticipated by
the parties incident to the norm al operation
of the lease agreement. If a lessor is unsure
w hether a particular fee is an “other charge,”
the lessor may disclose the fee as such
w ithout violating § 213.4(d) or the
segregation rule un d er § 213.3(a)(2).
2. E xcluded charges. This section does not
require disclosure of charges that are
im posed w hen the lessee term inates early,
fails to abide by, or modifies the terms of the
existing lease agreement, such as charges for:
i. Late payment.
ii. Default.
iii. Early termination.
iv. Deferral of payments.
v. Extension of the lease.
3. Third-party fe es and charges. Thirdparty fees or charges collected by the lessor
on behalf of third parties, such as taxes, are
not disclosed un der § 213.4(d).
4. Relationship to other provisions. The
other charges m entioned in this paragraph
are charges that are not required to be
disclosed u nd er some other provision of
§213.4. To illustrate:
i.
The price of a m echanical breakdow n
protection (MBP) contract is sometimes
disclosed as an “other charge.” Nevertheless,
the price of MBP is som etimes reflected in
the periodic paym ent disclosure under
§ 213.4(c) or in states w here MBP is regarded
as insurance, the cost is be disclosed in
accordance w ith § 213.4(o).
5. Lessee’s liabilities at the end o f the lease
term. Liabilities that the lessor imposes upon
the lessee at the end of the scheduled lease
term and that m ust be disclosed under
§ 213.4(d) include disposition and “pick-up”
charges.
6. O ptional “disposition” charges.
D isposition and sim ilar charges that are
anticipated by the parties as an incident to
the norm al operation of the lease agreement
m ust be disclosed un der § 213.4(d). If, under
a lease agreement, a lessee may return leased
property to various locations, and the lessor
charges a disposition fee depending upon the
location chosen, u nd er § 213.4(d), the lessor
m ust disclose the highest am ount charged. In
such circumstances, the lessor may also
include a brief explanation of the fee
structure in the segregated disclosure. For
example, if no fee or a low er fee is im posed
for returning a leased vehicle to the
originating dealer as opposed to another
location, that fact may be disclosed. By
contrast, if the terms of the lease treat the
return of the leased property to a location
outside the lessor’s service area as a default,
the fee im posed is not disclosed as an “other
charge,” although it may be required to be
disclosed u nd er § 213.4(q).
4(e) Total o f pa ym en ts
1. O pen-end lease. The additional
statem ent is required u n der § 213.4(e) for
open-end leases because, w ith some
limitations, a lessee is liable at the end of the
lease term for the difference betw een the
residual and realized values of the leased
property.
4(f) P aym ent Calculation
1. M otor-vehicle lease. W hether leased
property is a m otor vehicle is determ ined by
state or other applicable law.
4(f)( 1) Gross C apitalized Cost
1. Agreed upon value o f the vehicle. The
agreed upon value of a m otor vehicle
includes the am ount of capitalized items
such as charges for vehicle accessories and
options, and delivery or destination charges.
The lessor may also include taxes and fees
for title, licenses, and registration that are
capitalized. Charges for service or
m aintenance contracts, insurance products,
guaranteed automobile protection, or an
outstanding balance on a prior lease or credit
transaction are not included in the agreed
upon value.
2. Item ization o f the gross capitalized cost.
The lessor may choose to provide the
itemization of the gross capitalized cost only
on request or may provide the item ization as
a m atter of course. In the latter case, the
lessor need not provide a statem ent of the
16061
lessee’s option to receive an itemization. The
gross capitalized cost m ust be item ized by
type and amount. The lessor may include in
the item ization an identification of the items
and am ounts of some or all of the items
contained in the agreed up on value of the
vehicle. The itemization m ust be provided at
the same tim e as the other disclosures
required by § 213.4, b ut it m ay not be
included among the segregated disclosures.
4(f)(8) Lease Term
1. Definition. U nder § 213.4(f)(8) the “lease
term ” refers to the num ber of periodic
payments.
4(g) Early Term ination
4(g)( 1) C onditions and Disclosure o f
Charges
1. Reasonableness o f charges. See the
com mentary to § 213.4(q).
2. Description o f the m ethod. Section
213.4(g)(1) requires a full description of the
m ethod of determ ining an early term ination
charge. The lessor should attem pt to provide
consum ers w ith clear and understandable
descriptions of its early term ination charges.
Descriptions that are full, accurate, and not
intended to be m isleading w ill com ply w ith
§ 213.4(g)(1), even if the descriptions are
complex. In providing a full description of an
early term ination m ethod, a lessor may use
the nam e of a generally accepted m ethod of
com puting the unam ortized cost portion (also
know n as the “adjusted lease balance”) of its
early term ination charges. For example, a
lessor may state that the “constant yield”
m ethod w ill be utilized in obtaining the
adjusted lease balance, but m ust specify how
that figure, and any other term or figure, is
used in com puting the total early term ination
charge im posed upon the consumer.
A dditionally, if a lessor refers to a nam ed
m ethod in this m anner, the lessor m ust
provide a w ritten explanation of that m ethod
if requested by the consumer. The lessor has
the option of providing the explanation as a
m atter of course in the lease docum ents or on
a separate document.
3. Tim ing o f written explanation o f a
na m ed m ethod. W hile a lessor m ay provide
an address or telephone num ber for the
consum er to request a w ritten explanation of
the nam ed m ethod used to calculate the
adjusted leased balance, if at consum m ation
a consum er requests such an explanation, the
lessor m ust provide a w ritten explanation at
that time. If a consum er requests an
explanation after consum m ation, the lessor
m ust provide a w ritten explanation w ithin a
reasonable tim e after the request is made.
4. D efault. W hen default is a condition for
early term ination of a lease, default charges
m ust be disclosed under § 213.4(g)(1). See the
com mentary to § 213.4(q).
5. L essee’s liability at early term ination.
W hen the lessee is liable for the difference
betw een the unam ortized cost and the
realized value at early term ination, the
m ethod of determ ining the am ount of the
difference m ust be disclosed under
§ 213.4(g)(1).
4(h) M aintenance Responsibilities
1. Standards fo r wear and use. No
disclosure is required if a lessor does not set
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standards or im pose charges for wear and use
(such as excess mileage).
4(i) Purchase O ption
1. M andatory disclosure o f no purchase
option. Generally the lessor need only make
th e specific required disclosures that apply to
a transaction. In the case of a purchase option
disclosure, however, a lessor m ust disclose
affirmatively that the lessee has no option to
purchase the leased property if the purchase
option is inapplicable.
2. E xistence o f purchase option. W hether a
purchase option exists under the lease is
determ ined by state or other applicable law.
The lessee’s right to subm it a bid to purchase
property at term ination of the lease is no t an
option to purchase un der § 213.4(i) if the
lessor is not required to accept the lessee’s
bid an d the lessee does no t receive
preferential treatment.
3. Purchase-option fee. A purchase-option
fee is disclosed u n d er § 213.4(i), not
§ 213.4(d). The fee may be separately
item ized or disclosed as part of the purchaseoption price.
4. Official fees and taxes. Official fees such
as those for taxes, licenses, and registration
charged in connection w ith the exercise of a
purchase option may be disclosed under
§ 213.4(i) as part of the purchase-option price
(with or w ithout a reference to their
inclusion in that price) or may be separately
disclosed and item ized by category.
Alternatively, a lessor may provide a
statem ent indicating that the purchase-option
price does n ot include fees for tags, taxes,
and registration.
5. Purchase-option price. Lessors m ust
disclose the purchase-option price as a sum
certain or as a sum certain to be determ ined
at a future date by reference to a readily
available independent source. The reference
should provide sufficient inform ation so that
the lessee w ill be able to determ ine the actual
price w hen the option becomes available.
Statements of a purchase price as the
“negotiated price” or the “fair m arket value”
do no t com ply w ith the requirem ents of
§ 213.4(i).
4(j) Statem ent referencing nonsegregated
disclosures
1. Content. A lessor may delete
inapplicable items from the disclosure. For
example, if a lease contract does not include
a security interest, the reference to a security
interest may be omitted.
4(1) Right o f appraisal
1. Disclosure inapplicable. The lessee does
not have the right to an independent
appraisal m erely because the lessee is liable
at the end of the lease term or at early
term ination for unreasonable w ear or use.
Thus, the disclosure un der § 213.4(1) does not
apply. For example:
1. The automobile lessor m ight expect a
lessee to return an u n dented car w ith four
good tires at the end of the lease term. Even
though it may h old the lessee liable for the
difference betw een a dented car w ith bald
tires and the value of a car in reasonably
good repair, the disclosure under § 213.4(1) is
not required.
2. Lessor’s appraisal. If the lessor obtains
an appraisal of the leased property to
determ ine its realized value, that appraisal
does not suffice for purposes of section
183(c) of the act; the lessor m ust disclose the
lessee’s right to an independent appraisal
un der § 213.4(1).
3. Retail or wholesale. In providing the
disclosures in § 213.4(1), a lessor m ust
indicate w hether the w holesale or retail
appraisal value w ill be used.
4. Tim e restriction on appraisal. The
regulation does not specify a tim e period in
w hich the lessee m ust exercise the appraisal
right. The lessor may require a lessee to
obtain the appraisal w ithin a reasonable time
after term ination of the lease.
4(m) Liability at end o f Lease Term Based
on R esidual Value
1. O pen-end leases. Section 213.4(m)
applies only to open-end leases.
2. Lessor’s p a ym en t o f attorney’s fees.
Section 183(a) of the act requires that the
lessor pay the lessee’s attorney’s fees in all
actions u nd er § 213.4(m), w hether successful
or not.
4(m )(l) R ent and other charges
1. General. This disclosure is intended to
represent the cost of financing an open-end
lease based on charges and fees that the
lessor requires the lessee to pay. Examples of
disclosable charges, in addition to the rent
charge, include acquisition, disposition, or
assignm ent fees. Charges im posed by a third
party whose services are not required by the
lessor (such as official fees and voluntary
insurance) are not included in the
§213.4(m )(l) disclosure.
4(m)(2) Excess liability
1. Coverage. The disclosure limiting the
lessee’s liability for the value of the leased
property does not apply in the case of early
termination.
2. Leases with a m inim u m term. If a lease
has an alternative m inim um term, the
disclosures governing the liability lim itation
are not applicable for the m inim um term.
3. Charges not subject to rebuttable
presumption. The limitation on liability
applies only to liability at the end of the
lease term that is based on the
difference between the residual value of
the leased property and its realized
value. The regulation does not preclude
a lessor from recovering other charges
from the lessee at the end of the lease
term. Examples of such charges include:
i. D isposition charges.
ii. Excess mileage charges.
iii. Late paym ent and default charges.
iv. In simple-interest accounting leases,
am ount by w hich the unam ortized cost
exceeds the residual value because the lessee
has not m ade tim ely payments.
4(n)
Fees a nd taxes
1. Treatm ent o f certain taxes. Taxes paid
in connection w ith the lease are generally
disclosed u nd er § 213.4(n), but there are
exceptions. To illustrate:
i. Taxes paid by lease signing or delivery
are disclosed under § 213.4(b) and § 213.4(n).
ii. Taxes that are part of a regularly
scheduled paym ents are reflected in the
disclosure u nd er § 213.4(c) and itemized
under § 213.4(f)(10).
iii. A tax payable by the lessor that is
passed on to the consum er and is reflected
in the lease docum entation m ust be disclosed
u nd er § 213.4(n). A tax payable by the lessor
and absorbed as a cost of doing business need
not be disclosed.
iv. Taxes charged in connection w ith the
exercise of a purchase option are disclosed
u nd er § 213.4(i), not § 213.4(n).
4(o) Insurance
1. Coverage. If insurance is obtained
through the lessor, inform ation on the type
and am ount of insurance coverage (whether
voluntary or required) as w ell as the cost,
m ust be disclosed.
2. Lessor’s insurance. Insurance purchased
by the lessor prim arily for its ow n benefit,
and absorbed as a business expense an d not
separately charged to the lessee, need not be
disclosed u nd er § 213.4(o) even if it provides
an incidental benefit to the lessee.
3. M echanical breakdown protection and
other products. W hether products purchased
in conjunction w ith a lease, such as
m echanical breakdow n protection (MBP) or
guaranteed automobile protection (GAP),
should be treated as insurance is determ ined
by state or other applicable law. In states that
do not treat MBP or GAP as insurance,
§ 213.4(o) disclosures are not required. In
such cases the lessor may, however, disclose
this inform ation in accordance w ith the
additional inform ation provision in
§ 213.3(b). For MBP insurance contracts not
capped by a dollar am ount, lessors may
describe coverage by referring to a lim itation
by mileage or tim e period, for example, by
indicating that the m echanical breakdow n
contract insures parts of the automobile for
up to 100,000 miles.
4(p) Warranties or Guarantees
1. B rief identification. The statem ent
identifying w arranties may be brief and need
not describe or list all w arranties applicable
to specific parts such as for air conditioning,
radio, or tires in an automobile. For example,
m anufacturer’s warranties m ay be identified
sim ply by a reference to the standard
m anufacturer’s warranty. If a lessor provides
a com prehensive list of warranties that may
not all apply, to com ply w ith § 213.4(p) the
lessor m ust indicate w hich warranties apply
or, alternatively, w hich w arranties do not
apply.
2. Warranty disclaimers. A lthough a
disclaimer of warranties is no t required by
the regulation, the lessor may give a
disclaim er as additional inform ation in
accordance w ith § 213.3(b).
3. State law. W hether an express w arranty
or guaranty exists is determ ined by state or
other law.
4(q) Penalties and O ther Charges fo r
D elinquency
1. Collection costs. The automatic
im position of collection costs or attorney fees
upon default m ust be disclosed under
§ 213.4(q). Collection costs or attorney fees
that are not im posed automatically, bu t are
contingent upon expenditures in conjunction
w ith a collection proceeding or upon the
Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
em ploym ent of an attorney to effect
collection, need not be disclosed.
2. Charges fo r early term ination. W hen
default is a condition for early term ination of
a lease, default charges m ust also be
disclosed u n d er § 213.4(g)(1). The § 213.4(q)
and (g)(1) disclosures may, bu t need not, be
com bined. Examples of com bined disclosures
are provided in the m odel lease disclosure
forms in appendix A.
3. Sim ple-interest leases. In a simpleinterest accounting lease, the additional rent
charge that accrues on the lease balance
w hen a periodic paym ent is m ade after the
due date does not constitute a penalty or
other charge for late paym ent. Similarly,
continued accrual of the rent charge after
term ination of the lease because the lessee
fails to return the leased property does not
constitute a default charge. But in either case,
if the additional charge accrues at a rate
higher th an the norm al rent charge, the lessor
m ust disclose the am ount of or the m ethod
of determ ining the additional charge under
§ 213.4(q).
4. Extension charges. Extension charges
that exceed the rent charge in a simpleinterest accounting lease or that are added
separately are disclosed u nd er § 213.4(q).
5. Reasonableness o f charges. Pursuant to
section 183(b) of the act, penalties or other
charges for delinquency, default, or early
term ination may be specified in the lease but
only in an am ount that is reasonable in light
of the anticipated or actual harm caused by
the delinquency, default, or early
term ination, the difficulties of proof of loss,
and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy.
4(r) Security Interest
1. D isclosable security interests. See
§ 213.2(o) and accom panying com mentary to
determ ine w hat security interests m ust be
disclosed.
terms of varying durations, one of w hich will
exceed six m onths beyond the originally
scheduled term ination date of the lease, new
disclosures are required at the
com m encem ent of the term that w ill exceed
six m onths beyond the originally scheduled
term ination date.
2. Content o f disclosures fo r m onth-tom onth extensions. The disclosures for a lease
extended on a m onth-to-m onth basis for more
than six m onths should reflect the month-tom onth nature of the transaction.
Section 213.7—A dvertising
7(a) General Rule
1. Persons covered. All “persons” m ust
com ply w ith the advertising provisions in
this section, not just those that m eet the
definition of a lessor in § 213.2(h). Thus,
automobile dealers, merchants, and others
w ho are not themselves lessors m ust comply
w ith the advertising provisions of the
regulation if they advertise consum er lease
transactions. Pursuant to section 184(b) of the
act, however, owners and personnel of the
m edia in w hich an advertisem ent appears or
through w hich it is dissem inated are not
subject to civil liability for violations under
section 185(b) of the act.
2. “Usually and custom arily.” Section
213.7(a) does not prohibit the advertising of
a single item or the prom otion of a new
leasing program, bu t prohibits the advertising
of terms that are not and w ill not be
available. Thus, an advertisem ent may state
terms that w ill be offered for only a lim ited
period or terms that w ill become available at
a future date.
7(b)
Clear and C onspicuous Standard
1. Standard. The disclosures in an
advertisem ent in any m edia m ust be
reasonably understandable. For example,
very fine print in a television advertisem ent
or detailed and very rapidly stated
4(s) Lim itations on Rate Inform ation
inform ation in a radio advertisem ent does
1. Segregated disclosures. A lease rate may not m eet the clear and conspicuous standard
if consum ers cannot see and read or hear,
not be included among the segregated
and cannot com prehend, the information
disclosures referenced in § 213.3(a)(2).
required to be disclosed.
Section 213.5—Renegotiations, E xtensions
7(b)(1) A m o u n t due at Lease Signing or
a nd A ssum ptio ns
Delivery
1. Coverage. Section 213.5 applies only to
1. Item ization no t required. O nly a total of
existing leases that are covered by the
am ounts due at lease signing or delivery is
regulation. It does not apply to the
required to be disclosed, not an itemization
renegotiation or extension of leases w ith an
of its com ponent parts. Such an item ization
initial term of four m onths or less, because
is provided in any transaction-specific
such leases are not covered by the definition
disclosures provided under § 213.4.
of consum er lease in.
2. Prom inence rule. Except for a periodic
§ 213.2(e). W hether and w hen a lease is
paym ent, oral or w ritten references to
satisfied and replaced by a new lease is
com ponents of the total due at lease signing
determ ined by state or other applicable law.
or delivery (for example, a reference to a
5(b) E xtensions
capitalized cost reduction, w here permitted)
1. Tim e o f extension disclosures. If a
may not be more prom inent than the
consum er lease is extended for a specified
disclosure of the total am ount due at lease
term greater than six m onths, new
signing or delivery.
disclosures are required at the tim e the
7(b)(2) A dvertisem ent o f a Lease Rate
extension is agreed upon. If the lease is
1. Location o f statem ent. The notice
extended on a m onth-to-m onth basis and the
required to accom pany a percentage rate
cum ulative extensions exceed six months,
stated in an advertisem ent m ust be placed in
new disclosures are required at the
close proxim ity to the rate w ithout any other
com m encem ent of the seventh m onth and at
intervening language or symbols. For
the com m encem ent of each seventh m onth
example, a lessor m ay not place an asterisk
thereafter for as long as the extensions
continue. If a consum er lease is extended for
next to the rate and place the notice
16063
elsewhere in the advertisement. In addition,
w ith the exception of the notice required by
§ 213.4(s), the rate cannot be m ore prom inent
than any § 213.4 disclosure stated in the
advertisement.
7(c) Catalogs and Multi-Page
A dvertisem ents
1. General rule. The multiple-page
advertisem ents referred to in § 213.7(c) are
advertisements consisting of a series of
num bered pages—for example, a supplem ent
to a new spaper. A mailing com prising several
separate flyers or pieces of prom otional
m aterial in a single envelope is not a single
m ultiple-page advertisement.
12. Cross-references. A multiple-page
advertisem ent is a single advertisem ent
(requiring only one set of lease disclosures)
if it contains a table, chart, or schedule w ith
the disclosures required u n der § 213.7(d)(2)
(i) through (v). If one of the triggering terms
listed in § 213.7(d)(1) appears in a catalog or
other multiple-page advertisement, the page
on w hich the triggering term is used m ust
clearly refer to the specific page w here the
table, chart, or schedule begins.
7(d)(1) Triggering Terms
1. Typical exam ple. W hen any triggering
term appears in a lease advertisement, the
additional terms enum erated in § 213.7(d)(2)
(i) through (v) m ust also appear. In a m ulti
lease advertisement, an example of one or
more typical leases w ith a statem ent of all the
terms applicable to each may be used. The
examples m ust be labeled as such and m ust
reflect representative lease terms that are
made available by the lessor to consumers.
7(d)(2) A dd itio na l Terms
1. Third-party fees that vary b y state or
locality. The disclosure of the total am ount
due at lease signing or delivery may:
i. Exclude third-party fees, such as taxes,
licenses, and registration fees and disclose
that fact; or
ii. Provide a total that includes third-party
fees based on a particular state or locality as
long as that fact and the fact that fees may
vary by state or locality are disclosed.
7(e) A lternative Disclosures— M erchandise
Tags
1. M ultiple-item leases. Multiple-item
leases that utilize m erchandise tags requiring
additional disclosures may use the alternate
disclosure rule.
7(f) A lternative Disclosures— Television or
Radio A dvertisem ents
7(f)(1) Toll-Free N um ber or Print
A dvertisem ent
1. Publication in general circulation. A
reference to a w ritten advertisem ent
appearing in a new spaper circulated
nationally, for example, USA Today or the
Wall Street Journal, may satisfy the general
circulation requirem ent in § 213.7(f)(l)(ii).
2. Toll-free num ber, local or collect calls.
In com plying w ith the disclosure
requirem ents of § 213.7(f)(l)(i), a lessor m ust
provide a toll-free num ber for nonlocal calls
m ade from an area code other th an the one
used in the lessor’s dialing area.
Alternatively, a lessor may provide any
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Federal Register / Vol. 62, No. 65 / Friday, April 4, 1997 / Rules and Regulations
telephone num ber that allows a consum er to
reverse the phone charges w hen calling for
information.
3. M ulti-purpose num ber. W hen an
advertised toll-free num ber responds w ith a
recording, lease disclosures m ust be provided
early in the sequence to ensure that the
consum er receives th e required disclosures.
For example, in providing several dialing
options—such as providing directions to the
lessor’s place of business—the option
allowing the consum er to request lease
disclosures should be provided early in the
telephone message to ensure that the option
to request disclosures is not obscured by
other information.
4. Statem ent accom panying toll free
num ber. Language m ust accom pany a
telephone and television num ber indicating
that disclosures are available by calling the
toll-free num ber, such as “call 1 -8 0 0 -0 0 0 0000 for details about costs and term s.”
Section 213.8— Record Retention
1. M anner o f retaining evidence. A lessor
m ust retain evidence of having performed
required actions and of having made required
disclosures. Such records may be retained in
paper form, on microfilm, microfiche, or
com puter, or by any other m ethod designed
to reproduce records accurately. The lessor
need retain only enough inform ation to
reconstruct the required disclosures or other
records.
Section 213.9— Relation to State Laws
1. E xem ptions granted. Effective October 1,
1982, the Board granted the following
exem ptions from portions of the Consumer
Leasing Act:
i. Maine. Lease transactions subject to the
M aine Consumer Credit Code and its
im plem enting regulations are exem pt from
chapters 2, 4, and 5 of the federal act. (The
exem ption does not apply to transactions in
w hich a federally chartered institution is a
lessor.)
ii. O klahom a. Lease transactions subject to
the Oklahoma Consumer Credit Code are
exem pt from chapters 2 and 5 of the federal
act. (The exem ption does not apply to
sections 132 through 135 of the federal act,
nor does it apply to transactions in w hich a
federally chartered institution is a lessor.)
A p p e n d ix A —M odel Forms
1. Permissible changes. A lthough use of the
model forms is not required, lessors using
them properly w ill be deem ed to be in
com pliance w ith the regulation. Generally,
lessors may make certain changes in the
format or content of the forms and may delete
any disclosures that are inapplicable to a
transaction w ithout losing the act’s
protection from liability. For example, the
m odel form based on m onthly periodic
paym ents m ay be m odified for single
paym ent lease transactions or for quarterly or
other periodic paym ents. The content,
format, and headings for the segregated
disclosures m ust be substantially similar to
those contained in the m odel forms;
therefore, any changes should be minim al.
The changes to the m odel forms should not
be so extensive as to affect the substance and
the clarity of the disclosures.
2. E xam ples o f 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” requirem ents.
v. Deleting inapplicable disclosures by
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
facilitate use of m ulti-purpose standard
forms.)
vi. A dding language or symbols to indicate
estimates.
vii. A dding num eric or alphabetic
designations.
viii. Rearranging the disclosures into
vertical colum ns, except for § 213.4 (b)
through (e) disclosures.
ix. Using icons and other graphics.
3. M odel closed-end or n e t vehicle lease
disclosure. M odel A -2 is designed for a
closed-end or net vehicle lease. U nder the
“Early Term ination and Default” provision a
reference to the lessee’s right to an
independent appraisal of the leased vehicle
u nder § 213.4(1) is included for those closedend leases in w hich the lessee’s liability at
early term ination is based on the vehicle’s
realized value.
4. M odel furniture lease disclosures. Model
A -3 is a closed-end lease disclosure
statem ent designed for a typical furniture
lease. It does not include a disclosure of the
appraisal right at early term ination required
u nder § 213.4(1) because few closed-end
furniture leases base the lessee’s liability at
early term ination on the realized value of the
leased property. 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, M arch 31,1997.
W illiam W. W iles,
Secretary o f the Board.
[FR Doc. 97-8574 Filed 4 -3 -9 7 ; 8:45 am]
BILLING CODE 6210-01-P
@FedFRASER