The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal Reserve Bank OF DALLAS ROBERT D. M C T E E R , J R . D A LLA S , TEXAS p r e s id e n t A N D C H IE F E X E C U T IV E O F F IC E R /-v , ! ^ 1 r\r\r October 6, 1995 7 5 2 6 5 -5 9 0 6 Notice 95-93 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Proposed Amendments to Regulation M (Consumer Leasing) and to the Official Staff Commentary to Regulation M DETAILS The Board of Governors of the Federal Reserve System has requested comment on proposed amendments 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 proposal is the result of the Board’s review of Regulation M, pursuant to its policy of periodically reviewing its regulations. The Board has also proposed changes to the Official Staff Commentary to Regulation M. The Board must receive comments by November 17, 1995. Please address comments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. Comments on Regulation M should refer to Docket No. R-0892. Comments on the Official Staff Commentary to Regulation M should refer to Docket No. R-0893. ATTACHMENT A copy of the Board’s notice as it appears on pages 48752-78, Vol. 60, No. 182, of the Federal Register dated September 20, 1995, is attached. F6r 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 Brahch 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) - 2 - 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, I Wednesday September 20, 1995 Part II Federal Reserve System 12 CFR Part 213 Consumer Leasing; Proposed Rules 48752 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules of leasing disclosures from other information. 12 CFR Part 213 The Board received 70 comment letters on the advance notice of [Regulation M; Docket No. R-0892] proposed rulemaking. Most commented only on the three issues addressed in Consumer Leasing SUPPLEMENTARY INFORMATION: the advance notice. Based on its review AGENCY: Board of Governors of the I. Background on the Consumer Leasing and on the comments received, the Federal Reserve System. Act and Regulation M Board now proposes revisions to ACTION: Proposed rule. Regulation M. While several revisions The Consumer Leasing Act (CLA), 15 would make substantive changes to the U.S.C. 1667-1667e, was enacted into SUMMARY: The Board is issuing this regulation, including new disclosure law in 1976 as an amendment to the proposal to revise Regulation M, which requirements, the proposal leaves many Truth in Lending Act (TILA), 15 U.S.C. implements the Consumer Leasing Act. provisions substantively unchanged. In 1601 et seq. The Board was given The act requires lessors to provide addition to seeking comment on the rulewriting authority, and its Regulation uniform cost and other disclosures proposed regulatory changes, the Board M (12 CFR part 213) implements the about consumer lease transactions. The again solicits views on whether specific CLA. An official staff commentary that Board has reviewed Regulation M, legislative revisions to the CLA may also interprets the regulation has also been pursuant to its policy of periodically be warranted. For example, several published (Supplement I-C L -1 to 12 reviewing its regulations, and proposes commenters on the advance notice CFR 213). revisions to simplify and clarify its suggested that CLA coverage be provisions to carry out more effectively The CLA generally applies to expanded to cover leases that exceed the the purposes of the act. The proposal consumer leases of personal property current $25,000 total contractual contains several substantive revisions, involving $25,000 or less and a term of obligation limitation. for example: additional disclosure more than four months. An automobile The proposal simplifies the language requirements about early termination lease is the most common type of and format of the regulation to state the charges, disclosure of the gross cost of consumer lease covered by the CLA. requirements more clearly. Footnotes leases, the residual value, and the Like the credit provisions of the TILA, have been either moved to the staff estimated lease charge; a requirement the CLA requires lessors to provide commentary or deleted as unnecessary. that certain leasing disclosures be uniform cost and other disclosures in Obsolete provisions have been deleted segregated from other information; and consumer lease transactions and lease and explanatory material transferred to pursuant to a statutory change, new advertising. Prior to entering into a lease the commentary. In addition to advertising provisions for radio and agreement, lessors must give consumers comments on the proposed changes, the television. The proposal also simplifies 15 to 20 disclosures, including the Board requests specific suggestions for the language and format of the amount of initial charges to be paid, an other revisions that would facilitate regulation, deleting obsolete provisions identification of leased property, a compliance without causing an adverse and eliminating the footnotes or moving payment schedule, the responsibilities impact on consumer protections. them to the Official Staff Commentary. for maintaining the leased property, and Although the regulation applies to all A proposal to revise the commentary is the liability for terminating a lease early. being published elsewhere in today’s The law also regulates balloon payments consumer leases covered by the CLA (for example, automobile leases and issue of the Federal Register. by limiting liability at the end of a lease furniture leases), much of the focus of OATES: Comments must be received by term to no more than three times the the review has been on automobile November 17,1995. monthly paiyment. leasing. The Board solicits specific ADDRESSES: Comments should refer to II. The Review of Regulation M comment on whether any of the Docket No. R -0892, and be mailed to proposed rules are more appropriately Mr. William W. Wiles, Secretary, Board The Board’s Regulatory Planning and limited to automobile lease transactions. of Governors of the Federal Reserve Review Program calls for the periodic It is anticipated that proposed System, 20th Street and Constitution review of a regulation with four goals in revisions to Regulation M will be Avenue, NW, Washington, DC 20551. mind: to clarify and simplify regulatory adopted in final form in the Spring of Comments also may be delivered to language; to determine whether 1996 with compliance optional until Room B -2222 of the Eccles Building regulatory amendments are needed to October 1 ,1 9 9 6 , the uniform effective between 8:45 a.m. and 5:15 p.m. address technological and other date for mandatory compliance. weekdays, or to the guard station in the developments; to reduce undue Eccles Building courtyard on 20th regulatory burden on the industry; and III.'Discussion of Proposed Revisions Street, NW (between Constitution to delete obsolete provisions. Regulation Avenue and C Street) any time. The following discussion covers the M has not been substantially revised or Comments may be inspected in Room proposed revisions section-by-section. reviewed since it was first issued. The M P-500 of the Martin Building between Board began a review of Regulation M In many cases, the proposed changes 9 a.m. and 5 p.m. weekdays, except as would simplify or clarify the current in November 1993 by publishing an provided in 12 CFR section 261.8 of the text, with no substantive change advance notice of proposed rulemaking Board’s rules regarding the availability intended. Captions have been added to (58 FR 61035, November 19, 1993). of information. each paragraph, to conform with current While comment was solicited generally Board style; the addition or wording of on the provisions of Regulation M and FOR FURTHER INFORMATION CONTACT: captions alone is not meant as a the CLA, the Board identified three Kyung H. Cho-Miller, Obrea O. substantive change in the meaning of specific issues on which comment was Poindexter, or W. Kurt Schumacher, the paragraph itself. The entire desired: (1) Disclosure of early Staff Attorneys, Division of Consumer termination charges, (2) broadcast media proposed regulation and its appendices and Community Affairs, Board of advertising of leases, and (3) segregation have been printed in full. Governors of the Federal Reserve FEDERAL RESERVE SYSTEM System, Washington, DC 20551, at (202) 452-2412 or 452-3667; for the hearing impaired only, contact Dorothea Thompson, Telecommunications Device for the Deaf, at (202) 452-3544. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules Section 213.1—Authority, S cope, P urpose, an d E n forcem en t 1(b) S c o p e an d P urpose This paragraph is revised to add a sentence about the scope of the law and to more closely parallel the purpose clause in § 102 of the TILA, 15 U.S.C. 1601. 1(d) Issu a n ce o f S ta ff Interpretations. Current paragraph 1(d) has been moved to appendix C. S ection 213.2—D efinitions 2(a) D efinitions Most of the definitions remain unchanged and are not discussed below. The current definitions of “Period” and “Real Property” in paragraphs (a) (10) and (13) respectively have been deleted as unnecessary. Definitions of “gross cost,” “estimated lease charge,” “residual value,” and of a “closed-” and an “open-end lease” are added. The following definitions are redesignated as indicated below: Current “Arrange for lease of personal property” in 2(a)(4). “ Board” in 2(a)(5) Proposed moved to comment 2(a)(10)-1. moved to section 2(a)(4). “ Lessee” in 2(a)(7) ... moved to section 2(a)(9). “ Lessor” in 2(a)(8) .... moved to section 2(a)(10). “ Organization” in moved to section 2(a)(9). 2(a)(12). “ Person” in 2(a)(11) . moved to section 2(a)(13). "Personal property” moved to section 2(a)(14). in 2(a)(12). “ Realized value” in moved to section 2<a)(14). 2(a) (15). “ Security interest” in moved to section 2(a)(15). 2(a)(17). Examples of security moved to comment interests in 2(a)(15). 2(a)(17)— 1. “ State” in 2(a)(16) .... moved to section 2(a)(18). "Total lease obliga moved to section tion” in 2(a)(17). 2(a)(19). “Value at consumma moved to section tion” in 2(a)(18). 2(a)(20). 2(a)(2) A dvertisem ent The definition of “advertisement” is simplified and the examples moved to the commentary as part of proposed comment 2(a)(2)— The simplified 1. language is consistent with other consumer regulations. The definition of an advertisement is broad; it covers commercial messages in any medium that directly or indirectly promote a consumer lease transaction. No substantive change in the definition is intended by the proposed revision. 2(a)(3) A gricultural P u rpose For simplicity, the portion of this statutory definition which describes agricultural products is moved to the commentary as proposed comment 2(a)(3)— 1. 2(a)(5) C losed-End L ea se The proposal adds a definition of a closed-end lease, modeled after the definition of closed-end credit in Regulation Z (12 CFR § 226.2(a)(10)). The term covers any lease that does not fall within the definition of an open-end lease. In closed-end leases, sometimes referred to as “walk-away” leases, the lessee is not responsible for the residual value of the leased property at the end of the lease term. 2(a)(6) C onsum er L ea se The rule of construction, currently in § 213.2(b)(1), has been moved to this paragraph. 2(a)(7) E stim ated L ea se C harge 48753 and other charges paid out-of-pocket at consummation by the lessee are also included in the gross cost figure. The gross cost is the amount upon which the periodic and other payments and terms of the lease are based. The Board solicits comment on this definition. 2(a)(10) L essor The proposal deletes the phrase “in the ordinary course of business,” as it may not be very helpful in determining whether a person must comply with the CLA. In its place, a numerical test is set forth. Under this test, a person who leases, offers, or arranges to lease personal property more than five times in the preceding calendar year is subject to the CLA and Regulation M. If a person did not meet th is numerical test in the preceding calendar year, the test is applied to the current year. The Board solicits comment on the proposed numerical test. 2 (a)(l 1) Open-End L ea se The proposal adds a definition of The proposal adds a definition of “open-end lease.” The Board believes “estimated lease charge” to provide guidance in making the proposed the definition will provide useful disclosure in § 213.5(q). The estimated guidance given that certain disclosures lease charge would reflect the total are only relevant to open-end leases, dollar amount of the cost of the lease those in § 213.5(m), and (o), and attributable to interest and other charges § 213.8(d)(2)(vi). (whether paid upfront or during the 2(a)(16) R esidu al V alue term of the lease). The Board believes The proposal adds a definition of that such a disclosure together with a “residual value” to provide guidance in statement indicating what the figure making the proposed disclosure in represents and the formula for § 213.5(r) for closed-end lease calculating the estimated lease charge (as provided in § 213.5(q)) would further transactions. The residual value of assist the consumer in comparing leases. leased property is the amount determined at consummation to be the A first monthly or other periodic value of the leased property at the end payment paid at or before consummation is not included in the of the lease term. calculation of the estimated lease 2(b) R ules o f Construction' charge, as it is reflected in the total This section is deleted from the periodic payment disclosure. Any regulation. Current paragraph 2(b)(1) is refundable charge such as a security moved to paragraph 2(a)(6) of this deposit would also not be included in section. Paragraphs (b)(2) and (b)(3) of the calculation. this section are deleted as unnecessary. 2(a)(8) Gross Cost Section 213.3—E x em p t T ransaction s The proposal adds a definition of No changes have been proposed to “gross cost” to provide guidance in this section. making the proposed disclosure in § 213.5(p) for closed-end lease Section 213.4— G eneral d isclosu re transactions. The Board proposes to requ irem en ts define gross cost as the total dollar 4(a) G eneral R equ irem ents amount of all items included in the Paragraph (a) contains general rules value of a lease at consummation. This about the disclosures required under figure would include the base price of § 213.5, including the form, content, and the leased property and any other items timing of disclosures. The major added to that price— such as a lessor’s revision is the proposed requirement markup, taxes, service agreements, that certain disclosures be segregated insurance, and any outstanding balance from other information. Several existing from a prior lease that is included in a new lease— prior to being offset by any format rules have been eliminated as unnecessary because of the proposed downpayment or trade-in by the consumer. Amounts consisting of fees segregation requirement. Other 48754 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules provisions would be simplified and clarified to ease compliance. 4(a)( 1) Form o f D isclosures The general disclosure requirements are found in section 182 of the CLA. Clear and conspicuous lease disclosures must be given prior to consummation of a lease on a dated written statement that identifies the lessor and lessee. Generally, all the disclosures must be made together on a separate statement or in the lease contract to be signed by the lessee. Under the proposal, the segregated disclosures in § 213.4(a)(2), discussed below, may be provided on a separate document and other CLA disclosures provided in the lease contract, as long as all disclosures are given to a consumer at the same time. Where the disclosures are included in the lease contract, the regulation currently requires that the disclosures be provided above the lessee’s signature. Under the proposal, this specific requirement is deleted as unnecessary. However, lessors must continue to ensure that the disclosures are given to lessees before the lessee becomes obligated on the lease transaction. To provide evidence of compliance, disclosures may still be placed above the lessee’s signature where disclosures are included in a lease agreement. Alternatively, lessors may include instructions alerting a lessee to read the disclosures prior to signing the lease or could provide a signature line or an acknowledgement of receipt for the lessee on the disclosure statement. To satisfy the statutory standard that disclosures be made clearly and conspicuously, the regulation currently requires that disclosures be made on the same page and in a meaningful sequence— the grouping together of related disclosures. The regulation also imposes type-size requirements on numerical disclosures. In light of the proposal to segregate certain disclosures, discussed below, the meaningful sequence and the same page rule, and type-size disclosure requirements are deleted as unnecessary. Nonsegregated disclosures need not be on the same page but they should be grouped together. Disclosures should also be presented in a way that does not obscure the relationship of the terms to each other. 4(a)(2) Segregation o f Certain D isclosures The CLA does not require the segregation of the required leasing disclosures from other information given to the consumer in a lease transaction. There is some concern that The following disclosures (some of which are new) would be segregated from other information: • Gross cost of the lease (new)— § 213.5(p). • Total payment due at lease signing, subdivided into an itemization of the costs to be paid at lease signing, and an itemization of the means of paying these Lease contracts can be long, detailed, costs (this type of itemization would be and complex and often contain leasing disclosures interspersed among contract new)— § 213.5(b). • Total of periodic payments and provisions. Consumers generally have little time to review their lease contracts payment schedule— § 213.5(c). • Total of other charges payable to before signing them. The Board believes lessor—§ 213.5(e). a requirement that certain of the • Residual value (new)— § 213.5(r). mandated disclosures be segregated • Statement concerning the would highlight these disclosures and consumer’s right to purchase the leased thereby enhance consumers’ ability to property at the end of the lease term— understand lease terms and thus make §213.5(k)(l). more informed choices. • Estimated lease charge (new)— In its advance notice of proposed § 213.5(q). rulemaking, the Board specifically • Statement that a substantial charge requested comment on whether a may be imposed for terminating a lease segregation requirement should be early and an example of an early imposed. Thirty of the seventy termination charge (new)— § 213.5(1)(2). commenters addressed the issue. • Statement concerning lessee’s Twenty-six commenters favored some possible wear and use liability, form of disclosure segregation. The including liability for excessive mileage other four commenters believed that any (new in part)— § 213.5(h)(3). consumer benefit associated with • Statement that the consumer should isolating certain disclosures would not refer to lease documents for outweigh the costs to lessors of revising nonsegregated CLA-required forms, or that a segregated disclosure information (new)— § 213.5(s). requirement would require a statutory • In an open-end lease, the value of change. the property at consummation, the total lease obligation, and the difference Under section 105(a) of the TILA, between them— § 213.5(o)(l). which includes the CLA, the Board has The remaining disclosures required the authority to prescribe regulations by Regulation M and the CLA would containing “such classifications, differentiations, or other provisions, and continue to be provided in a nonsegregated format (typically, may provide for such adjustments and together with the other terms and exceptions for any class of transactions, conditions that comprise the lease as in the judgment of the Board are agreement). Comment is solicited on necessary or proper to effectuate the whether any items should be excluded purpose of this title, to prevent from, or others added to, the segregated circumvention or evasion thereof, or to disclosures. facilitate compliance therewith.” Pursuant to this authority, the Board Regulation M currently contains proposes that certain disclosures be model forms for open-end leases, for segregated from other disclosures and closed-end leases, and for furniture information. As discussed previously, leases. These forms have been revised to reflect how the segregated disclosures lessors may include the segregated would appear. The model forms are in disclosures in their lease contracts, but would be required to separate them appendix A. from other information. Alternatively, 4(a)(5) Language o f D isclosures lessors may provide the segregated Current paragraph 4(a)(4) states that disclosures to consumers on a separate lease disclosures must be provided in document. The content, format, and headings for these disclosures should be English, except in the Commonwealth of Puerto Rico. The proposal revises this substantially similar to those contained in the model forms in appendix A of the position. Lessors would be permitted to give disclosures in another language as regulation. To ensure uniformity, no additional information may be included long as disclosures in English are given to a lessee who requests them. The among the segregated disclosures, Board believes that a more permissive except as permitted under any future rule could promote the delivery of more provision found in the official staff meaningful disclosures to consumers. commentary to Regulation M. the absence of a requirement that the consumer leasing disclosures be segregated from general contract or other terms limits the effectiveness of these disclosures in meeting one of the goals of the CLA—to assure clear, conspicuous, and meaningful disclosure of lease terms to consumers. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 4(b) A d d ition al Inform ation Current paragraph 4(b) permits additional information to be included with any disclosures required by the regulation. The proposal would permit additional information only with the nonsegregated CLA leasing disclosures, provided the information does not detract from those disclosures. Current paragraphs 4(b) (1) and (2) have been deleted as unnecessary. Pursuant to section 186(a) of the CLA and Regulation M, proposed § 213.10, if information required by state law is inconsistent with the requirements of the act or regulation, the state law is preempted. 4(c) M ultiple L essors o r L essees Paragraph (c) provides that when a transaction involves multiple lessors, one lessor may make the disclosures on behalf of all of them. The phrase "and the one that discloses shall be the one chosen by the lessors” is deleted as unnecessary. No substantive change is intended. 4(d) Use o f E stim ates Current paragraph 4(d), which implements section 182 of the CLA on the use of estimated disclosures, is proposed (4)(d)(l) and (2). 4(e) E ffect o f S u bsequ en t O ccurrence Paragraph 4(e) provides that generally when an event occurs after disclosures have been delivered which makes a disclosure inaccurate, the inaccuracy does not constitute a violation of the act. This paragraph clarifies that this rule applies to events occurring after consummation of a lease. The first sentence of footnote 1 of the current regulation, which contains a specific example of a subsequent occurrence, has been incorporated into the staff commentary in comment 4(e)-3. The second sentence of the footnote is deleted as unnecessary guidance under this regulation. 4(f) M inor Variations Current paragraph 4(f) allows lessors to disregard February 29 in a leap year when making disclosures. Proposed paragraph (f) incorporates into the regulation all rules on minor variations that may be disregarded in making disclosures, thus provisions currently contained in comment 4(a)-2 of the commentary have been moved to this paragraph. No substantive change is intended. Section 213.5— Content o f D isclosures Section 213.4(g) is proposed § 213.5. Several new disclosures have been added under paragraphs (b), (h)(3), (1)(2), and (p) through (s). Paragraphs which have not been changed, or which contain no substantive changes, have been redesignated as follows: Current Proposed Paragraph 4(g)(1) .... Paragraph 4(g)(3) .... Paragraph 4(g)(4) ,, Paragraph 4(g)(5) .... Paragraph 4(g)(6) .... Paragraph 4(g)(7) .... Paragraph 4(g)(9) .... Paragraph 4(g)(11) ... Paragraph 4(g)(13) ... Paragraph 4(g)(15) ... redesignated as 5(a). redesignated ais 5(c). redesignated as 5(d). redesignated as 5(e). redesignated as 5(f). redesignated as 5(g). redesignated as 5(i). redesignated as 5(k). redesignated as 5(m). redesignated as 5(o). 5(b) Total A m ount D ue at L ease Signing Paragraph 5(b), currently § 213.4(g)(2), requires lessors to disclose to consumers the total amount of any payment due at the consummation of a lease. The payment may include a security deposit, a trade-in allowance or a downpayment (the “capitalized cost reduction”), a first periodic payment in advance, and fees such as delivery charges. Under the current regulation, these charges must be itemized by type but need not be itemized by amount. The Board is proposing several changes to this paragraph. The language has been revised to clarify that a total amount of payments due at lease signing is required. The Board proposes to require that amounts paid at lease signing be itemized by amount as well as by type. The Board believes that these lease costs should be more completely and uniformly disclosed, and requiring itemization by type and amount would ensure this result. Under the proposal, the type and amount of each charge due at consummation is included among the segregated disclosures under the subheading “itemized costs.” Also, to enhance consumer understanding of what payments are made and how they are allocated—particularly the amount agreed upon as the trade-in allowance of property being provided by the lessee— the lessor should disclose the net tradein allowance, any rebate, payments in cash, and any other credits under the subheading “means of paying itemized costs.” (See the model forms in appendix A for format.) The Board believes that standardization of the terminology to be used and the full itemization of the initial costs and means of payment will provide consumer benefit without imposing substantial compliance costs on lessors. 5(h) M aintenance R espon sibilities Paragraph 5(h), currently § 213.4(g)(8), requires disclosures about maintaining or servicing leased property. Lessors currently must identify the party 48755 responsible for maintaining or servicing the leased property, along with a description of the responsibility, and as applicable, a statement of reasonable wear and use standards. For example, an automobile lease may state that a consumer will be liable for excessive wear and use if the vehicle is returned with little tread on the tires, with rust, dents or broken parts or accessories, or if the vehicle is driven over a certain number of miles. Some of the consumer representatives commenting on the Board’s advance notice expressed concerns about excess wear and use standards. Generally, they suggested that lessors should have to describe, in detail, the standard applied and the penalties that would be charged. They also called for the development of standardized measurements of excess wear and use. One commenter suggested that the Board prohibit charges for excess wear and use beyond actual repair costs. In addition, the Board’s Consumer Advisory Council and others have advised the Board that highlighting information about excessive mileage charges is important. Although the Board receives very few consumer complaints about leasing, it has over the years received complaints about reasonable wear and use standards. Consumers sometimes do not realize that lessors may impose strict standards for what they consider normal use of lease property, particularly leased automobiles, and that these standards may vary depending on the lessor. While issues concerning excessive wear and use liability are generally a matter of contract between a lessee and lessor, the Board believes that a disclosure notice about the possibility that a charge may be imposed at the end of the lease term for excessive wear and use of leased property, based on the standards imposed by the lessor, may heighten a consumer’s awareness about maintenance responsibilities without any substantial compliance costs on lessors. Therefore, the Board proposes to add a disclosure requirement in paragraph 5(h)(3), to be included among the segregated disclosures, that “you may be charged for excessive wear and use based on the lessor’s standard for normal use.” In a vehicle lease transaction, any applicable charge for excessive mileage must also be included. The Board solicits comment on the proposed new disclosure, including the required language. 5(j) P en alties a n d O ther Charges fo r D elinqu ency The Board proposes to add that any penalty or charge shall be reasonable, to reflect the requirement found in section 48756 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 183(b) of the CLA. No substantive change is intended. reference to the name of the method employed to determine the unamortized capitalized cost portion of the early 5(1) E arly Term ination termination formula instead of requiring Paragraph 5(1), currently a detailed description of that method. § 213.4(g)(12), requires a disclosure Some suggested that the Board also about charges for terminating a lease define the most common amortization early. The Board proposes additional methods currently used (such as the disclosure requirements, in § 213.5(1)(2), “actuarial” or the “constant yield” that would be included among the methods) to provide for uniformity. segregated disclosures. Lessors would They believed that through education have to include a statement alerting and exposure to the names of the most consumers about charges for terminating commonly used methods, consumers a lease early, including an example of would eventually become aware of their an early termination penalty based on advantages and disadvantages. an assumed termination of the lease at Opponents believed that merely the end of the first year. providing the name of the method The CLA requires lessors to disclose would not be useful and would make it the conditions under which the lessee difficult or impossible for consumers to or lessor may terminate the lease before compute the amount of an early the end of the lease term and the termination charge. Some consumer amount or method of determining a advocates said that in using complex penalty or other charge for early methods and highly complicated termination. Lessors typically disclose descriptions in determining early the method of determining an early termination charges, lessors preclude termination charge and such a consumers from determining whether disclosure is often complex. the charges themselves are reasonable. In its advance notice of proposed (The CLA specifies that charges for early rulemaking, the Board solicited termination must be “reasonable.”) comment on whether the disclosure of Other commenters, including both early termination charges could be lessors and consumer representatives, revised to more easily inform consumers favored a full description of all aspects about these charges. The Board also of a lessor’s early termination method, solicited comment on whether the along with an example of how that disclosure of the name of the lessor’s method would work. In addition, some early termination method along with a commenters suggested a general representative example of a lease statement warning the consumer of the termination charge should be possibility of a substantial charge for considered, as well as any other early termination. disclosure alternative. The notice Based on the comments received and mentioned a U.S. Court of Appeals case, upon further analysis, the Board L u n dqu istv. Security P acific proposes to require that, along with an A utom otive F in an cial Services Corp., example of an early termination charge, 993 F.2d 11 (2d Cir.), cert, d en ied, 62 a statement be given by lessors among U.S.L.W. 3320 (U.S. Nov. 1,1993), that the segregated disclosures that “you has caused lessors concern. In that case, may have to pay a substantial charge if the court held a lessor liable for you end this lease early,” that “the violating the “reasonably actual charge w ill vary depending on understandable” standard for disclosure when the lease is terminated,” and that under Regulation M; the lessor had an “other charges such as for excessive early termination formula that the court wear and use may also be imposed.” found to be overly complex and beyond The Board believes these highlighted the understanding of the average disclosures would serve to better inform consumer. Many lessors say that, given consumers about the consequences if the complexity of modem automobile they were to terminate their leases early. lease transactions, it is difficult to The Board believes that the CLA describe every part of an early mandates full disclosure of a lessor’s termination formula in terms clearly method of determining an early understandable to consumers. In termination charge, even if it is complex. Therefore, in addition to the particular, lessors state that the various above statement and example, a full methods used to determine the description of the complete early “unamortized capitalized cost” portion termination method must be disclosed of their early termination formulas are by lessors outside of the segregated inherently complex and cannot be disclosures. However, given the reduced to a disclosure that is easily complexity of the methods involved, a understandable. lessor is permitted— in giving the full In responding to the Board’s request description of its early termination for comment on this issue, many lessor method—to include a reference to the representatives favored allowing a , name of a generally accepted method of computing the unamortized gross or capitalized cost (also known as the “adjusted lease balance”) portion of its early termination charge. For example, a lessor may state that the “constant yield’’ method would be utilized in obtaining the unamortized portion of the gross cost, but the lessor would have to specify how that figure— and any other term or figure— is used in computing the total early termination charge that would be imposed upon the consumer. Additionally, if a lessor refers to a named method in this manner, it would have to provide a written explanation of that method if requested by the consumer. While lessors should attempt to provide clear and understandable explanations of their early termination provisions to consumers, explanations that are full, accurate, and not intended to be misleading are in compliance with CLA and Regulation M disclosure requirements. (And, of course, the statute requires that the early termination charges themselves must be “reasonable.”) These positions are codified in the proposed revisions to the Official Staff Commentary to Regulation M. Finally, regarding the selection of an assumed termination period for the early termination example, several approaches were considered by the Board. The proposed example is based on an assumption that the consumer terminates the "lease near the beginning of the lease term—at the end of the first year. This approach provides a “worst case” scenario. Early termination charges are typically highest at the beginning of the lease term. The example could have been based on an assumption that the consumer terminates the lease towards the end of the lease— such as the end of the third year for a four-year lease, and at the end of the second year for a three-year lease. The last year of a lease is the period when many early terminations occur. An example could have been based on an assumed early termination occurring for instance, at the 50 percent mark of the lease term. Arguably, this approach could allow an easier comparison of early termination examples among leases, in contrast to the first two approaches where the assumed early termination would not occur at proportionately equivalent points in leases of different lengths. While there is some merit to each alternative (and there are others), the Board is proposing an early termination example based on the assumption that the lease terminates at the end of the first year, which illustrates to Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules consumers how substantial the charge could be if the lease is terminated very early during the lease term. The figure used to calculate the example must be calculated in the same manner the residual value is calculated for purposes of § 213.5(r). Therefore, if a lessor uses the fair market value of the leased property to estimate the value of the property at the end of the lease, the early termination example must also be calculated using the fair market value. Comment is solicited on the proposed example including whether using an assumed termination period other than the one proposed would be more appropriate. 5(n) Right o f A ppraisal Paragraph 5(n), currently § 213.4(g)(14), requires disclosure of the right to an appraisal of leased property. Generally this provision is applicable to open-end leases, but it also applies to closed-end leases. Language is revised for clarity and accuracy, for example, the term “realized value” replaces “estimated value.” No substantive change is intended. 5(p) Gross Cost The Board proposes to require disclosure of the gross cost among the segregated disclosures. This disclosure is applicable only to closed-end leases; proposed § 213.5(o), currently § 213.4(g)(15), requires the disclosure of the “value at consummation” in openend leases. Federal law does not currently require disclosure of information on the base price of the leased property in closed-end leases. Because this figure usually is not given, consumers may assume that the lease is based on the manufacturer’s suggested retail price, or on the negotiated sales price (if the parties initially contemplated that the consumer would finance or purchase the property). However, the starting price of the leased property may actually be significantly higher than either of these figures. Sixteen of the seventy commenters on the advance notice favored a “capitalized cost” disclosure. They included representatives of both the leasing industry and consumer groups. Several trade associations representing a large segment of the industry have recently asked their members to voluntarily disclose this item. In addition, a few lessors have been disclosing this figure for some time. Pursuant to its authority under section 105(a) of the TILA, the Board proposes to require disclosure of the “gross cost” in closed-end lease transactions, using that term, in order to further effectuate the purposes of the law. The Board believes such a disclosure (together with a brief description such as “the agreed upon acquisition value of the vehicle including but not limited to items such as taxes, fees, service contracts, and insurance”) would further the CLA’s goal that cost disclosures enable consumers to draw comparisons between leases and, where appropriate, between leases and credit transactions. The gross cost would include the agreed upon price of the leased property and any other items added to that price— such as a lessor’s markup, taxes, fees, extended warranties, insurance, and any outstanding balance from a prior lease that is included in a new lease— prior to being offset by any downpayment or trade-in by the consumer. The gross cost is the amount that the periodic and other payments and terms of the lease are based upon, and is intended to be used by consumers to compare a lease with similar lease and non-lease transactions. The gross cost would be readily available to lessors from worksheets they utilize in setting the terms and conditions of the lease. However, as discussed in 5(q) below, the inclusion of a gross cost figure in the segregated disclosures in some cases could invite consumers to make misleading comparisons of leasing and financing options. The Board solicits specific comment on this disclosure and its definition. 5(q) E stim ated L ea se C harge Pursuant to its authority under section 105(a) of the TILA, the Board proposes to require disclosure of the estimated lease charge among the segregated disclosures to further effectuate the CLA’s goal of enabling consumers to comparison shop. This figure would show the total dollar amount of the “financing” costs that will be charged to the consumer over the lease term, including the amount attributable to interest, or the “timeprice differential.” Although this figure is similar in concept to the finance charge required to be disclosed in consumer credit transactions subject to the TILA, it is not identical to a finance charge. As proposed, the lease charge would include items such as use taxes, registration and other fees, and insurance— items that are (under certain circumstances, at least) excluded from the finance charge. Therefore, the lease charge would not typically be an appropriate tool to make comparisons between lease and financing transactions. The Board currently does not propose to exclude any of the fees and charges in the lease transaction from the 48757 estimated lease charge. However, comment is solicited on whether and how this disclosure could be made more comparable to the finance charge under the TILA. For example, the Board requests comment on whether insurance charges—which typically are not included directly in the finance charge— or charges payable in a comparable cash transaction (such as automobile registration fees)—should be excluded from the estimated lease charge. When consumers are comparing different lease transactions with the same gross costs and durations (for example, three-year auto leases from two different dealers with the same gross cost but different monthly payments and purchase option prices), the estimated lease charge could be used to compare the transactions. However, as discussed below, an estimated lease charge disclosure would not be useful in comparing different leases where the gross costs or durations differ substantially. L ease rate. Some commenters on the advance notice— including a number of consumer representatives and several small depository institutions— recommended that the Board require lessors to disclose the interest rate im plicit in a lease transaction. Some recommended that this lease rate reflect an annual percentage rate concept— that is, a uniformly calculated rate that would include both interest and other charges imposed in connection with the lease transaction. These commenters suggested that the true cost of leasing would not be known to consumers without a lease rate disclosure. They noted that if the gross or capitalized cost and residual value of leased property are to be disclosed to consumers, the lease rate would be the only missing component necessary to determine the full cost of a lease. Commenters opposed to an interest rate disclosure noted that it would not necessarily reflect the “true cost” of leasing, as lessors might simply be able to manipulate the residual value in order to show a lower interest rate. As noted by some commenters, the lease rate is the only key information about the cost of leasing property that would not be disclosed to consumers under the Board’s proposed rule. Showing a lease rate seems important if consumers are to consider adequately the choice between leases involving different gross costs or leases of different durations. For example, if the same automobile could be leased for either three or five years, and the lessor applies the same rate in either case, the two transactions would have 48758 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules significantly different estimated lease payments on a gross cost figure of charges (based on one lease incurring $17,000. The dealer could then apply a interest charges for two years more than higher interest rate of 14 percent to the other), yet they would have the same calculate the monthly payments, and annual lease rate. this rate would not be disclosed to the A lease rate is clearly defined only in consumer. Even using this 14 percent leases that have a fixed dollar purchase interest rate, the monthly payments on option. In that case, a lease rate would the lease may be less than the monthly be based on a standard formula using payments if the car were financed. The the same information as in the estimated consumer might prefer the financing lease charge: gross cost, total payment alternative if he or she realized that the due at lease signing (less a first monthly implicit interest rate on the lease was 14 or other periodic payment and any percent. However, absent a lease rate refundable charges), total of monthly disclosure, the consumer could payments, total of other charges payable conclude that the lease was a better to the lessor, and the purchase option deal. On the other hand, since the dollar price. In view of some commenters’ amount of the increase attributable to concerns that the residual value could the lessor’s use of a higher interest rate . be manipulated to show a misleading would be reflected in the estimated lease rate, the Board would not lease charge, this could be sufficient to contemplate requiring a lease rate in inform the consumer. In addition, there leases that do not have a dollar purchase may be competitive and operational price option. pressures upon lessors that could Unlike the estimated lease charge, the prevent them from artificially lease rate disclosure may be of use to decreasing the gross cost, such as limits consumers in comparing a lease with a on dealer markups in interest rates. credit transaction. However, the lease Thus any deception that would be rate may be of less usej n cases when associated with disclosure of a low gross the fees reflected in that rate differ cost may be minimal. substantially from the fees reflected in While an annualized lease rate may the APR under the TILA. For example, improve comparison shopping between leases typically include insurance leases, some believe that the disclosure charges; these are included in the of the estimated lease charge would be estimated lease charge, and the Board sufficient for these purposes (assuming would contemplate them being included that consumers comparison shop items in a lease rate disclosure as well. If a with similar gross costs and lease lease and a credit transaction had the durations), and thus the disclosure of a same annualized rate, but the lease rate lease rate would be unnecessary. included insurance charges that are not Moreover, disclosure of a uniform lease included in the credit transaction, the rate disclosure may significantly consumer would be misled if he or she increase the cost of complying with the simply compared the two rates. In the requirements of the CLA and Regulation instahce where insurance was not a M, and this burden may outweigh any factor and other fees were similar in benefit to consumers of such a amount, however, such a comparison disclosure. In light.of the above discussion, the could prove to be of use to consumers Board has not proposed requiring the in analyzing the costs of these disclosure of a lease rate. However, alternative transactions. The Board comment is solicited on this matter, solicits comment on whether and how including the advantages and a lease rate could be made more disadvantages of such a disclosure to comparable to an APR to facilitate such consumers. In the event that the Board comparisons. If the disclosure of a lease rate were were to require disclosure of a lease not required, the inclusion of a gross rate, the Board further solicits comment cost figure (which is prominently on whether the rate should be defined displayed in the disclosure statement) in such a way as to make it more could, in some instances, invite comparable to the APR in a credit misleading comparisons between transaction (such as by excluding competing leases or between a lease and insurance charges from the calculation a financed purchase. For example, in certain circumstances). The Board assume a consumer and an auto dealer also solicits comment on whether the negotiate a $17,000 purchase price and gross cost (and therefore the estimated a 9 percent APR to finance a car. The lease charge) figures should be de dealer then suggests that the consumer emphasized or removed from the consider leasing the car instead. required disclosures to avoid potential manipulation of these figures in order to Assuming that potential lessees are mislead consumers; or whether in likely to attach significance to the gross commenters’ views, this type of cost of the leased car, the dealer could agree to base the monthly lease manipulation would not arise. Finally, the Board solicits comments on how and whether the costs of imposing a lease rate disclosure would outweigh the consumer benefit of having such a rate disclosed. 5(s) Statem ent R eferen cin g N onsegregated D isclosures It is important that the value of the nonsegregated CLA disclosures not be diminished. Therefore, the Board proposes to add a statement among the segregated disclosures to alert consumers to other CLA-required disclosures (not contained among the segregated disclosures) that they should read in the lease documents. The disclosures include information about conditions for and the amount or method of determining early termination charges, charges for delinquency, default or late payments, maintenance responsibilities, any purchase option prior to the end of the lease term, insurance, total taxes and official fees, warranties, liability at the end of the lease term, and any security interest in the leased property. Section 213.6—R enegotiations, E xtensions, an d A ssu m ption s Section 213.6 contains ali the redisclosure rules governing leases that are renegotiated, extended, or assumed, including the exceptions, which currently are generally contained in § 213.4(h). The section has been rearranged and revised for clarity. For example, rules on assumptions in the current staff commentary have been moved to this section. Proposed § 213.6(d) retains the substance of the exceptions found in the current regulation, but has been rephrased. Several exceptions located in the current commentary under current comments 3, 7, and 8 to § 213.4(h) have also been moved to proposed § 213.6(d). Section 213.7—R eserv ed Section 213.7 has been reserved. Section 213.7 in the current regulation has been moved to § 213.10. Section 213.8—A dvertising Section 213.5 in the current regulation is proposed § 213.8. Some of the language of the existing provisions have been revised for simplicity. Under the CLA, if a lease advertisement states certain cost information (such as the amount of a monthly lease payment) as many as six additional disclosures must be clearly and conspicuously given. The Board proposes to make several clarifications and substantive revisions in this section that it believes will ease the compliance concerns of lessors while providing Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules current § 213.5(c) is simplified. No substantive change is intended. Currently, some advertisements do not provide a total of payments required at or before consummation, but instead give an itemization of each charge due 8(b) C lear a n d C onspicuous Standard at that time. In paragraph 8(d)(2)(ii), the Board proposes to clarify that the CLA For clarity and simplicity, the Board requires only that the total of payments proposes to state the clear and due by the consumer before or at lease conspicuous standard in this section in signing be stated in an advertisement in one place; currently in § 213.5 which a trigger term has been used. (The references to the clear and conspicuous language of the statute is somewhat standard are made in several places. ambiguous on this point.) Lessors may Several representatives of state provide an itemized list of the payments attorneys general and others have due by lease signing but would not be questioned the way advertisements of required to under the proposed rule. automobile leases display the required Full disclosure of these initial fees by Regulation M disclosures. Lessors type and amount are among the required sometimes conspicuously advertise low disclosures given to consumers who or no downpayments when, in much actually enter into lease transactions. smaller print, other upfront charges In paragraph 8(d)(2)(iv), the Board such as an acquisition fee, a security proposes to clarify that disclosing the deposit, or the first monthly lease method for determining the purchase payment may be given. Some leasing price is limited to instances where the representatives have expressed concern lessee has the option to purchase the about their possible exposure to liability leased property prior to the end of the due to the potential for differing state lease. Language is added to the second interpretations of what is clear and sentence of this paragraph, consistent conspicuous. The Board is therefore with the specific disclosure proposing that a reference in an requirements in § 213.5(k), which the advertisement to any component of the Board believes is consistent with total amount of payments due at congressional intent to provide the price consummation, such as the of the leased property if the option to downpayment (or that there is no purchase is available at the end of the downpayment), may not be more term. prominently displayed in the Current § 213.5(c)(5) contains two advertisement than the required requirements. Under the first disclosure in § 213.8(d)(2)(ii) of the total requirement, lessors must disclose the amount of payments due at lease amount of “any liabilities” that the signing. The Board believes this rule lessee may be required to pay at the end would address some of the concerns of the term. To remove any ambiguity as about lease advertisements without to the applicability of this provision to adding significant burdens on lessors or both open- and closed-end leases, the interfering with the effective marketing Board proposes to incorporate this of their products. The proposed rule portion of the current paragraph in would not control what terms are to be paragraph 8(d)(2)(v). For example, advertised, but only that components of charges for excessive wear and use the total amount due at lease signing (such as an excessive mileage charge) on could not be emphasized without giving an automobile lease under both openequal prominence to the disclosure of and closed-end leases would have to be the total amount due itself. It should be disclosed in advertisements under this noted that lessors can advertise lease proposed provision. transactions without including any CLA Under the second requirement in disclosures. Disclosures are only current § 213.5(c)(5), lessors must required when certain "trigger” terms disclose whether the lessee is liable for are included in the advertisement, for any difference between the estimated example, a payment amount. value of the leased property and its realized value at the end of the lease, 8(c) Catalogs an d Multi-Page applies only to open-end leases. The A dvertisem en ts Board has moved this requirement to Section 8(c), currently § 213.5(b), has § 213.8(d)(2)(vi). been simplified. No substantive change 8(e) A lternative D isclosures— is intended. M erchan dise Tags 8(d) A dvertisem ent o f Terms That Section 213.8(e) broadens current R equire A d d ition al D isclosure § 213.5(d) by allowing the use of Section 8(d) incorporates current triggering terms on merchandise tags, § 213.5(c). The introductory language of for items normally used in multiple- uniform and more meaningful information to consumers and furthering the CLA mandate that disclosures in advertisements be clearly and conspicuously displayed. 48759 item leases, without providing full advertising disclosures on the tag itself. 8(f) A lternative D isclosures— T elep h on e o r R ad io A dvertisem ents Section § 213.8(f) implements amendments to section 184 of the CLA made by section 336 of the Riegle Community Development and Regulatory Improvement Act of 1994 (Pub. L. 1 0 3 -3 2 5 ,1 0 8 Stat. 2160). Section 336 amended the CLA to provide an alternative disclosure scheme for radio lease advertisements in order to reduce the amount of information in such advertisements. Before the statutory revisions, if any of the trigger terms (such as a payment amount) were used in any type of lease advertisement, as many as six additional disclosures had to be given. These disclosures include statements specifying (1) whether or not the lessee has the option to purchase the leased property, and at what price and time, (2) the amount or method of determining the amount of any liabilities the lease imposes at the end of the term, and (3) that the consumer is liable for the difference between the estimated value of the leased property and its realized value at the end of the term, if such liability exists. Under the statutory amendments, in radio advertisements, lessors are permitted to substitute a reference to a toll-free telephone number or to a specified print advertisement for the disclosures about the purchase option and the end-of-term liability. If consumers call the toll-free number, they must receive all the required disclosures (not simply the ones omitted from the radio advertisement) orally, or in writing if requested by the consumer. Alternatively, all of the disclosures could be provided in a publication in general circulation in the community served by the radio station. Although the statutory amendment is limited to radio advertisements, the legislative history takes note of the Board’s Regulation M review and states that, after public comment, the Board should consider extending the new radio advertising provisions to television and print advertisements. It stated that television advertisements, for example, “raise complex questions regarding the content prominence, and duration of disclosures necessary to simplify the process and to convey more meaningful information to consumers.” The Board believes that television lease advertisements have time constraints similar to those on radio; given these constraints, it is generally agreed that consumers cannot comprehend all the disclosure information provided 48760 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules currently. It is not clear that similar concerns exist with print advertisements. Therefore, in § 213.8(f), pursuant to its authority under section 105(a) of the TILA, the Board is proposing to apply the new statutory disclosure alternative to lease advertisements in both radio and television broadcasts to effectuate the purpose of the CLA and to facilitate compliance. The Board specifically solicits comment on this matter and on whether similar constraints exist for print advertisements that would warrant their inclusion in any final rule. When a television or radio advertisement includes any of the trigger terms in § 213.8(d)(1), the alternative disclosure rules allow lessors to comply with § 213.8(d)(2) by combining certain required disclosures with a referral to either a toll-free number or a written advertisement. Required information in § 213.8(d)(2)(i>— (iii) must be stated in the television or radio advertisement along with the alternative disclosures in § 213.8(f)(1). The remaining disclosures in § 213.8(d)(2)(iv)-(vi), are not required to be disclosed. However, all the required disclosures in § 213.8(d)(2) must be given to consumers through the toll-free number or in a written advertisement appearing in a publication of general circulation in the community served by the media station on which the advertisement is broadcast. The Board solicits comment on its approach in implementing section 336 of the Riegle Community Development and Regulatory Improvement Act. criteria for an exemption determination has been removed. Such information would be available from the Board upon request. Model forms, currently in appendix C of the regulation, have been moved to this appendix and revised to illustrate the new segregated disclosure scheme required by § 213.4(a)(2). Instructions to the current model forms have been deleted as repetitive of the regulation and unnecessary. The Board solicits comment on whether any additional model forms or model clauses are warranted (such as for single or “lump sum” payment leases). Specific comment is also solicited on whether the open-end lease model form is needed and to what extent such leases are being offered. Appendix B—Federal Enforcement Agencies The list of federal agencies that enforce the CLA for particular classes of businesses is moved from appendix D to this appendix. To simplify the regulation, the written information contained in the current appendix about the procedures and criteria for a preemption determination has been removed. Such information would be available from the Board upon request. Appendix C—Issuance of Staff Interpretations Current paragraph § 213.1(d) is moved to this appendix. Model forms have been moved to proposed appendix A. IV. Form of Comment Letters Section 213.9, currently §213.6, has been revised for simplicity. The language “or action is required to be taken” has been added to cover circumstances requiring action by a lessor other than providing disclosures. The language in current § 213.6(b) is eliminated as unnecessary. The caption “Preservation and Inspection of Evidence of Compliance” has been changed to “Record Retention” to conform with usage in other of the Board’s regulations. Comment letters should refer to Docket No. R -0892. The Board requests that, when possible, comments be prepared using a standard courier type face with a type-size of 10 or 12 characters per inch. This will enable the Board to convert the text into machinereadable form through electronic scanning, and will facilitate automated retrieval of comments for review. Comments may also be submitted on 3% inch or 5V* inch computer diskettes in any IBM-compatible DOS-based format, but must be accompanied by an original document in paper form. Section 213.10—R elation to State Laws V. Regulatory Flexibility Analysis Section 213.10 combines and simplifies current §§ 213.7 and 213.8. No substantive changes are intended. Information about procedures and criteria for preemption or exemption determinations is removed. The Board’s Office of the Secretary has prepared a preliminary regulatory analysis of the proposal. A copy of the analysis may be obtained from Publication Services, Board of Governors of the Federal Reserve System; Washington, DC 20551, at (202) 452-3245. Concerning the impact on small firms, the Board believes that most consumer leasing subject to Regulation M is Section 213.9—R ecord R etention Appendix A—Model Forms To simplify the regulation, the written information contained in the current appendix about the procedures and undertaken by large firms. Therefore, elements of revised Regulation M that might increase burden on lessors should not have much impact, if any, on small firms. There is evidence from other regulations of economies of scale (that is, cost conditions that lead to higher average costs at small firms than large firms) in start-up costs for new regulations or for changes in regulations. Thus, implementation of proposed revisions to Regulation M could be disproportionately costly to small firms, to the extent that they engage in covered consumer leasing. Provisions of the CLA are similar to those of the credit provisions of the TILA, and available evidence suggests also the existence of economies of scale in on-going costs for Truth in Lending. Since the requirements of the existing regulation and the proposed revised regulation do not differ by size of firm, small firms would possibly continue to face relatively higher costs under the proposed revised rule. It appears, however, that few, if any, firms that provide consumer leases sure small firms. Moreover, evidence on scale economies for other regulations indicates that scale economies are exhausted at relatively low levels of output. Therefore, it is unlikely that the proposed revisions would cause any firms in the industry to incur disproportionately higher costs because of their size. VI. Paperwork Reduction Act In accordance with section 3507 of the Paperwork Reduction Act of 1980 (44 U.S.C. 35; 5 CFR 1320.13), the Board reviewed the proposed rule under the authority delegated to the Board by the Office of Management and Budget. Comments on the collections of information should be sent to the Office of Management and Budget, Paperwork Reduction Project (7100-0202), Washington, DC 20503, with copies of such comments to be sent to Mary M. McLaughlin, Federal Reserve Board Clearance Officer, Division of Research and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve System, Washington, DC 20551. The third-party disclosure requirements contained in 12 CFR 213.5 will aid consumers in understanding leases they negotiate. The respondents are for-profit institutions, including small businesses. Because the notices are not provided to the Federal Reserve, no issue of confidentiality under the Freedom of Information Act arises. Institutions are not required to respond to this collection of information unless it displays a currently valid OMB control number. The OMB control Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules number is 7100-0202. OMB has deemed that inclusion of the OMB control number in this preamble satisfies this requirement. The Board estimates that the annual burden for state member banks will increase from 9,272 hours to 10,786 hours. The Board estimates that the average length of time to disclose the costs and terms to a consumer will increase from fifteen minutes to seventeen minutes. The Board also estimates that the average length of time to prepare basic lease information for inclusion in all advertisements will decrease from thirty minutes to twentyfive minutes. The Board has found that few state member banks engage in consumer leasing and that while the prevalence of leasing has increased in recent years, it has not increased substantially among state member banks. It also has been found that among state member banks that engage in consumer leasing, only a very few advertise consumer leases. For estimates of the annual burden imposed on other institutions that engage in consumer leasing, please contact their regulator. List of Subjects in 12 CFR Part 213 Advertising, Federal Reserve System, Reporting and recordkeeping requirements, Truth in lending. For the reasons set forth in the preamble, the Board proposes to amend 12 CFR part 213 as follows: PART 213—CONSUMER LEASING (REGULATION M) 1. The authority citation for part 213 continues to read as follows: Authority: 15 U.S.C. 1604. 2. The table of contents to part 213 is revised to read as follows: Sec. 213.1 Authority, scope, purpose, and enforcement. 213.2 Definitions. 213.3 Exempt transactions. 213.4 General disclosure requirements. 213.5 Content of disclosures. 213.6 Renegotiations, extensions, and assumptions. 213.7 [Reserved], 213.8 Advertising. 213.9 Record retention. 213.10 Relation to State laws. Appendix A to Part 213—Model Forms Appendix B to Part 213—Federal Enforcement Agencies Appendix C to Part 213—Issuance of Staff Interpretations Supplement I-C L -1 to Part 213—Official Staff Commentary to Regulation M 3. Part 213 would be amended as follows: 48761 use of personal property by a natural person primarily for personal, family, or household purposes, for a period exceeding four months and for a total contractual obligation not exceeding $25,000, whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease. It does not include a lease that meets the definition of a credit sale in Regulation Z, 12 CFR 226.2(a). It also does not include a lease for agricultural, business, or commercial §213.1 Authority, scbpe, purpose, and purposes or a lease made to an enforcement. organization. Unless the context (a) Authority. The regulation in this indicates otherwise in this part, “lease” part, known as Regulation M, is issued by the Board of Governors of the Federal shall be construed to mean “consumer lease.” Reserve System to implement the (7) E stim ated le a s e ch a rg e means the consumer leasing provisions of the estimated total dollar amount of the cost Truth in Lending Act, which is Title I of the lease attributable to interest and of the Consumer Credit Protection Act, other charges regardless of when such as amended (15 U.S.C. 1601 et seq.). charges are paid, as calculated under (b) S c o p e a n d p u rp ose. This part applies to all persons who are lessors of § 213.5(q). (8) Gross co st means the total dollar consumer leases as defined in § 213.2(a) amount of all items included in the (6) and (10). The purpose of this part is: value of a lease at consummation, (1) To ensure that lessees of personal property receive meaningful disclosures including but not limited to the. base that enable them to compare lease terms price of the leased property and any other items added to that price, such as with other leases and with credit any markup by the lessor, taxes, transactions, where appropriate; insurance, service agreements, and any (2) To limit the amount of balloon outstanding balance from a prior lease payments in consumer lease that is included in the new lease. transactions; and (9) L essee means a natural person who (3) To provide for the accurate leases or who is offered a consumer disclosure of lease terms in advertising. lease. (c) E n forcem en t an d liability. Section (10) Lessor means a person who 108 of the act contains the regularly leases, offers to lease, or administrative enforcement provisions. arranges for the lease of personal Sections 1 1 2 ,1 3 0 ,1 3 1 , and 185 of the property under a consumer lease. A act contain the liability provisions for person who leased, offered, or arranged failing to comply with the requirements to lease personal property more than of the act and this part. five times in the preceding calendar §213.2 Definitions. year is subject to the act and this part; (а) D efinitions. For the purposes of if a person did not meet this numerical this part the following definitions apply: test in the preceding calendar year, the (1) A ct means the Truth in Lending numerical test is applied to the current Act (15 U.S.C. 1601 et seq.). year. (2) A dvertisem ent means a (11) O pen-end le a s e means a commercial message in any medium consumer lease in which the lessee’s that directly or indirectly promotes a liability at the end of the lease term is consumer lease transaction. based on the difference between the (3) Agricultural p u rp o se means a estimated value of the leased property purpose related to the production, md its realized value. harvest, exhibition, marketing, (12) Organization means a transportation, processing, or corporation, trust, estate, partnership, manufacture of agricultural products cooperative, association, or government including but not limited to the entity or instrumentality. acquisition of personal property and (13) Person means a natural person or services used primarily in farming. an organization. (14) P erson al p rop erty means any (4) B oard refers to the Board of Governors of the Federal Reserve property that is not real property under System. the law of the state where the property (5) C losed -en d le a s e means a is located at the time it is offered or consumer lease other than an open-end made available for lease. lease as defined in this section, (15) R ealiz ed valu e means: (i) The price received by the lessor for (б) C onsum er le a s e means a contract in the form of a bailment or lease for the the leased property at disposition; a. Sections 213.1 through 213.6 are revised; b. Section 213.7 is removed and reserved; c. Section 213.8 is revised; d. Sections 213.9 and 213.10 are added; e. Appendices A through C are revised; and f. Appendix D is removed. The revisions and additions read as follows: 48762 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules (ii) The highest offer for disposition; required disclosures provided in the lease contract. (2) Segregation o f certain disclosures. (iii) The fair market value at the end The following disclosures shall be of the lease term. (16) R esidual valu e means the amount segregated from other information and shall contain only permissible related or determined at consummation to be the additional information: the disclosures value of the leased property at the end required by § 213.5(b), (c), (e), (h)(3), of the lease term. (k)(l), (1)(2), (o)(l) and (p) through (s). (17)'Security interest and security The content, format, and headings for mean any interest in property that these disclosures shall be provided in a secures the payment or performance of manner substantially similar to the an obligation. applicable model form in appendix A of (18) State means any state, the District this part. of Columbia, the Commonwealth of (3) Timing o f disclosu res. A lessor Puerto Rico, and any territory or shall provide disclosures to the lessee possession of the United States. prior to the consummation of a (19) Total le a s e obligation applicable to an open-end lease, means the total of: consumer lease. (4) M ultiple lea s e d item s. In a lease of (i) The scheduled periodic payments multiple items, the description required under the lease; by § 213.5(a) may be given on a separate (ii) Any nonrefundable cash payment statement that is incorporated by required of the lessee or agreed upon by reference in the disclosure statement the lessor and lessee including any required by paragraph (a)(1) of this trade-in allowance made at section. consummation; and (5) Language o f disclosu res. The (iii) The estimated value of the leased disclosures required by § 213.5 may be property at the end of the lease term. made in a language other than English, (20) V alue at consu m m ation means provided that the disclosures are made the cost to the lessor of the leased available in English upon the lessee’s property including, if applicable, any request. increase or markup by the lessor prior (b) A d d ition al inform ation. to consummation. Additional information may be (b) [Reserved] provided with the disclosures that are § 213.3 Exempt transactions. not required by paragraph (a)(2) of this section to be segregated from other This part does not apply to consumer information. The additional information lease transactions of personal property shall not be stated, used, or placed so which are incident to the lease of real as to mislead or confuse the lessee or property and which provide that: contradict, obscure, or detract attention (a) The lessee has no liability for the from any disclosures required by this value of the property at the end of the lease term except for abnormal wear and part. (c) M ultiple lessors or lessees. When use; and a transaction involves more than one (b) The lessee has no option to lessor, the disclosures required by this purchase the leased property. part may be made by one lessor on § 213.4 General disclosure requirements. behalf of all of the lessors. When a lease (a) G eneral requirem ents. A lessor involves more than one lessee, the shall make the disclosures required by disclosures may be provided to any § 213.5, as applicable. The disclosures lessee who is primarily liable on the shall be made clearly and conspicuously lease. in writing, and in accordance with this (d) Use o f estim ates— (1) Standard. At section. the time disclosures are made, if an (1) Form o f disclosu res. Except as amount or other item required to be provided in paragraph (a)(4) of this disclosed, or needed to determine a section, the disclosures required by required disclosure, is unknown or is § 213.5 shall be given to the lessee not available to the lessor and the lessor together on a dated statement that has made a reasonable effort to ascertain identifies the lessor and the lessee. All the information, the lessor may use an the disclosures may be made either on estimate, provided that the estimate is a separate statement that identifies the reasonable, is clearly identified as an consumer lease transaction or on the estimate, is based on the best contract or other document evidencing information available to the lessor, and the lease transaction. As an alternative, is not used to circumvent or evade the the disclosures required under disclosure requirements of this part. (2) O pen -end p u rch ase option lease. paragraph (a)(2) of this section to be segregated from other information may Notwithstanding that an estimate shall be provided on a separate statement that be based on the best information identifies the lease transaction andother available, a lessor is not precluded in an or open-end lease with a purchase-option from understating the estimated value of the leased property at the end of the term in computing the total lease obligation required by § 213.5(o)(l). (e) E ffect o f su bsequ en t occurrence. If information required to be disclosed becomes inaccurate because of an event occurring after consummation of a lease, the inaccuracy is not a violation of this part. (f) M inor variations. A lessor may disregard the effects of the following in making calculations and disclosures: (1) That payments must be collected in whole cents; (2) That dates of scheduled payments may be different because the scheduled date is not a business day; (3) That months have different numbers of days; and (4) That February 29 occurs in a leap year. §213.5 Content of disclosures. For a consumer lease subject to this part, the lessor shall disclose the following information, as applicable: (a) D escription o f property. A brief description of the leased property sufficient to identify the property to the lessee and lessor. (b) T otal am ount d u e at le a s e signing. The total amount to be paid by the lessee prior to or at consummation of the lease, using the term “total amount due at lease signing.” The lessor shall itemize each payment by type and amount, including any refundable security deposit, advance monthly or periodic payment, and any downpayment (capitalized cost reduction), and shall disclose the means of payment, including any trade-in allowance, payments in cash, or rebates, in a format substantially similar to that contained in the model forms in appendix A of this part. (c) P aym ent sch ed u le. The number, amount, and due dates or periods of payments scheduled under the lease, and the total amount of the periodic payments. (d) F e es an d taxes. The total dollar amount for all official and license fees, registration, title, or taxes required to be paid by the lessee in connection with the lease. (e) O ther charges. The total amount of other charges payable by the lessee to the lessor, itemized by type and amount, that are not included in the periodic payments. This total includes the amount of any liability the lease imposes upon the lessee at the end of the term, but excludes the potential difference between the estimated and realized values referred to in paragraph (m) of this section. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules (f) Insurance. A brief identification of insurance associated with the consumer lease including: (1) If provided or paid for by the lessor, the types and amounts of coverage and cost to the lessee; or (2) If not provided or paid for by the lessor, the types and amounts of coverage required of the lessee. (g) W arranties or guarantees. A statement identifying all express warranties and guarantees available to the lessee made by the manufacturer or lessor with respect to the leased property. (h) M aintenance responsibilities. The following are required: (1) A statement identifying the party responsible for maintaining or servicing the leased property together with a brief description of the responsibility; (2) A statement of standards for wear and use, which must be reasonable, if the lessor sets such standards; and (3) A notice regarding wear and use which shall be substantially similar to the following: “ w ear an d use: you may be charged for excessive wear and use based on the lessor’s standard for normal use.” In a vehicle lease transaction, the notice shall also specify any charge for excess mileage. (i) Security interest. A description of any security interest, other than a security deposit disclosed under paragraph (b) of this section, held or to be retained by the lessor and a clear identification of the property to which the security interest relates. (j) P en alties an d oth er charges fo r delinquency. The amount or the method of determining the amount of any penalty or other charge for delinquency, default, or late payments, which must be reasonable. (k) P u rchase option. A statement of whether or not the lessee has the option to purchase the leased property and: fl) If at the end of the lease term, the purchase price; and (2) If prior to the end of the lease term, the purchase price or the method for determining the price and when the lessee may exercise this option. (1) E arly term ination— (1) Conditions an d d isclosu re o f charges. A statement of the conditions under which the lessee or lessor may terminate the lease prior to the end of the lease term and the amount or the description of the method of determining the amount of any penalty or other charge for early termination, which must be reasonable. (2) N otice a n d ex am p le. A notice about any charge for terminating a consumer lease early, and an example of a charge for terminating a lease at the end of the first year, which shall be substantially similar to the following: “You may have to pay a substantial charge if you end this lease early. For example, if you terminate this lease at the end of the first year, you may owe the lessor [amount]. The actual charge will vary depending on when the lease is terminated. Other charges such as for excessive wear and use may also be imposed.” (m) L iability betw een estim ated an d realized values. A statement that the lessee is liable for the difference between the estimated value of the leased property and its realized value at early termination or at the end of the lease term, if such liability exists. (n) Right o f ap p raisal. If the lessee’s liability at early termination or at the end of the lease term is based on the realized value of the leased property, a statement that the lessee may obtain at the lessee’s expense, a professional appraisal, by an independent third party agreed to by the lessee and the lessor, of the value that could be realized at sale of the leased property. The appraisal shall be final and binding on the parties. (0) Liability at en d o f le a s e term b a sed on estim ated value. If the lessee’s liability at the end of the lease term is based on the estimated value of the leased property: (1) V alue at con su m m ation an d total le a s e obligation. The value of the property at consummation, the itemized total lease obligation at the end of the lease term, and the difference between them; (2) E xcess liability. A statement about the rebuttable presumption that the estimated value of the leased property at the end of the lease term is unreasonable and not in good faith to the extent that it exceeds the realized value by more than three times the average payment allocable to a monthly period; and that the lessor cannot collect the excess amount unless the lessor brings a successful action in court in which the lessor pays the lessee’s attorney’s fees; (3) E xception f o r u n reason ab le wear. A statement that the provision regarding the rebuttable presumption and attorney’s fees does not apply to the extent the excess of the estimated value over the realized value is due to unreasonable or excessive wear or use; and (4) M utually a g r eea b le fin a l adjustm ent. A statement that the requirements of this paragraph (o) do not preclude a willing lessee from making any mutually agreeable final adjustment regarding such excess liability. (p) Gross cost. In a closed-end consumer lease, the gross cost, using 48763 that term, with a brief description such as “the agreed upon acquisition value of the vehicle including but not limited to items such as taxes, fees, service contracts, and insurance.” (q) E stim ated le a s e charge. The estimated lease charge. (1) C losed -en d lea se. In a closed-end lease, the estimated lease charge is calculated by subtracting the gross cost from the sum of the total payment due at lease signing (less a first periodic payment and any refundable charges), the total of periodic payments, the total of other charges payable to the lessor and the price the leased property may be purchased for at the end of the lease term. Where there is no purchase option, the residual value shall be used in the calculation. (2) O pen -end lea se. In an open-end lease, the estimated lease charge is calculated in the same manner set forth in paragraph (q)(l) of this section, except that the initial value of the leased property, the value at consummation, is substituted for the gross cost, and the estimated value of the leased property substitutes for the residual value, to tie extent there is any difference. (r) R esidu al value. In a closed-end consumer lease, the residual value. (s) Statem en t referen cin g n on segregated disclosu res. A statement that the lessee should refer to the lease documents for information on: conditions for and the amount or method of determining early termination charges; charges for delinquency, default, or late payments; maintenance responsibilities; any purchase option prior to the end of the lease term; insurance; total taxes and official fees paid; warranties; liability at the end of the lease term; and any security interest. § 213.6 Renegotiations, extensions, and assumptions. (a) R enegotiation s. A renegotiation occurs when a consumer lease subject to this regulation is satisfied and replaced by a new lease undertaken by the same consumer. A renegotiation is a new lease requiring new disclosures, except as provided in paragraph (d) of this section. (b) Extensions. An extension is the continuation of an existing consumer lease beyond the originally scheduled termination date that is agreed to by the lessor and the lessee, except when the continuation is the result of a renegotiation. An extension that exceeds six months is a new lease requiring new disclosures, except as provided in paragraph (d) of this section. (c) A ssum ptions. New disclosures are not required when a consumer lease is 48764 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules (ii) Refers to a written advertisement paragraph (d)(2) of this section, except appearing in a publication of general as provided in paragraphs (e) and (f) of circulation in the community served by this section: (1) The amount of any payment; the media station on which the (ii) The number of required payments; advertisement is broadcast, including or the name and the date of the (iii) A statement of any downpayment publication, published beginning three or other payment required at days before and ending ten days after consummation, or that no payment is the broadcast. The written required. advertisement shall include the (2) A dd ition al terms. An information required to be disclosed by advertisement containing any item paragraph (d)(2) of this section. under paragraph (d)(1) of this section (2) E stablishm ent o f toll-free num ber. shall state the following items: If a toll-free telephone number is (i) That the transaction advertised is referred to in a television or radio a lease; advertisement for the purposes of (ii) The total amount required to be complying with this section, the lessor paid by the lessee prior to or at shall: consummation of die lease, or that no (i) Establish the toll-free telephone payment is required; number no later than the date the (iii) The number, amounts, due dates advertisement is broadcast; or periods of scheduled payments, and (ii) Maintain the telephone number the total of payments under the lease; for no less than ten days, beginning on (iv) A statement of whether or not the the date of the broadcast; and lessee has the option to purchase the (iii) Provide the information required leased property and at what price and by paragraph (d)(2) of this section to any time. The method of determining the person who calls. The information shall §213.7 [Reserved] price may be substituted for the price in be provided orally, or in writing if disclosing that the lessee has the option requested by the consumer. §213.8 Advertising to purchase the leased property prior to (a) G eneral rule. No advertisement for the end of the lease; §213.9 Record retention. a consumer lease may state that a (v) A statement of the amount or A lessor shall retain evidence of specific lease of property at specific method of determining the amount of compliance with the requirements amounts or terms is available unless the any liabilities the lease imposes on the imposed under this part, other than the lessor usually and customarily leases or lessee at the end of the term; and advertising requirements under § 213.8, will lease the property at those amounts (vi) A statement that the lessee will be for a period of not less than two years or terms. liable for any difference between the after the date disclosures are required to (b) C lear an d con spicu ou s standard. estimated value of the leased property be made or action is required to be Disclosures required by this section and its realized value at the end of the taken. shall be made clearly and lease term, if the lessee has such § 213.10 Relation to state laws. conspicuously. Any reference to a liability. (a) Inconsistent state law s. A state law charge that is a part of the total of (e) A lternative d isclosu res— that is inconsistent with the payments required prior to or at m erch an d ise tags. A merchandise tag requirements of the act and this part is consummation under § 213.8(d)(2)(ii), setting forth information listed under such as the amount of any paragraph (d)(1) of this section need not preempted to the extent of the inconsistency. If a lessor cannot comply downpayment (or that no downpayment contain the disclosures required by with a state law without violating a is required), shall not be more paragraph (d)(2) of this section, provision of this part the state law is prominent than the disclosure of the provided the tag refers to a sign or inconsistent with the requirements of total amount required to be paid by the display prominently posted in the the act and this part within the meaning lessee prior to or at consummation of lessor’s showroom. The sign or display of section 186(a) of the act and is the lease. shall contain a table or schedule of the preempted, unless the state law gives (c) Catalogs an d m ulti-page information required to be disclosed by greater protection and benefit to the advertisem ents. If a catalog or other paragraph (d)(2) of this section. consumer. A state, through an multi-page advertisement provides a (f) A lternative disclosu res— television appropriate official having primary table or schedule of the disclosures or ra d io advertisem ents.— (1) T oll-free enforcement or interpretative required by this section for the leased n um ber o r print advertisem en t. An responsibilities for its consumer leasing property being advertised, the catalog or advertisement made through television law, may apply to the Board for a multi-page advertisement shall be or radio containing any information preemption determination. considered a single advertisement if, listed in paragraph (d)(1) of this section (b) E xem ptions.—(1) A p p lication s. A complies with paragraph (d)(2) of this whenever any lease term not state may apply to the Board for an accompanied by all the required section if the advertisement states the exemption from the requirements of the disclosures is located elsewhere, it information required by paragraphs act and this part for any class of lease refers to the page or pages on which the (d)(2)(i)— (iii) of this section; and: (i) Lists a toll-free telephone number transactions within the state. The Board table or schedule appears. will grant such an exemption if the established in accordance with (d) A dvertisem ent o f term s that Board determines that: paragraph (f)(2) of this section that may requ ire ad d ition al disclosu re.— (1) (i) The class of leasing transactions is Triggering terms. An advertisement that be used by consumers to obtain the information required by paragraph (d)(2) subject to state law requirements states any of the following items shall substantially similar to the act and this# of this section; or contain the disclosures required by assumed by another person, whether or not an assumption fee is charged. (d) E xceptions. New disclosures under this part shall not be required for the following, even if they meet the definition of a renegotiation or an extension: (1) The addition, deletion, or substitution of leased property in a multiple-item lease, provided the average payment is not changed by more than 25 percent; (2) A lease that is extended for not more than six months on a month-tomonth basis or otherwise; (3) A reduction in the lease charge; (4) A substitution of leased property with property that has a substantially equivalent or greater economic value, provided no other lease terms are changed; (5) An agreement involving a court proceeding; or (6) The deferment of one or more payments, whether or not a fee is charged. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules part or that lessees are afforded greater the requirements of the act and this part. protection under state law; and No exemption will extend to the civil (ii) There is adequate provision for liability provisions of sections 1 3 0 ,1 3 1 , state enforcement. and 185 of the act. (2) E n forcem en t an d liability. After an (c) P rocedu res an d criteria fo r exemption has been granted, the requirements of the applicable state law p reem p tion s an d ex em p tion s. The procedures and criteria for requesting a (except for additional requirements not preemption or an exemption imposed by federal law) will constitute A -l 48765 determination are available from the Board upon request. Appendix A to Part 213—Model Forms A -l Model Open-End or Finance Vehicle Lease Disclosures A -2 Model Closed-End or Net Vehicle Lease Disclosures A -3 Model Furniture Lease Disclosures Model Open-End or Finance Vehicle Lease Disclosures Federal Consumer Leasing Act Disclosure Statement D ate_________ 1. LESSOR(S) LESSEE(S) 2. Description of leased property Year Make Model Body style 3. a. Initial Value of V e h ic le ............................................................ ..................................................................................................................... b. Total Payment Due at Lease Signing .................................................................................................................................... ................. (Total of the itemized costs should equal the means of paying itemized costs) Itemized Costs Means of paying Itemized Costs Downpaym ent..................................... $_______ Net Trade-in Allowance .......................... S______ Registration Fee ................................. $_______ Rebate ............................................................. .................................. ............................... S_______ C a s h ................................................................ S________ * First Monthly P aym ent................. $................. ..................................................................... * Refundable Security Deposit ...... $................. ..................................................................... c. Total of Monthly Payments ....................................................................................................................................................................... Base Paym ent...................................................................................................................................................................................................... Use/Lease T a x ..................................................................................................................................................................................................... Insu rance.............................................................................................................................................................................................................. Vehicle ID# $_ $_ $_ $_ $_ $_ Total Monthly Payment Payment Schedule: The first monthly payment of $________ is due o n _____, followed b y ____ payments o f ____ due on th e ____of each month. d. Total of Other Charges Payable to Lessor (not included in b or c) .............................................................................................. Disposition F e e ............................................................. ..................................................................................................................................... $_ $_ ...................... .........................................................................................!!!!!!.... !...!........................... $_ e. Estimated [Retail/Wholesale] Value of V e h ic le .................................................................................................................................. $_________ (Your liability for this sum may be limited, see item 6) f. Purchase Option: You h a v e __/do not have _ an option to purchase the leased property at the end of the lease term. If you purchase the property at that time, the price will be $________ g. Total Lease Obligation (Downpayment, trade-in + c + e) ........................................................................................................... . $ _ _______ h. Estimated Lease Charge .............................................................................................................................................................................. $_________ (Cost of the lease attributable to interest and other charges obtained by adding b (less less *first monthly payment and *any refundable charges) + c + d + f (but if no purchase option is available then e) —a)) Early Term ination. You may have to pay a substantial charge if you end this lease early. For example, if you terminate this lease at the end of the first year, you may owe the lessor $________ . The actual charge will vary depending on when the lease is terminated. Other charges such as for excessive wear and use may also be imposed. E xcessive W ear a n d Use. You may be charged for excessive wear and use of the vehicle based on the less o r’s sta n d a rd s for normal use. [In addition, you will be charged ________ cents per mile for each mile in excess of ________ miles shown on the odometer.] O ther Im portant Terms. Before signing this lease, please read your lease documents for further information about Conditions for and the Amount or Method of Determining Early Termination Charges, Charges for Delinquency, Default, or Late Payments, Maintenance Responsibilities, Any Purchase Option Prior to the End of the Lease Term, Insurance, Total Taxes and Official Fees Paid, Warranties, Liability at the End of the Lease Term, and Any Security Interest, if applicable. 4. Official Fees and Taxes The total amount you will pay for official and license fees, registration, title and taxes during the lease term is $________ . 5. Insurance The following types and amounts of insurance will be acquired in connection with this le a s e :_________________________________________ ------ We (lessor) will provide the insurance coverage quoted above for a total premium cost of $_________ . ------You (lessee) agree to provide insurance coverage in the amounts and types indicated above. 6. End of Term Liability (a) The estimated value of the vehicle stated in item 3(e) is based on a reasonable, good faith estimate of the value of the vehicle at the end of the lease term. If the actual value of the vehicle at that time is greater than the estimated value, you will have no further liability under this lease, except for other charges already incurred [and are entitled to a credit or refund of any surplus]. If the actual value of the vehicle is less than the estimated value, you will be liable for any difference up to $ ________ (3 times the monthly payment). For any difference in excess of that amount, you will be liable only if 48766 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 1. Excessive use or damage (as described in item 7] [representing more than normal wear and tear] resulted in an unusually low value at the end of the term. 2. You voluntarily agree with us after the end o f the lease term to make a higher payment. 3. The matter is not otherwise resolved and we win a lawsuit against you seeking ~a higher payment. Should we bring a lawsuit against you, we must prove that our original estimate of the value of the leased property at the end o f the lease term was reasonable and was made in good faith. For example, we might prove that the actual was less than the original estimated value, although the original estimate was reasonable, because of an unanticipated decline in value for that type of vehicle. Unless we prove that the excess amount owed was the result of excessive use or unreasonable wear and use, we will pay your reasonable attorney’s fees. ' (W 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 o f the ________ value of the leased vehicle which could be realized at sale. The appraised value shall then be used as the actual value. 7. Standards for Wear and Use The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle ____________________ 8. Maintenance [You are responsible for the following maintenance and servicing of the leased vehicle: _____________________________________________________________________________________________________________________________________________________________ 1 [We are responsible for the following maintenance and servicing of the leased vehicle: _________________________________________________________________________ . 1 9. Warranties The leased vehicle is subject to the following express warranties: ____________________ 10. Early Termination and Default (a) You may terminate this lease before the end of the lease term under the following conditions: The charge for such early termination is _______________________________________ _____________________________________________________________________________________________ (b) We may terminate this lease before the end of the lease term under the following con d itions:________________________________________ _ Upon such termination we shall be entitled to the following charge(s) for ______________________________________________________________ (c) To the extent these charges take into account the value of the vehicle at the end of the lease term, you have the same right to a professional appraisal as that stated in item 6(b): 11. Security Interest We reserve a security interest of the following type in the property listed below to secure performance of your obligations under this lease: 12. Late Payments The charge for late payments is 13. Option to Purchase [You have an option to purchase the leased vehicle prior to the end of the term. The price will be $________ /or the method of determining the price]. [You have no option to purchase the leased vehicle.] A -2 Model Closed-End or Net Vehicle Lease Disclosures FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT D ate____________________ 1. LESSOR(S) LESSEE(S) 2. Description of leased property Year Make Model Body style 3. a. Gross Cost ......................................................................................................................................................................................................... (The agreed upon acquisition value of the vehicle including but not limited to items such as taxes, fees, service contracts, and insurance. The gross cost is commonly referred to by the industry as the “gross capitalized cost.”) b. Total Payment Due at Lease Signing .................................................................................... ............................................................... (Total of the itemized costs should equal the means of paying itemized costs) Means of Paying Itemized Costs Itemized Costs Net Trade-in Allowance .............. Downpayment ... Registration Fee R e b ate ................................................ . C a s h .................................................... 'F irst Monthly Payment ......... •Refundable Security Deposit c. Total of Monthly Payments Base P aym en t.............................. Use/Lease T a x ..........................,.. In su rance....................................... Vehicle ID# Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 48767 S.................................................................................................. .............................. ........................ $______ Total Monthly Payment ................................................................................................................................................................................. $________ Payment Schedule: The first monthly payment of $________ is due o n _____, followed b y ____ payments o f _________ due on t h e ____ of each month. d. Total of Other Charges Payable to Lessor (not included in b or c) ............................................................................................. Disposition F e e .................................................................................................................................................................................................. $________ $________ ................................................................... ....................................................................................... $______ e. Residual Value .................................................................................................................................................. ............................................ $________ (The estimated value of the vehicle at the end of the lease term) _ f. Purchase Option: You h a v e __/ d o not h a v e _ an option to purchase the leased property at the end of the lease term. If you purchase the property at thattime, the price will be $________ g. Estimated Lease Charge .................................................................................................................. .......................................................... $________ (Cost of the lease attributable to interest and other charges obtained by adding b (less * first monthly payment and ’ any refundable charges) + c + d + f (but if no purchase optipn is available, then e) - a)) Early Term ination. You may have to pay a substantial charge .if you end this lease early. For example, if you terminate this lease at the end of the first year, you may owe the lessor $________ . The actual charge will vary depending on when the lease is terminated. Other charges such as for excessive wear and use may also be imposed. E xcessive W ear a n d Use. You may be charged for excessive wear and use of the vehicle based on the less o r’s stan dards for normal use. [In addition, you will be charged ________ cents per mile for each mile in excess o f ________ miles shown on the odometer.) O ther Im portant Term s. Before signing this lease, please read your lease documents for farther information about Conditions for and the Amount or Method of Determining Early Termination Charges, Charges for Delinquency, Default, or Late Payments, Maintenance Responsibilities, Any Purchase Option Prior to the End of the Lease Term, Insurance, Total Taxes and Official Fees Paid, Warranties, Liability at the End of the Lease Term, and Any Security Interest, if applicable. 4. Official Fees and Taxes The total amount you will pay for official and license fees, registration, title and taxes during the lease term is $________ . 5. Insurance The following types and amounts of insurance will be acquired in connection with this le a s e :___________________________________________ ____We (lessor) will provide the insurance coverage quoted above for a total premium cost of $___________________________________________ . ____You (lessee) agree to provide insurance coverage in the amounts and types indicated above. 6. Standards for Wear and Use The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle: _______________________ 7. Maintenance [You are responsible for the following maintenance and servicing of the leased v e h icle :___________________________________________________ ____________ __________________________________________________ 1 [We are responsible for the following maintenance and servicing of the leased vehicle: __________________________________________________ ------ ------ --------------------------------------------------------------------------------- 1 8. Warranties The leased vehicle is subject to the following express warranties: _______________________________________________________________________ 9. Early Termination and Default (a) You may terminate this lease before the end of the lease term under the following conditions: The charge for such early termination is _______________________________________ ______________________________________________________________________________________________ (b) We may terminate this lease before the end of the lease term under the following con d itions:_________________________________________ Upon such termination we shall be entitled to the following charge(s) for: ______________________________________________________________ (c) To the extent that these charges take into account the value of the vehicle at the end of the lease term, if you disagree with the value we assign to the vehicle, you may obtain, at your own expense, from an independent third party agreeable to both of us, a professional appraisal of the ________ value of the leased vehicle which could be realized at sale. The appraised value shall then be used as the actual value. 10. Security interest We reserve a security interest of the following type in the property listed below to secure performance of your obligations under this lease: 11. Late Payments The charge for late payments is: 12. Option to Purchase [You have an option to purchase the leased vehicle prior to the end of the term. The price will be $________ / the method of determining the price.) [You have no option to purchase the leased vehicle.) A -3 Model Furniture Lease Disclosures FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT D ate_________ 1. LESSOR(S) LESSEE(S) 2. Description of leased property 48768 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules Item Color Qty. Mfg. Stock # 3. a. Gross Cost .......................................................................................................................... ......................................................................... (The agreed upon acquisition value of the furniture including but not limited to items such as taxes, fees, and in surance.) b. Total Payment Due at Lease Signing ..................................................................................................................................................... (Total of the itemized costs should equal the means of paying itemized costs) Itemized Costs Downpaym ent..................................... Delivery Fee ........................................ •First Monthly Payment ................. •Refundable Security Deposit ...... $_______ $_______ $________ $_________ $_________ Means of Paying Itemized Costs Net Trade-in Allowance ......................... Rebate ....................................................... C a s h ............. .................................................. $_ $_ $_ c. Total of Monthly Payments ..................................................................................................................................................................... Base P aym en t...................................... Use/Lease T a x ..................................... ................. .......................... $______ Total Monthly Payment .................. S_________ Payment Schedule: The first monthly payment of $________ is due o n _________ , followed b y ________ payments of $________ due on th e _____of each month. d. Total of Other Charges Payable to Lessor (not included in b orc) ............................................................................................. Pick-up C harge.................................... $_________ ..................... ................................. S________ . $________ $_________ $------------- S_______ e. Residual V a lu e ............................................................................................................................................................................................... $________ (The estimated value of the furniture at the end o f the lease term) f. Purchase Option: You h a v e ____/ do not h a v e _____an option to purchase the leased property, atthe end of the lease term. If you purchase the property at thattime, the price will be $------------g. Estimated Lease Charge ........................................................................................ .................................................................................... $------------(Cost of the lease attributable to interest and other charges obtained by adding b (less 'first monthly payment and •any refundable charges) + c + d + f (but if no purchase option is available, then e ) - a ) ) E arly Term ination. You may have to pay a substantial charge if you end this lease early. For example, if you terminate this lease at the end of the first year, you may owe the lessor $________ . The actual charge will vary depending on when the lease is terminated. [Other charges such as for excessive wear and use may also be imposed.] E xcessive Wear a n d Use. You may be charged for excessive wear and use of the furniturebased on the lessor's sta n d a rd s for normal use. O ther Im portan t Term s. Before signing this lease, please read your lease documents for further information about Conditions for and the Amount or Method of Determining Early Termination Charges, Charges for Delinquency, Default, or Late Payments, Maintenance Responsibilities, Any Purchase Option Prior to the End of the Lease Term, Insurance, Total Taxes andOfficial Fees Paid, Warranties, Liability at the End of the Lease Term, and Any Security Interest, if applicable. 4. Official Fees and Taxes The total amount you will pay for official and license fees, registration, title and taxes during the lease term is $------------ . 5. Insurance The following types and amounts of insurance will be acquired in connection with this lease:________ _________________________________ ____ We (lessor) will provide the insurance coverage quoted above for a total premium cost of $_________ . ____You (lessee) agree to provide insurance coverage in the amounts and types indicated above. 6. Maintenance [You are responsible for the following maintenance of the leased furniture: _ _ ,1 [We are responsible for the following maintenance of the leased furniture: 7. Warranties The leased furniture is subject to the following express warranties: 8. Standards for Wear and Use The following standards are applicable for determining unreasonable or excess wear and use of the leased furniture: 9. Early Termination and Default (a)You may terminate this lease before the end of the lease term under the following conditions: __________________ The charge for such early termination is (b) We may terminate this lease before the end of the lease term under the following conditions: . Upon such termination we shall be entitled to the following charge(s) for: ______________________________________________ .________________ 10. Security interest We reserve a security interest of the following type in the property listed below to secure performance of your obligations under this lease: ________________________________________________________________________ ____ _____________________________________ -— ----------------- Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 48769 11. Late Payments The charge for late payments is: _______________________________________________________________________________________ ______________ 12. Option to Purchase [You have an option to purchase the leased furniture prior to the end of the term. The price will be $________ / the method of determining the price). [You have no option to purchase the leased vehicle.] Appendix B to Part 213—Federal Enforcement Agencies Appendix C to Part 213— Issuance of Staff Interpretations The following list indicates which federal agency enforces Regulation M (12 CFR part 213) for particular classes of business. Any questions concerning compliance by a particular business should be directed to the appropriate enforcement agency. Terms that are not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in the International Banking Act of 1978 (12 U.S.C. 3101). 1. N ational b a n k s a n d fe d e r a l bran ch es a n d fe d e r a l ag en cies o f foreign banks. District office of the Office of the Comptroller of the Currency for the district in which the institution is located. 2. State m em b er ban ks, bran ch es an d agen cies o f foreign b a n k s (oth er than fe d e r a l bran ches, fe d e r a l agen cies, a n d in su red state bran ches o f foreign banks), co m m ercia l lendin g c o m p a n ies ow n ed or co n tro lled b y foreign ban ks, a n d organizations operating un der section 25 o r 25A o f th e F ed eral R eserve Act. Federal Reserve Bank serving the District in which the institution is located. 3. N on m em ber insu red b a n k s a n d in su red state b ran ch es o f foreign banks. Federal Deposit Insurance Corporation Regional Director for the region in which the institution is located. 4. Savings institutions insu red u n der th e Savings A ssociation Insurance Fu nd o f th e FDIC an d fed er a lly ch artered savings b a n k s insured u n der th e B an k Insuran ce Fu nd o f th e FDIC (but not including state-chartered savings b a n k s in su red u n der th e B an k Insurance Fund). Office of Thrift Supervision regional director for the region in which the institution is located. 5. F ed eral credit unions. Regional office of the National Credit Union Administration serving the area in which the federal credit union is located. 6. Air carriers. Assistant General Counsel for Aviation Enforcement and Proceedings, Department o f Transportation, 400 Seventh Street, S.W., Washington, DC 20590. 7. T hose su bject to P ackers a n d S tockyards Act. Nearest Packers and Stockyards Administration area supervisor. 8. F ederal L an d B an ks, F ed era l L an d B an k A ssociation s, F ed era l In term ediate Credit Banks, a n d P roduction Credit A ssociation s. Farm Credit Administration, 490 L’Enfant Plaza, S.W., Washington, DC 20578. 9. A ll o th er lessors (lessors operating on a local or regional basis should use the address of the FTC regional office in which they operate). Division of Credit Practices, Bureau of Consumer Protection, Federal Trade Commission, Washington, DC 20580. Officials in the Board’s Division of Consumer and Community Affairs are authorized to issue official staff interpretations of this Regulation M (12 CFR part 213). These interpretations provide the formal protection afforded under section 130(f) of the act. Except in unusual circumstances, interpretations will not be issued separately but will be incorporated in an official commentary to Regulation M, which will be amended periodically. No staff interpretations will be issued approving lessor’s forms, statements, or calculation tools or methods. By order of the Board of Governors of the Federal Reserve System, September 1 2 ,1 9 9 5 . William W. Wiles, S ecretary o f th e B oard. [FR Doc. 9 5-23048 Filed 9 -1 9 -9 5 ; 8:45 am] BILLING CODE 6210-01-P between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard station in the Eccles Building courtyard on 20th Street, NW (between Constitution Avenue and C Street) any time. Comments may be inspected in Room M P-500 of the Martin Building between 9 a.m. and 5 p.m. weekdays, except as provided in 12 CFR section 261.8 of the Board’s rules regarding the availability of information. FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Obrea O. Poindexter, or W. Kurt Schumacher, Staff Attorneys, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551, at (202) 452-2412 or 4 5 2 3667; for the hearing impaired only, contact Dorothea Thompson, Telecommunications Device for the Deaf, at (202) 452-3544. FEDERAL RESERVE SYSTEM SUPPLEMENTARY INFORMATION: 12 CFR Part 213 I. General [Regulation M; Docket No. R-0893] Consumer Leasing AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed official staff interpretation. SUMMARY: The Board is publishing for comment proposed revisions to the official staff commentary to Regulation M which implements the Consumer Leasing Act. The Consumer Leasing Act requires lessors to provide uniform cost and other disclosures about consumer lease transactions. The Board is issuing this proposal to revise the commentary that applies and interprets the requirements of Regulation M pursuant to the Board’s policy of periodically reviewing its regulations and official interpretations. A proposal to revise Regulation M is published elsewhere in today’s issue of the Federal Register. DATES: Comments must be received by November 17, 1995. ADDRESSES: Comments should refer to Docket No. R -0893, and be mailed to Mr. William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC 20551. Comments also may be delivered to Room B— 2222 of the Eccles Building The Consumer Leasing Act (CLA], 15 U.S.C. 1667-1667e, governs consumer leasing transactions and is implemented by the Board’s Regulation M (12 CFR part 213). Effective May 1 3 ,1 9 8 2 , an official staff commentary (Supplement I-C L -1 to 12 CFR part 213) was published to interpret the regulation. The commentary is designed to provide guidance to lessors in applying the regulation to specific transactions and is intended to be updated periodically to address significant questions that arise. It is anticipated that the proposed revisions to the Regulation M commentary will be adopted in final form in the Spring of 1996 with compliance optional until October 1, 1996, the uniform effective date for mandatory compliance. II. The Review of Regulation M The Board’s Regulatory Planning and Review Program calls for the periodic review of a regulation and its official interpretations with four goals in mind: to clarify and simplify regulatory language; to determine whether regulatory amendments are needed to address technological and other developments; to reduce undue regulatory burden on the industry; and to delete obsolete provisions. Tbe official staff commentary has never been 48770 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules substantially revised or reviewed. The Board initially began a review of Regulation M according to the goals of its review program in November 1993, when it published an advance notice of proposed rulemaking on Regulation M (58 FR 61035, November 19,1993). In its advance notice, the Board solicited comments generally on the provisions of Regulation M and the CLA, including coverage, exempt transactions, and general format and disclosure requirements. In addition, the Board identified specific issues about disclosures of early termination charges, broadcast media advertising of leases, and segregation of leasing disclosures from other information. Most of the seventy comment letters on the advanced notice addressed those issuesThe proposed revisions to the regulation are published elsewhere in today’s issue of the Federal Register. III. Discussion of Proposed Revisions The following discussion covers the proposed revisions to the Regulation M commentary section-by-section. Most of the discussion focuses on new comments and significant revisions to existing comments. Introduction Comments 1-3,1— and 1-6 are 4, deleted as obsolete or unnecessary. Section 213.1—A uthority, S cope, Purpose, an d E nforcem ent Proposed Current 1 - 2 ..... Deleted as unnecessary. Section 213.2—Definitions 2(a) D efinitions Current Proposed 2(a)(2)— and -2. 1 2(a)(2)-3. 2(a)(3)-1 new. 2(a)(4)— .................. 2(a)(10)-1. 1 2(a)(4)-2 .................. 2(a)(10)— 4. 2(a) (4)-3 .................. 2(a)(10)-2. 2(a)(6)-3 new. 4 2(a)(6)-3 through -6 . 2(a)(6)— through 7. 2(a)(7)-1 .................. 2(a)(9)— 1. 2(a)(8)— .................. 2(a)(10)-3. 1 1. 2(a)(9)-1 .................. 2(a)(12)— 1. 2(a)(12)-1 ................ 2(a)(14)— 2(a)(14)-1 through-6 2(a)(15)-1 through — 6. 2(a)(17)-1 incor porates list from the regulatory defi nition of security in terest. 2(a)(15)-1 through -3 2(a)(17)-2 through — 4. 2(a)(17)-1 through -3 2(a)(19)-1 through — 4. 2(a)(17)— and -5 .... 2(a)(19)-5 and -6. 4 2(a)(2)— .................. 1 2(a)(2)-2 .................. Proposed Current 2(a)(18H through -3 2(b)— and -2 .......... 1 2(a)(2) 2(a)(20)-1 through — 3. Deleted. A dvertisem ent Comment 2(a)(2)— would be revised 1 to incorporate examples of advertisements, currently in § 213.2(a)(2). 2(a)(3) A gricultural P urpose Proposed comment 2(a)(3)— 1 incorporates the portion of current § 213.2(a)(3) and the statutory definition in section 103(s) of the Truth in Lending Act which describes agricultural products. 2(a)(6) C onsum er L ease Comment 2(a)(6)— would be revised 2 to provide additional guidance on when a lease is deemed to exceed four months and, therefore, covered under the act and regulation. An example has been added to clarify that a month-to-month lease with a penalty for cancelling within the first year is deemed to be a consumer lease subject to the act and regulation. Proposed comment 2(a)(6)— provides 3 guidance on the total contractual obligation for purposes of determining whether a lease is covered under the regulation, and clarifies that the total contractual obligation may be different from the total lease obligation which applies only to open-end leases. Comment 2(a)(6)-7, currently comment 2(a)(6)-6, would be revised to add another example of a lease deemed incidental to a service. The narrow list of exceptions in the existing commentary of leases incidental to a service is exhaustive, rather than illustrative. Questions have arisen about Regulation M coverage of cellular phones leased in conjunction with obtaining cellular service. Cellular service providers typically offer customers the opportunity to lease or purchase cellular telephones when subscribing for cellular service. The leasing of a cellular telephone is not incidental to obtaining cellular service and is, thus, covered under the regulation. 2(a)(7) E stim ated L ea se Charge Proposed comment 2(a)(7)— clarifies 1 that a monthly or other periodic payment paid at or before consummation is not included in the calculation of the estimated lease charge, as it is reflected in the total periodic payment disclosure. Any refundable charge such as a security deposit would also not be included in the calculation. 2(a)(8) Gross Cost Proposed comment 2(a)(8)— provides 1 guidance in making the proposed disclosure in § 213.5(p). Amounts consisting of fees and other charges paid out of pocket at consummation by the lessee are included in the gross cost figure. 2(a)(10) L essor Proposed comment 2(a)(10)-l incorporates the existing regulatory definition of “arrange for leasing of personal property” (in § 213.2(a)(4) and provisions in the current commentary) into the proposed commentary under the definition of lessor. Section 213.4— G eneral D isclosure R equirem ents 4(a) G eneral requ irem en ts Current Proposed 4(a)-1 ....... Revised to adopt “ legal obliga tion” terminology of Regula tion Z. Moved to proposed §213.4(f) of the regulation on minor variations that may be dis regarded in making disclo sures. 4(a)(l)— 1. Deleted as no longer applica ble. 4(a)-2 (deleted the word "or format”); 4(a)-3. Deleted as no longer applica ble. Deleted. 4(a)(1>-2. 4(a)(1)-3. 4(a)(1)— 4. 4(a)(1)— 5. 4(a)(2)— new. 1 Deleted as unnecessary be cause of revised position in proposed §213.4(a)(5). Deleted as unnecessary be cause of revised position in proposed §213.4(a)(5). 4(a)-2 ....... 4(a)-3 ....... 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(a)(2) Segregation o f Certain D isclosures Proposed comment 4(a)(2)— provides 1 guidance in making the segregated disclosures required by § 213.4(a)(2). 4(b) A d d ition al Inform ation Comment 4(b)— would be revised by 1 deleting the second sentence. 4(d)(2) L ease Open-End P u rch ase Option Comment 4(d)(2)— currently 1, comment 4(d)— would be revised to 6, clarify that this paragraph only applies to open-end leases. No substantive change is intended. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 4(e) E ffect o f S u bsequen t O ccurrence Proposed comment 4(e)— 3 incorporates the first sentence of footnote 1 of the regulation. S ection 213.5—Content o f D isclosures All of the comments in § 213.4(g) would be redesignated according to a new proposed §213.5. Current 4(g)— ... 1 4(g)— ... 2 4(g)(1)— 1 4(g)(2H 4(g)(2>-2.................. Proposed Deleted as unneces sary. 5-1. Deleted as unneces sary. Deleted as unneces sary 5(b)-1 new (incorporated from the instructions to the model form in the current appen dix C-2). 5(b)-2 (incorporates current comment 2(b)-2). 5(b)-3. 5(c)-1 and-2. 5(d)— 1. 5(e)-1 and -2. Deleted as unneces sary. 5(e)-3 and -4. 5(e)-5. 5(f)— and -2. 1 5(f)— new. 3 5(g)-1 through -3. 5(h)— 1. disclosed pursuant to this paragraph. If the tax is payable by the lessor (such as a gas guzzler tax), but the tax is passed on to the consumer and the existence of the tax is indicated in the consumer’s lease documents— for example on the lease agreement— or the sticker or tag affixed to the personal property—then the tax should be disclosed pursuant to this paragraph. However, if the existence of the tax is not indicated, and the tax is absorbed by the lessor as a cost of doing business, then the tax should not be disclosed under this section. 5(f) Insurance Proposed comment 5(f)— is added to 3 indicate that this paragraph applies to voluntary and required insurance provided in connection with a lease transaction. 5(1) Early Term ination Proposed comment 5(1)— provides 4 guidance in disclosing a full description 4(g)(2)-3 .................. of the method used to determine the 4(g)(3)— and - 2 ...... 1 amount of an early termination charge. 4(g)(4H .................. A full description of the complete early 4(g)(5)— ............. „... 1 termination method must be disclosed 4(g)(5)-2 ........... ....... by lessors outside of the segregated 4(g)(5)-3 .................. disclosures. However, given the 4 (g )(5 H ................... complexity of the methods involved, a 4(g)(6H and - 2 .... . lessor is permitted—in giving the “full description” of its early termination 4(g)(7)-1 through -3 . method—to include a reference to the 4(g)(8)— .................. 1 name of a generally accepted method of 4(g)(9)— .................. 5(i)-1. 1 computing the unamortized gross or 4(g)(l 0)— through -5 5(j)-1 through -5. 1 capitalized cost portion of its early 4(g)(11)— through -3 5(k)-1 through -3. 1 1 4(g)(12)-1 through-3 5(l)— through -3; the termination charge. For example, a word “capitalized" lessor may state that the “constant in comment 2 is de yield” method would be utilized in leted. obtaining the unamortized portion of 5(l)— new. 4 the gross cost, but the lessor would also 5(l)— new. 5 have to specify how that figure— and 4(g)(14)-1 through-3 5(n)-1 through -3. any other term or figure— is used in 4(0)(15H ................ 5(oHcomputing the total early termination 4(g)(15)-2 ................ 5(o)(1)— 1. charge that would be imposed upon the 4(g)(15)-3 ................ 5(o)(1 >-2. 4 (g )(i5 )-4 ................ 5(o>-2. consumer. A lessor referring to a named 4(g)(15>-5 ................ 5 ( o )( 2)— 1. method in this manner must provide a 4(g)(15)-6 ................ 5(0) (2)— the word 2; written explanation of that method if “capitalized” is derequested by the consumer. IptpH Proposed comment 5(1)— provides 5 5(o)(2)-3 new. guidance on what value such as the fair 5(p)— new. 1 market value or the wholesale value should be used when calculating the 5(b) Total A m ount Due at L ease required example of an early Signing termination charge based on termination Proposed comment 5(b)— 1 at the end of the first year. incorporates a definition of “capitalized 5(o) L iability at E n d o f L ea se Term cost reduction” from the instructions in B a sed on E stim ated V alue current appendix C -l. Comment 5(b)— would incorporate 2 The proposed regulation reformats the first sentence of current comment this section, currently section 2(b)— 2. 213.4(g)(15), for clarity. The commentary has been similarly 5(d) F ees an d T axes reformatted. Comment 5(d)— is revised to provide 1 Proposed comment 5(o)(2)-3 states. guidance on taxes that should be the intent of section 183(a) of the CLA 48771 that lessors must pay the lessees’ attorney’s fees in all actions brought by lessors under this subsection, even if those actions are decided in favor of the lessee. 5(s) S tatem ent R eferen cin g N onsegregated D isclosures Proposed comment 5 (s )-l provides guidance in making the proposed new disclosure referencing and alerting consumers to read CLA required disclosures not included among the segregated disclosures. It is only necessary to refer to the applicable items, thus, the lessor may delete inapplicable items from the disclosure. S ection 213.6—R enegotiations, E xtensions, an d A ssum ptions Current Proposed 4(h)— .... 1 4(h)— .... 2 6-1. First sentence moved to regula tion; second sentence moved to 6-1. Moved to the regulation. Moved to the regulation. 6(b)— 1. 6(b)-2 new. 6-2. Moved to the regulation. Moved to the regulation. Moved to the regulation. 4(h)-3 .... 4(h)— .... 4 4(h)-5 .... 4(h)-6 4(h)— 7 4(h)-8 4(h)-9 .... .... .... .... Section 213.6 of the proposed regulations contain the disclosure rules governing leases that are renegotiated, extended or assumed (currently in section 213.4(h) and the commentary). Many of the commentary provisions have been moved to the regulation. For example, the definitions of a renegotiation and an extension would be included in the regulation. (This change parallels the approach under Regulation Z for refinancings and assumptions, section 226.20.) Other commentary provisions have been reformatted to conform to the proposed regulatory changes. Comment 6 (b )-l, currently comment 4(h)— would be revised to clarify that 5, where a consumer lease is extended on a month-to-month basis for more than 6 months, new disclosures are required at the beginning of the seventh month, and also at the start of each seventh month thereafter. This revision incorporates intb the commentary a longstanding interpretation originally issued under leasing provisions that were a part of Regulation Z (Truth in Lending) prior to 1982. Proposed comment 6(b)-2 also incorporates a longstanding interpretation originally issued under the pre-1982 leasing provisions in Regulation Z that disclosures for a consumer lease, as defined by the 48772 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules regulation, extended on a month-tomonth basis for more than 6 months should reflect the month-to-month nature of the transaction. Section 213.8—A dvertising Current Proposed 5(a)-1 ....................... 5 (a )-2 ....................... 5(b)-1 ....................... 5 (b )-2 ....................... 5(c)— ....................... 1 5(c)— ....................... 2 5(d)— ....................... 1 8(b) 8 (a H 8(a)-2. 8(c)-1. 8(c)-2. 8 (b H 8(b)-2 new. 8(d)(1)— 1. 8(d)(2)— new. 1 8(e)— 1. 8(e)-2 new. 8(f)— new. 1 8(f)(1)-2 new. C lear a n d C onspicuous Standard Proposed 8(b)-2 provides that lease disclosures must appear on a television screen for at least five seconds, which parallels the “five second rule” adopted by the Federal Trade Commission. 8(e) A lternative D isclosures— M erchan dise Tags Proposed comment 8(e)— clarifies 2 that merchandise tags are generally considered a multiple item lease. 8(f) A lternative D isclosures— T elevision or R a d io A dvertisem ents 8(f)( 1) Toll-Free N u m ber or Print A dvertisem ent Proposed comment 8(f)(1)— clarifies 1 that a newspaper circulated nationally qualifies as a publication in general circulation. Section 213.10 R elation s to State Law s Section 213.10 in the proposed regulation combines and simplifies current §§ 213.7 and 213.8. The comments to these sections have been deleted as unnecessary. Appendix A Model Forms Under the proposed rule, the model forms are moved to appendix A. Comment app. A -2 would be deleted. Minor revisions would be made to other comments in this appendix. For example, comment app. A - l would be revised to indicate that changes to the headings, format, and the content of the segregated disclosures should be minimal. Also the definition of a closed-end lease in comment app. A -3 would be deleted because a definition would be added in the regulation. IV. Form o f Comment Letters As discussed above, comment letters should refer to Docket No. R -0893. The Board requests that, when possible, comments be prepared using a standard courier type-face with a type-size of 10 or 12 characters per inch. This will enable the Board to convert the text into machine-readable form through electronic scanning, and will facilitate automated retrieval of comments for review. Comments may also be submitted on 3 V2 inch or 5 V4 inch computer diskettes in any IBMcompatible DOS-based format, but must be accompanied by an original document in paper form. List of Subjects in 12 CFR Part 213 Advertising, Federal Reserve System, Reporting and recordkeeping requirements, Truth in lending. For the reasons set forth in the preamble, 12 CFR part 213, as proposed to be amended by a document published elsewhere in today’s issue of the Federal Register, is further proposed to be amended as follows: PART 213—CONSUMER LEASING (REGULATION M) 1. The authority citation for part 213 continues to read as follows: Authority: 15 U.S.C. 1604 2. Supplement I-C L -1 to Part 213— Official Staff Commentary to Regulation M would be revised to read as follows: Supplement I-C L-1 to Part 213— Official Staff Commentary to Regulation M Introduction 1. O fficial status. This commentary is the vehicle by which the staff of the Division of Consumer and Community Affairs of the Federal Reserve Board issues official staff interpretations of Regulation M (12 CFR part 213). Good faith compliance with this commentary affords protection from liability under section 130(f) of the Truth in Lending Act (15 U.S.C. 1640). Section 130(f) protects lessors from civil liability for any act done or omitted in good faith in conformity with any interpretation issued by a duly authorized official or employee of the Federal Reserve System. 2. P rocedu res f o r requ esting interpretations. Under appendix C of Regulation M, anyone may request an official staff interpretation. Interpretations that are adopted will be incorporated in this commentary following publication in the Federal Register. No official staff interpretations are expected to be issued other than by means of this commentary. 3. Com m ent design ation s. Each comment in the commentary is identified by a number and the regulatory section or paragraph that it interprets. The comments are designated with as much specificity as possible according to the particular regulatory provision addressed. For example, some of the comments to § 213.4(a) are further divided by subparagraph, such as comment 4(a)(1)— and comment 4(a)(1)— In other 1 2. cases, comments have more general application and are designated, for example, as comment 4(a)— This introduction may be 1. cited as comments 1-1 through 1-3. An appendix may be cited as comments app. A - 1. Section 213.1—Authority, S co p e, Purpose, a n d E n forcem en t 1. Foreign applicability . Regulation M applies to all persons (including branches of foreign banks or leasing companies located in the United States) that offer consumer leases to residents (including resident aliens) of any state as defined in § 213.2(a)(18). The regulation does not apply to a foreign branch of a U.S. bank or leasing company leasing to a U.S. citizen residing or visiting abroad or to a foreign national abroad. Section 213.2—D efin itions 2(a) Definitions 2(a)(2) Advertisement 1. Coverage. Only commercial messages that promote consumer lease transactions requiring disclosures are advertisements. Messages inviting, offering, or otherwise announcing generally to prospective customers the availability of consumer leases, whether in visual, oral, or print media, are covered by the definition. The term includes the following: 1. Print media. ii. Broadcast media, including radio and television messages. iii. Catalogs and fliers. iv. Direct mail literature. v. Printed material on any interior or exterior sign or display, in any window display, in any point-of-transaction literature or price tag w hich is delivered or made available to a lessee or prospective lessee in any manner whatsoever. vi. Telephone solicitations. 2. E xception s. The term does not include the following: i. Direct personal contacts, such as followup letters, cost estimates for individual lessees, or oral or written communications relating to the negotiation of a specific transaction. ii. Informational material distributed only to businesses. iii. Notices required by federal or state law, if the law mandates that specific information be displayed and only the information so mandated is included in the notice. iv. News articles, the use of which is controlled by the news medium. v. Market research or educational materials that do not solicit business. 3. P erson s cov ered . See the commentary to § 213.8(a). 2(a)(3) Agricultural purpose 1. A gricultural produ cts. Agricultural products include horticultural, viticultural, and dairy products, livestock, wildlife, poultry, bees, forest products, fish and shellfish, and any products thereof, including processed and manufactured products, and any and all products raised or produced on farms and any processed or manufactured products thereof. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 2(a)(6) Consumer lease 1. Prim ary p u rp oses. A lessor must determine in each case if the leased property will be used primarily for personal, family, or household purposes. If some question exists as to the primary purpose for a lease, the lessor is, of course, free to make the disclosures, and the fact that disclosures are made in such circumstances is not controlling on the question of whether the transaction was exempt. The primary purpose of a lease is generally determined before or at consummation and a lessor need not provide Regulation M disclosures where there is a subsequent change in primary usage. 2. P eriod o f time. To be a consumer lease, the initial term of the lease must be more than four months. Thus, a lease of personal property for four months, three months or on a month-to-month or week-to-week basis (even though the lease actually extends beyond four months) is not a consumer lease and is not subject to the disclosure requirements of the regulation. A lease with a penalty for cancelling during the first four months is considered to have a term of more than four months. A month-to-month or week-to-week extension of a lease that was originally for four months or less is not a consumer lease, even if the extension actually lasts for more than four months. See the comments on § 213.6(b) for guidance on extensions of covered leases. To illustrate: i. A month-to-month lease with a penalty for terminating before one year, such as the forfeiture of a security deposit, is a consumer lease covered by this definition. ii. A three-month lease extended on a month-to-month basis and terminated after one year is not a consumer lease covered by this definition. 3. Total contractual obligation. The term total contractual obligation includes all nonrefundable amounts a lessee is contractually obligated to pay under a lease for the purpose of determining whether the lease is covered by this regulation. The total contractual obligation is not necessarily the same as the total lease obligation defined in § 213.2(a)(19). 4. Organization. A consumer lease does not include a lease made to an organization, such as a corporation or a government agency or instrumentality. A lease to an organization is outside the requirements of the regulation even if the property is used (by an employee, for example) primarily for personal, family or household purposes. Likewise, a lease made to an organization is not a consumer lease even if it is guaranteed by or subsequently assigned to a natural person. 5. Credit sale. A lease that meets the definition of a credit sale in Regulation Z, 12 CFR 226.2(a)(16), is not a consumer lease. Regulation Z defines a credit sale, in part, as “a bailment or lease (unless terminable without penalty at any time by the consumer) under which the consumer: i. Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the property and services involved; and ii. Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement.” 6. S a fe d ep o sit box es. A lease of a safe deposit box is not a consumer lease for purposes of this regulation. 7. L eases o f p erso n a l pro p erty in cid en tal to a service. The following leases of personal property are deemed incidental to a service and are not consumer leases subject to the requirements of the regulation: i. Home entertainment systems requiring the consumer to lease equipment that enables a television to receive the transmitted programming. ii. Burglar alarm systems requiring the installation of leased equipment that triggers a telephone call when a home is burglarized. iii. Propane gas service where the consumer is required to lease a propane tank to receive the service. 2(a)(7) 48773 F o rd M otor C redit Co. v. C en an ce, 452 U.S. 155 (1981). In that case, the U.S. Supreme Court held that an assignee was a creditor for purposes of previous Regulation Z because of its substantial involvement in the credit transaction. 4. M ultiple lessors. S ee the commentary to § 213.4(c). 2(a)(12) Organization 1. C overage. The term includes joint ventures and persons operating under a business name. 2(a)(14) Personal property 1. Coverage. Whether property is considered personal property depends on state or other applicable law. For example, a mobile home or houseboat may be considered personal property in one state but real property in another. Estimated lease charge 2(a)(15) Realized value 1. General. Realized value is not a required disclosure. It refers to the value of the property at early termination or at the end of the lease term. It may be either the retail or wholesale value. Realized value is relevant only to leases in which the lessee’s liability at early termination or at the end of the lease 2(a)(8) Gross cost term is the difference between the estimated value of the property and its realized value. 1. F ees a n d o th er charges p a id a t le a s e 2. O ptions. Subject to the contract and to signing. This figure includes all state or other applicable law, the lessor may nonrefundable fees and charges required to choose any of the three methods for be paid before or at lease signing as well as calculating the realized value in determining those fees and charges which are capitalized the lessee’s liability at the end of the lease over the lease term. term or at early termination. If the lessor sells 2(a)(9) Lessee the property prior to making that 1. Guarantors. Guarantors are not lessees determination, the price received for the for purposes of the regulation. property is the realized value. If the lessor does not sell the property prior to making 2(a)(10) Lessor that determination, the lessor may choose 1. A rranger o f a lea se. To “arrange” for the either the highest offer or the fair market lease of personal property means to provide value as the realized value. or offer to provide a lease which is or will 3. Exclusions. The realized value may be extended by another person under a exclude any amount attributable to taxes. business or other relationship pursuant to 4. D isposition charges. Disposition charges which the person arranging the lease (a) may not be subtracted in determining the receives or will receive a fee, compensation, realized value. If the lessor charges the lessee or other consideration for the service; or (b) a fee to cover the disposition expenses, the has knowledge of the lease terms and fee must be disclosed at consummation participates in the preparation of the contract under § 213.5(e). Disposition charges may be documents required in connection with the estimated in accordance with § 213.4(d), and lease. this does not prevent the lessor from To illustrate: collecting the actual disposition costs 1. An automobile dealer who, pursuant to incurred. a business relationship, completes the 5. Offers. In determining the highest offer necessary lease agreement before forwarding for disposition, the lessor need not consider it to the leasing company (to whom the offers that an offeror has withdrawn or is obligation is payable on its face) for unable or unwilling to perform. execution is “arranging” for the lease. 6. A ppraisals. The lessor may obtain an ii. An automobile dealer who, receiving no appraisal of the leased property to determine fee for the service, refers a customer to a its realized value. Such an appraisal, leasing company that will prepare all however, is not the one addressed in section relevant contract documents is not 183(c) of the act and § 213.5(n); those “arranging” for the lease. provisions refer to the lessee’s right to an 2. C onsideration. The term "other independent professional appraisal. consideration” used in the definition of 2(a)(17) Security interest and security arranger in comment 2(a)(10)— refers to an 1 1. A d v an ce p er io d ic p ay m en t a n d refu n d a b le charges. A first monthly (or other periodic payment) paid at or before consummation which is included in the total periodic payment disclosure and refundable charges are not included in the calculation of the estimated lease charge. actual payment corresponding to a fee orsimilar compensation. It does not refer to intangible benefits, such as the advantage of increased business, which may flow from the relationship between the parties. 3. A ssignees. An assignee may be a lessor for purposes of the regulation in circumstances such as those described in 1. Coverage. The terms include, but are not limited to, security interests under the Uniform Commercial Code, real property mortgages, deeds of trust, and other consensual or confessed liens whether or not recorded, mechanic’s, materialman’s, artisan’s, and other similar liens, vendor’s liens in both real and personal property, any 48774 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules lien on property arising by operation of law, and any interest in a lease when used to secure payment or performance of an obligation. 2. S tate o r o th er a p p lic a b le law. Other than those listed, only interests that are security interests under state or other applicable law are encompassed by the definition. For example, any interest the lessor may have in the leased property falls within this definition only if it is considered a security interest under state or other applicable law. 3. D isclosable interests. For purposes of the regulation, a security interest is an interest taken by the lessor to secure performance of the lessee’s obligation. For example, if a bank that is not a lessor makes a loan to a leasing company and takes assignments of consumer leases generated by that company to secure the loan, the bank’s security interest in the lessor’s receivables is not a security interest for purposes of this regulation. 4. Insurance. The lessor’s right to insurance proceeds or unearned insurance premiums is not a security interest for purposes of this regulation. 2(a)(19) Total lease obligation 1. D isclosure. The total lease obligation is disclosed under § 213.5(o)(l). It is relevant only to open-end leases. 2. P eriodic p ay m en ts; d isclosu re distinguished. Certain items that may be paid periodically are not part of the lessee’s total lease obligation. Therefore, the amount of the scheduled periodic payments for purposes of calculating the total lease obligation may be less than the amount o f the periodic payments disclosed under § 213.5(c). 3. P eriodic p ay m en ts; inclusions. The total of scheduled periodic payments under the lease for purposes of calculating the total lease obligation is composed of the following items: i. Any portion of the periodic payments attributable to depreciation, cost of money, and profit. ii. Taxes in some cases. See the commentary to § 213.5(o)(l). iii. The cost of mechanical breakdown protection contracts. 4. P eriodic p ay m en ts; exclu sion s. The total of scheduled periodic payments under the lease for purposes of calculating the total lease obligation does not include the following: i. Any amount not paid periodically. ii. Any portion of periodic payments attributable to official fees, registration, certificate of title, or license fees. iii. Taxes in some cases. See the commentary to § 213.5(o)(l). iv. At the lessor’s option, the capitalized cost of service contracts and insurance premiums may be either included or excluded from this calculation. 5. Initial paym en ts. The following amounts are not included among the payments at consummation when calculating the total lease obligation: i. Refundable security deposits. ii. Official fees and charges disclosable under § 213.5(d). iii. Other charges disclosable under § 213.5(e). iv. The cost of a mechanical breakdown protection contract purchased at consummation. 6. E stim ated value. See the commentary to § 213.4(d) regarding the use of estimates and section 183(a) of the act regarding the criteria for estimating the value of the leased property at the end of the lease term. 2(a)(20) Value at consummation 1. D isclosure. The value at consummation is relevant only to open-end leases and is disclosed and subtracted from the total lease obligation under § 213.5(o)(l). 2. Taxes. The value at consummation includes taxes paid by the lessor in connection with the acquisition of leased property and amortized over the lease term. See the commentary to § 213.5(o)(l). 3. O ther am ounts. The definition of the value at consummation explicitly permits the lessor to include a profit or markup (without separate itemization). The lessor may include costs of doing business, such as insurance that the lessor purchases on its own behalf. See the commentary to § 213.5(f). The lessor may not include in this amount other items (such as maintenance or extended warranty insurance) that are purchased by the lessee. Section 213.4— G en eral D isclosu re R equirem ents 4(a) General requirements 1. B asis o f d isclosu res. The disclosures must reflect the terms of the legal obligation between the parties. For example: 1. In a three-year lease with a one-year minimum term after which there is no penalty for termination, disclosures should be based on the full three-year term of the lease. The one-year minimum term is only relevant to the early termination provisions of §§ 213.5(1), (m) and (n). 2. C lear a n d co n sp icu o u s standard. The clear and conspicuous standard requires that disclosures be in a reasonably understandable form. For example, while the regulation requires no mathematical progression, the disclosures must be presented in a way that does not obscure the relationship of the terms to each other. Appendix A contains model forms that meet this standard, although lessors are not required to use the forms. In addition, although no minimum typesize is mandated, the disclosures must be legible, whether typewritten, handwritten, or printed by computer. 3. M ultipurpose d isclo su re form s. Lessors are not precluded from using a multipurpose disclosure form that enables a lessor to designate the specific disclosures applicable to a given transaction, consistent with the requirement that disclosures be clearly and conspicuously provided. 4. N um ber o f transaction s. Lessors have flexibility in handling lease transactions that may be viewed as multiple transactions. For example: i. When a lessor leases two items to the same lessee on the same day, the lessor may disclose the leases as either one or two lease transactions. ii. When a lessor sells insurance or other incidental services in connection with a lease, the lessor may disclose in one of two ways: a single lease transaction or a lease and a credit sale transaction. 4(a)(1) Form of disclosures 1. Form o f d isclosu res. In making disclosures lessors may cross-reference rather than repeat items that are disclosed among the segregated disclosures. In addition, when a required disclosure consists of a total amount only, lessors need not separately itemize each component part of the total charge. Similarly, if a required disclosure, must be separately itemized, a total amount is not required. 2. Iden tification o f parties. While disclosures must always be made clearly and conspicuously, lessors are not required to use the word “ lessor” and “ lessee” when identifying those parties. 3. M ultiple lessors a n d m u ltip le lessees. In transactions involving multiple lessors and lessees, the disclosure statement must identify all the lessors and lessees; however, § 213.4(c) permits a single lessor to make all the disclosures for a single lessee. 4. L ease d isclosu res in teg rated in le a s e contract. Contract terms or disclosures that are not required by the regulation may be added to the disclosure statement so long as the required disclosures are made together and the lessor adheres to the limits of § 213.4(b) governing the inclusion of additional information. 5. L e s s e e ’s signature. The regulation does not require the lessee to sign the disclosure statement, whether disclosures are separately provided or are part of the lease contract. Nevertheless, for contract or evidentiary purposes, the lessor may wanr a lessee to sign the disclosure statement or an acknowledgement of receipt. 4(a)(2) Segregation of certain disclosures 1. P erm issible re la ted o r a d d itio n a l inform ation am on g seg reg ated disclosures. The disclosures required to be segregated under this paragraph must contain only the information required or permitted to be included among the segregated disclosures (see § 213.5 and its commentary for guidance on information required or permitted in the segregated disclosures.) The segregated disclosures in § 213.4(a)(2) may be provided on a separate document and other CLA disclosures provided in the lease contract, so long as all disclosures are given at the same time. 4(b) Additional information 1. State law d isclosu res. If state law disclosures are not inconsistent with the act and regulation under § 213.10, in accordance with the standard set forth in § 213.4(b) for providing additional information, the lessor may make those disclosures along with the nonsegregated disclosures required under the regulation. 4(c) Multiple lessors or lessees 1. M ultiple lessors. If a lease transaction involves more than one lessor, the lessors may choose which of them will make the disclosures. All disclosures for the transaction must be given, even if the lessor making the disclosures would not otherwise have been obligated to make a particular disclosure. Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 4(d) Use of estimates 4(d)(1) Standard 1. T im e o f estim a ted disclosure. The lessor may use estimates to make disclosures if necessary information is unknown or unavailable at the time the disclosures are made. For example: 1. Section 213.5(d) requires the lessor to disclose the total amount payable by the lessee during the lease term for official and license fees, registration, certificate of title fees, or taxes. If these amounts are subject to indeterminable increases or decreases over the course of the lease, the lessor may estimate its disclosures based on the rates or charges in effect at the time of the disclosure. 2. B asis o f estim ates. Estimates must be made on the basis of the best information reasonably available at the time disclosures are made. The "reasonably available” standard requires that the lessor, acting in good faith, exercise due diligence in obtaining information. The lessor normally may rely on the representations of other parties in obtaining information. For example, the lessor might look to the consumer to determine the purpose for which leased property will be used, to insurance companies for the cost of insurance, or to an automobile manufacturer or dealer for the date of delivery. 3. E stim ated valu e o f le a s e d p ro p erty at term ination. When the lessee’s liability at the end of the lease term is based on the estimated value of the leased property (see § 213.5(o)), the estimate must be reasonable and based on the best information reasonably available to the lessor. That standard permits a lessor to use a generally accepted trade publication listing estimated current or future market prices for the leased property, rather than investing in the most sophisticated computer equipment to determine the estimated value at the end of the lease' term. The lessor should rely on other information, its experience, or reasonable belief, if those sources provide the best information. For example: i. An automobile lessor offering a threeyear open-end lease intends to assign a wholesale value to the vehicle at the end of the lease term. The lessor may disclose as an estimate a wholesale value derived from a generally accepted trade publication listing current wholesale values, if the trade publication is the best information available. ii. Same facts as above, except that the lessor discloses an estimated value derived by adjusting the value quoted in the trade publication because, in its experience, the trade publication values either understate or overstate the prices actually received in local used-vehicle markets. The lessor may adjust estimated values quoted in trade publications based on the lessor’s experience or reasonable belief that the values will be understated or overstated. 4. R etail o r w h o lesa le value. The lessor may choose either a retail or a wholesale value in estimating the value of leased property at termination, provided that choice is consistent with the lessor’s general practice or intention when determining the value of the property at the end of the lease term. 5. Labelling estim ates. Generally, only the disclosure for which the exact information is unknown is labelled as an estimate. Nevertheless, when several disclosures are affected because of the unknown information, the lessor has the option of labelling as an estimate either every affected disclosure or only the disclosure primarily affected. 4(d)(2) Open-end purchase option lease 1. U nderstating th e estim a ted valu e. In non-purchase-option open-end leases, the lessor must not use a value lower than that indicated by the best information available when disclosing the estimated value of leased property at the end of the lease term under .§ 213.5(o). 4(e) Effect of subsequent occurrence 1. S u bsequ en t occu rren ces. Examples of subsequent occurrences include: 1. An agreement between the lessee and lessor to change from a monthly to a weekly payment schedule. ii. The addition of insurance or a security interest by the lessor because the lessee has not performed obligations contracted for in the lease. iii. An increase in official fees or taxes. iv. An increase in insurance premiums or coverage caused by a change in the law. v. Late delivery of an automobile caused by a strike. 2. R edisclosu re. When a disclosure becomes inaccurate because of a subsequent occurrence, the lessor need not make new disclosures unless new disclosures are required under § 213.6. 3. L e ss ee’s fa ilu re to p erform . The act is not violated if a previously given disclosure becomes inaccurate when a lessee fails to perform obligations under the contract and a lessor takes actions that are necessary and proper in such circumstances to protect its interest. Section 213.5— Content o f D isclosu res 1. O ther requ ired d isclosu res. The disclosure statement must include the date and identify the lessor and the lessee. See the commentary to § 213.4(a)(1). The lessor need only be identified by name; an address may be provided but is not required. 5(b) Total amount due at lease signing 1. C apitalized co st redu ction . Capitalized cost reduction is a payment in the nature of a downpayment which reduces the amount of the leased property to be amortized over the term of the lease. 2. C onsum m ation. When a contractual relationship is created between the lessor and the lessee is a matter to be determined under state or other applicable law; the regulation does not make that determination. 3. F ees p a y a b le upon delivery. This provision does not apply to fees paid at delivery, when delivery-occurs after consummation. For example, the lessee agrees to pay registration fees, sales taxes, and a delivery charge in one lump sum on the date the automobile is delivered, sometime after consummation. None of these charges is an initial payment under § 213.5(b) because they are paid after consummation of the lease. The registration fees and sales taxes 48775 are disclosed under § 213.5(d), and the delivery charge is disclosed as an “other charge” under § 213.5(e). 5(c) Payment schedule 1. Item ization not requ ired. Although the model forms in appendix A itemize the components of the periodic payments, a lessor may but is not required to do so. Some of the components must be disclosed separately if their disclosure is required by other provisions of the regulation, such as official fees and lessee’s insurance. 2. P eriodic paym ents. The phrase “number, amount, and due dates or periods of payments” requires the disclosure of all payments made periodically. The disclosed payments must include all amounts, such as maintenance and insurance charges, that are paid periodically. In addition, the lessor must disclose the total of the periodic payments. In an open-end lease, however, the lessor may disclose as the total of periodic payments the sum of the scheduled periodic payments referred to in § 213.2(a)(19). See the commentary to § 213.2(a)(19). 5(d) Fees and taxes 1. Taxes. Taxes that are included in the value at consummation are not disclosed pursuant to this paragraph. See the commentary to § 213.2(a)(20). Taxes payable by the lessor that are separately imposed on the consumer and thus noted in the lease documentation must be disclosed under this paragraph. However, taxes payable by the lessor and absorbed as a cost of doing business are not disclosed under this paragraph. 5(e) Other charges 1. Coverage. Section 213.5(e) requires the disclosure of charges that are anticipated by the parties as incident to the normal operation of the lease agreement. 2. E x clu d ed charges. This section does not require disclosure of charges that are imposed when the lessee terminates early or fails to abide by the lease agreement, such as charges for: i. Late payment. ii. Default. iii. Early termination. iv. Deferral of payments. v. Extension of the lease. 3. R elation ship to o th er p rovision s. The other charges mentioned in § 213.5(e) are charges that are not required to be disclosed under another provision of § 213.5. 4. O ther charges. Examples of charges not disclosed under this section include: i. A delivery charge that is paid after consummation is disclosed as an “other charge.” A delivery charge that is paid at consummation, however, is disclosed as part of the total initial charges under § 213.5(b), not as an “other charge.” ii. Occasionally, the price o f a mechanical breakdown protection (MBP) contract is disclosed as an "other charge.” More often, the price of MBP is reflected in the periodic payment disclosure under § 213.5(c), in which case it is not disclosed as an “other charge.” In states where MBP is regarded as insurance, however, the cost should be disclosed in accordance with § 213.5(f), not as an ‘’other charge.” See the commentary to § 213.5(f). 48776 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 5. L e s s e e ’s liabilities at th e en d o f the le a s e term. Liabilities that the lease imposes upon the lessee at the end of the scheduled lease term and that must be disclosed under this section include, but are not limited to, disposition and “pick-up” charges. 5(f) Insurance 1. L essor’s insurance. Insurance that is purchased by the lessor primarily for its own benefit, and that is absorbed as a business expense and not separately charged to the lessee, need not be disclosed under this section even if it provides an incidental benefit to the lessee. 2. M echan ical breakdow n protection . Whether mechanical breakdown protection (MBP) purchased in conjunction with a lease should be treated as insurance is determined by state or other applicable law. In states that do not treat MBP as insurance, the lessor need not make § 213.5(f) disclosures. The lessor may, however, disclose the § 213.5(f) information in such cases in accordance with the additional information provision in § 213.4(b). 3. V oluntary Insurance. Insurance not required but provided by the lessor must be disclosed under this section. 5(g) Warranties or guarantees 1. B r ie f identification. The statement identifying warranties may be brief and need not describe or list all warranties applicable to specific parts such as for air conditioning, radio, or tires in an automobile. For example, manufacturer’s warranties may be identified simply by a reference to the standard manufacturer’s warranty. 2. W arranty disclaim ers. A disclaimer of warranties is not required by the regulation, but the lessor may give a disclaimer as additional information in accordance with § 213.4(b). 3. State law. Whether an express warranty or guaranty exists is determined by state or other law. 5(h) Maintenance responsibilities 1. S tan dards fo r w ear a n d use. No disclosure is required for lessors that do not set standards for wear and use (such as excess mileage.) See the commentary to § 213.5(o). 5(i) Security interest 1. D isclosable security interests. See § 213.2(a)(17) and accompanying commentary to determine what security interests must be disclosed. 5(j) Penalties and other charges for delinquency 1. C ollection costs. The automatic imposition of collection costs or attorney fees upon default must be disclosed under § 213.5(j). Collection costs or attorney fees that are not imposed automatically, but are contingent upon expenditure of amounts in conjunction with a collection proceeding or upon the employment of an attorney to effect collection, need not be disclosed. 2. C harges f o r early term ination. When default is a condition for early termination of a lease, default charges must also be disclosed under § 213.5(1). The § 213.5 (j) and (1) disclosures may be combined. Examples of combined disclosures are provided in the model lease disclosure forms in appendix A. 3. Sim ple-in terest leases. In a simpleinterest accounting lease, the additional lease charge that accrues on the lease balance when a periodic payment is made after the due date does not constitute a penalty or other charge for late payment. Similarly, continued accrual of the lease chafge after termination of the lease because the lessee fails to return the leased property does not constitute a default charge. In either case, if the additional charge accrues at a rate higher than the normal lease charge, the lessor must disclose the amount of or the method of determining the additional charge under § 213.5(j). 4. E xtension charges. Extension charges that exceed the lease charge in a simpleinterest accounting lease or that are added separately are disclosed under § 213.5(j). 5. R ea so n a blen ess o f charges. Pursuant to section 183(b) of the act, penalties or other charges for delinquency, default, or early termination may be specified in the lease but only in an amount that is reasonable in light of the anticipated or actual harm caused by the delinquency, default, or early termination, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. 5(k) Purchase option 1. M an datory disclosu re o f n o p u rch ase option . Although generally the lessor need only make the specific required disclosures that apply to a transaction, it must disclose affirmatively that the lessee has no option to purchase the leased property when the purchase option is inapplicable. 2. E xisten ce o f p u rch a se option. Whether a purchase option exists is determined by state or other applicable law. The lessee’s right to submit a bid to purchase property at termination of the lease Is not an option to purchase under § 213.5(k) if the lessor is not required to accept the lessee’s bid and the lessee does not receive preferential treatment. 3. P u rchase option fees . A purchase option fee must be disclosed under this paragraph unless the lessor discloses the fee under § 213.5(e) as an “other charge.” 5(1) Early termination 1. Default. When default is also a condition for early termination of a lease, default charges must be disclosed under this paragraph. See the commentary to § 213.5(j). 2. L e s s e e ’s liability at e a rly term ination. W hen the lessee is liable for the difference between the unamortized cost and the realized value at early termination, the amount or the method of determining the amount of the difference must be disclosed under this paragraph. 3. R ea so n a b len ess o f charges. See the commentary to § 213.5(j). 4. D escription o f th e m eth od . A full description of the method of determining any early termination charge is required by the act and this regulation. Lessors should attempt to provide clear and understandable descriptions to consumers of their early termination charges. Descriptions that are full, accurate, and not intended to be misleading are in compliance with the act and this regulation, even if complex. (And, of course, the statute requires that the early termination charges themselves be reasonable.) In providing a full description of an early termination method, a lessor may use the name of a generally accepted method of computing the unamortized cost (also known as the “adjusted lease balance”) portion of its early termination charges. For example, a lessor may state that the “constant yield” method would be utilized in obtaining the adjusted lease balance, but the lessor would have to specify how that figure, and any other term or figure, is used in computing the total early termination charge imposed upon the consumer. Additionally, if a lessor refers to a named method in this manner, the lessor would have to provide a written explanation of that method if requested by the consumer. 5. E xam ple. The figure used to calculate the early termination example must be calculated in the same manner the residual value is calculated for purposes of § 213.5(r). Therefore, if a lessor uses the fair market value to estimate the value of the property at the end of the lease, the example must also be calculated using the fair market value. 5(n) Right of appraisal 1. D isclosure in a p p lica ble. When the lessee is liable at the end of the lease term or at early termination for unreasonable wear or use but not for the estimated value of the leased property, the lessor need not disclose the lessee’s right to an independent appraisal. For example: 1. The automobile lessor may reasonably expect a lessee to return an undented car with four good tires at the end of the lease term. Even though it holds the lessee liable for the difference between a dented car with bald tires and the value of a car in reasonably good repair, the lessor is not required to disclose the lessee’s appraisal right. 2. L esso r’s appraisal. The lessor may obtain an appraisal of the leased property to determine its realized value. Such an appraisal, however, is not the one addressed in section 183(c) of the act and in § 213.5(o) of the regulation, and the lessor still must disclose the lessee’s independent right to an appraisal under § 213.5(n). 3. Tim e restriction on a p p ra isal. Neither the act nor the regulation specifies any time period in which the lessee must exercise the appraisal right. The lessor may require a lessee to obtain the appraisal within a reasonable time after termination of the lease. The regulation does not define what is a “reasonable time.” 5(o) Liability at end of lease term based on estimated value 1. Coverage. The disclosure under § 213.5(o) limiting the lessee’s liability for the value of the leased property does not apply at early termination. 2. L eases with a m inim um term. If a lease has an alternative minimum term, the § 213.5(o) disclosures governing the liability limitation are not applicable for the minimum term. See the commentary to § 213.4(a). 5(o)(l) Value at consummation and total lease obligation 1. T otal le a s e obligation. The requirement that the total lease obligation be itemized is satisfied by disclosing the three components Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules in the definition of total lease obligation in § 213.2(a)(19) with their corresponding amounts. The lessor may cross-reference the individual components disclosed in the segregated disclosures, as done in the model forms in appendix A -l. 2. T axes. Taxes included in the value at consummation are included in the total lease obligation. Taxes not included in the value at consummation may, but need not, be included in the total lease obligation at the lessor’s option. See the commentary to § 213.2(a)(20). 5(o)(2) Excess liability 1. A verage p aym en t a llo c a b le to a m on thly p erio d . The phrase “average payment allocable to a monthly period” is based on the periodic payment used to compute the total lease obligation. See the commentary to § 213.2(a)(19). 2. C harges n ot subject to rebu ttable presu m ption . The limitation on liability applies only to liability that is based on the estimated value of the property at the end of the lease term. The lessor also may recover additional charges from the lessee at the end of the lease term. Examples of such additional charges include: i. Disposition charges. ii. Excess mileage charges. iii. Late payment and default charges. iv. Amounts by which the unamortized cost exceeds the estimated residual value that have accrued in simple interest accounting leases because the lessee has made late payments. 3. Lessor's p aym en t o f attorn ey’s fees . Section 183(a) of the act requires that the lessor pay the lessee’s attorney’s fees in all actions brought by the lessor under this paragraph, whether successful or not. 5(p) Gross cost 1. Basis. The gross cost is the amount that the periodic and other payments and terms o f the lease are based upon, and is intended to be used by consumers to compare a lease with similar lease and non-lease transactions. 5(s) Statement referencing nonsegregated disclosures 1. Content. A lessor may delete inapplicable items, for example, when the contract documents contain no information regarding a purchase option. S ection 213.6—Renegotiations, Extensions a n d A ssum ption s 1. C overage. Section 213.6 applies only to existing leases that are covered by the requirements of the regulation. It therefore does not apply to the renegotiation or extension of leases with an initial term of four months or less, because such leases are not covered by the definition of consumer lease in § 213.2(a)(6). Whether and when a lease is satisfied and replaced by a new lease is determined by state or other applicable law. 2. In a p p lic a b le disclosures. Disclosures that are inapplicable to the terms of a renegotiation or extension need not be given. For example: i. If the term for which extension disclosures are given is one month and the lessee will pay no official fees and taxes during that month, no disclosure of those amounts is necessary. ii. If a renegotiation involves no initial charges, no disclosure of initial charges is necessary. 6(b) Extensions 1. T im e o f extension disclosu res. If a consumer lease is extended for a specified term greater than six months, at the time the extension is agreed to, new disclosures are required. If the lease is extended on a monthto-month basis and exceeds six months, new disclosures are required at the commencement of the seventh month, and at the commencement of each seventh month thereafter. If a consumer lease is extended for several terms, one of which will exceed six months beyond the originally scheduled termination date of the lease, new disclosures are required at the commencement of the term that will exceed 6 months beyond the originally scheduled termination date. 2. C ontent o f disclosu res f o r m onth-tom on th extensions. The disclosures for a lease extended on a month-to-month basis for more than six months should reflect the month-tomonth nature of the transaction. 48777 2. C ross-referen ces. A multiple-page advertisement is a single advertisement (requiring only one set of lease disclosures) if it contains a table, chart, or schedule clearly stating sufficient information for the reader to determine the disclosures required under § 213.8(d)(2) (i) through (vi). If one of the triggering terms listed in § 213.8(d)(1) appears on another page of the catalog or other multiple-page advertisement, that page must clearly refer to the specific page where the table, chart, or schedule begins. 8(d)(1) Triggering terms 1. Triggering terms. When triggering terms appear in lease advertisements, the additional terms enumerated in § 213.8(d)(2) (i) through (vi) must also appear. An example of one or more typical leases with a statement of all the terms applicable to each may be used. The additional terms must be disclosed even if the triggering term is not stated explicitly, but is readily determinable from the advertisement. For example, if an advertisement states a five-year lease term with monthly payments, the number of required payments— a triggering term— is readily apparent. S ection 213.8—Advertising 8(d)(2) 8(a) General rule 1. P erson s covered. All “persons” must comply w ith the advertising provisions in this section, not just those that meet the definition of lessor in § 213.2(a)(10). Thus, automobile dealers, merchants, and others who are not themselves lessors must comply with the advertising provisions of the regulation if they advertise consumer lease transactions. Pursuant to section 184(c) of the act, the owner and personnel of the medium in w hich an advertisement appears or through which it is disseminated, however, are not subject to civil liability for violations under section 185(b) of the act. 2. "U sually a n d custom arily.” This paragraph does not prohibit the advertising o f a single item or the promotion of new leasing programs, but prohibits the advertising of terms that are not and will not be available. Thus, an advertisement may state terms that will be offered for only a limited period or terms that will become available at a future date. 1. L e a s e transaction. An advertisement must clearly and conspicuously disclose that the transaction is a lease. 8(b) Clear and conspicuous standard 1. S tan aard . Section 213.8 prescribes no specific rules for the format of the necessary disclosures. The terms need not be printed in a certain type size and need not appear in any particular place in the advertisement. 2. T elevision advertisem ents. In lease television advertisements, the lease disclosures required under paragraph 8(d) or the alternate disclosures under paragraph 8(f)(1) must be visible for at least five seconds to satisfy the requirements of this paragraph. 8(c) Catalogs and multi-page advertisements 1. G en eral rule. The multiple-page advertisements referred to in this paragraph are advertisements consisting of a numbered series of pages— for example, a supplement to a newspaper. A mailing comprised of several separate flyers or pieces of promotional material in a single envelope is not a single multiple-page advertisement. 8(e) tags Additional terms Alternative disclosures—merchandise 1. A lternative disclosu re rule. This section provides a method for using merchandise tags without including all the required disclosures on the tags. As an alternative to this disclosure method, a merchandise tag may state all the necessary terms on one or both sides of the tag. If the terms are on both sides of the tag, both sides must be accessible to the consumer. 2. M ultiple item leases. Multiple item leases which utilize merchandise tags requiring additional disclosures may use the alternate disclosure rule. 8(f) Alternative disclosures—television or radio advertisements 8(f)(1) Toll-free number or print advertisement 1. P ublication in g en eral circulation. A referral to a written advertisement appearing in a.newspaper circulated nationally, for example, The Wall Street Journal, meets the general circulation requirement in § 213.8(f)(1)(H). 2. T oll-free num ber, lo c a l o r c o llect calls. In complying with the disclosure requirement of this paragraph, generally a lessor must provide a toll-free number for nonlocal calls made from an area code other than the one used in the lessor’s dialing area. Alternatively, a lessor may provide any telephone number that allows a consumer to call for information and reverse the phone charges. S ection 213.9—R ecord R etention 1. M an ner o f retaining ev id en ce. A lessor must retain evidence of having performed required actions and of having made required disclosures. Such records may be retained on microfilm, microfiche, computer, or by any 48778 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules other method designed to reproduce records accurately, as well as paper form. The lessor need retain only enough information to reconstruct the required disclosures or other records. affect the substance and the clarity of the forms. 2. E x am p les o f a c c ep ta b le changes. i. Using the first person, instead of the second person, in referring to the lessee. i: Using “ lessee,” “ lessor,” or names Appendix A—Model Forms instead of pronouns. 1. P erm issible changes. Although use of the iii. Rearranging the sequence of the nonsegregated disclosures. model forms is not required, lessors using iv. Incorporating certain state “plain them properly will be deemed to be in English” requirements. compliance with the regulation. The content, v. Deleting inapplicable disclosures by format, and headings for the segregated whiting out, blocking out, filling in “N/A” disclosures must be substantially similar to (not applicable) or “0 ,” crossing out, leaving those contained in the model forms, blanks, checking a box for applicable items, therefore, any changes in the segregated or circling applicable items. (This should disclosures should be minimal. Generally, permit use of multi-purpose standard forms.) lessors may make certain changes in the vi. Adding language or symbols to indicate format or content of the forms and may delete estimates. any disclosures that are inapplicable to a 3. M odel clo s ed -en d o r net v eh icle le a s e transaction without losing the act’s disclosu re. Model A -2 is designed for a protection from liability. The changes to the closed-end or net lease of a vehicle. Item 9(c) model forms may not be so extensive as to is included for those closed-end leases in which the lessee’s liability at early termination is based on the vehicle’s estimated value. (See section 213.5(n)) 4. M odel furn iture le a s e disclosu res. Model A -3 is a closed-end lease disclosure statement designed for a typical furniture lease. It does not include a disclosure of the appraisal right at early termination that is required under § 213.5(n) because few closed-end furniture leases base the lessee’s liability at early termination on the estimated value of the leased property. Of course, the disclosure should be added, if it is applicable. By order of the Board of Governors of the Federal Reserve System, acting through the Secretary of the Board under delegated authority. William W. Wiles, S ecretary o f th e Board. [FR Doc. 9 5 -2 3 0 4 9 Filed 9 -1 9 -9 5 ; 8:45 am] BILLING CODE 6210-01-P
@FedFRASER