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federal reserve Bank DALLAS, TEXAS of Dallas 7S222 Circular No. 81-207 October 29, 1981 REGULATION M Proposed Commentary TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The Board o f Governors of the Federal Reserve System has published for com m ent a proposed o fficia l s ta ff commentary to Regulation M, Consumer Leasing. Printed on the following pages are copies of the Board's press release dated October 7, 1981, and a summary o f the Federal R egister notice. The full tex t o f the commentary and of this circular may be obtained upon request from this Bank's Department o f Communications, Financial and Community Affairs, Ext. 6289. Interested parties are invited to submit their com m ents to Secretary, Board of Governors o f the Federal Reserve System, Washington, D.C. 20551. All com m ents submitted should include a reference to CL-1 and should be received by Decem ber 11, 1981. Questions regarding the proposed commentary should be directed to this Bank's Legal Department, Ext. 6171. Sincerely yours, William H. Wallace First Vice President Banks and others are encouraged to use the following incoming W ATS numbers in contacting this Bank: 1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERALRESERVEpressrelease For immediate release October 7, 1981 The Federal Reserve Board staff today made public a proposed official staff commentary intended to apply and interpret the Board*s Regulation M — Consumer Leasing. Comment was requested by December 11, 1981. The Board adopted Regulation M last April to implement the consumer leasing provisions of the Truth in Lending Act as revised by the Truth in Lending Simplification and Reform Act of 1980. The revision of Truth in Lending under the Simplification Act left provisions of the Act dealing with leasing almost unchanged. When the Board revised its Truth in Lending Regulation Z to conform to the Simplification Act it removed the leasing provisions of the regulation and incorporated them in separate Regulation M. to the leasing provisions of Regulation Z. Regulation M conforms almost verbatim Lessors are required to conform to the Simplification Act, and regulations under it, by April 1, 1982, but they may begin to comply at any time before that date. The proposed commentary is intended to replace a large number of interpretive letters issued under the leasing provisions of Regulation Z, and it is expected that the Regulation M commentary will be the sole future vehicle for staff interpretations of the regulations. It will be updated at least annually. An official staff commentary on Regulation Z, as revised under the Simplification Act, has just been published in final form. This does not touch on leasing. Creditors conforming to the commentary in its final form will be protected from liability under the Truth in Lending Act. In keeping with the Board's desire to minimize regulatory burdens,the staff commentary on Regulation M has departed as little as possible from the substance of outstanding interpretive letters. It - 2- concentrates on interpretations of broad applicability. Changes have been made in the three following instances. — When a statutory change has resulted in a new or different regulatory provision (for example, Comment 4(c)-l on the treatment of multiple lessors). — When Supreme Court decisions have interpreted provisions of the act or regulation (for example, Comment 2 ( a ) (8)— 1 on the definition of "lessor"). — When an area of concern to consumers or lessors can be profitably addressed, and the benefit of adding a new interpretation outweighs any burden (for example, Comments 4(h)-l and 4(h)-3 on renegotiations and extensions). Interpretations have been dropped if they have been outmoded by circumstance or the passage of time,if they repeat information or if found elsewhere, they deal with issues of civil liability. The staff believes that civil liability is inappropriate for regulatory handling. The staff welcomes comment on any aspect of the proposed commentary, and commenters m ay focus only on issues of particular interest to them without addressing the entire commentary. substance of existing Comment on the staff's decision to retain the interpretations is of particular interest. The staff will consider any proposed additional material for the commentary, but will not consider proposals for change in Regulation M. The attached notice summarizes the intent and formation of the proposed commentary, and lists its content. The full text may be obtained from the Federal Reserve Banks or the Division of Consumer and Community Affairs of the Board. Attachment FEDERAL RESERVE SYSTEM 12 CFR Part 213 [Reg. M; CL-1] Proposed O fficial S ta f f Commentary AGENCY: Board o f Governors of th e Federal Reserve System. ACTION: Proposed o f f i c i a l s t a f f I n t e r p r e t a t i o n . SUMMARY: In accordance with 12 CFR 2 13 .1 (d ), the Board's s t a f f 1s publishing fo r comment a proposed o f f i c i a l s t a f f commentary t o Regulation M. The com mentary a p p lie s and i n t e r p r e t s th e requirements o f th e r e g u la tio n and 1s intended to replace individual Board and s t a f f i n t e r p r e t a t i o n s . In f in a l form, i t will be an o f f i c i a l s t a f f in t e r p r e t a t i o n providing c r e d i t o r s with p ro te c tio n under § 130(f) o f the Truth 1n Lending Act. DATE: Comments must be received on or before December 11, 1981. ADDRESS: Comments should include a referen ce t o CL-1 and should be mailed to th e S e c re ta ry , Board o f Governors of th e Federal Reserve System, Washington, D.C. 20551, or deliv ered t o Room B-2223, 20th and C o n stitu tio n Avenue, N.W., Washington, D.C. 20551, between 8:45 a.m. and 5:15 p.m. Comments regarding each se c tio n should begin on a se p arate page. Comments may be inspected in Room B-1122 between 8:45 a.m. and 5:15 p.m. FOR FURTHER INFORMATION CONTACT: Barbara Ranagan or Steven Z e is e l, S ta f f Attorneys (202-452-3667), Division of Consumer and Community A f f a i r s , Board o f Governors o f the Federal Reserve System, Washington, D.C. 20551. SUPPLEMENTARY INFORMATION: (1) I n tro d u c tio n . The Board adopted Regulation M (46 FR 20949), e f f e c t i v e April 1, 1981, to implement th e consumer le a s in g p rov i sions o f th e Truth in Lending Act. The le a s in g r u le s were formerly contained 1n Regulation Z, 12 CFR 226. Compliance with th e new r e g u la tio n becomes man datory on April 1, 1982. Until t h a t tim e, l e s s o r s may comply with e i t h e r Regulation M or th e previous version of Regulation Z. The Truth in Lending S im p lific a tio n and Reform Act ( T i t l e VI o f th e Depository I n s t i t u t i o n s Deregulation and Monetary Control Act of 1980, Pub. L. 96-221) made re v is io n s to Truth in Lending, but i t a f fe c te d consumer leasin g only s l i g h t l y . When Regulation Z was revised e a r l i e r t h i s y ear to implement th e amended a c t , th e le a s in g r u le s were removed and consolidated as Regula tio n M. Apart from a few minor changes n e c e s s ita te d by th e amendments to the a c t , Regulation M adopted almost verbatim the le a sin g ru le s o f Regula t i o n Z. - 2 - The Board suggested t h a t Congress sim p lify th e Consumer Leasing Act 1n th e near f u t u r e . At th e p re se n t tim e , however, congressional amendments t o th e a c t do not appear Imminent. Because th e Board and s t a f f i n t e r p r e t a t i o n s o f previous Regulation Z will exp ire when compliance with Regulation M becomes mandatory (April 1, 1982), th e Board's s t a f f 1s publishing 1n proposed form a commentary t h a t in c o rp o ra te s th e I n t e r p r e t a t i o n s . The commentary, 1n I t s f in a l form, w ill rep lace th e Individual opinion l e t t e r s t h a t were Issued under previous Regulation Z as t h e v e h ic le f o r s t a f f I n t e r p r e t a t i o n s . It w ill co n centrate on m aterial o f general a p p lic a tio n fo r use by th e widest p o ssib le audience and w ill be updated annually or more o ften as th e need a r i s e s . In keeping with th e Board's d e s i r e to avoid unnecessary reg u la to ry changes, th e proposed commentary 1s based l a r g e l y on t h e e x i s ti n g s t a f f opinion l e t t e r s to previous Regulation Z. The s t a f f has added new I n t e r p r e t a t i o n s or a l t e r e d e x is tin g i n t e r p r e t a t i o n s as I n fre q u e n tly as p o s s ib le . The c a te g o r ie s 1n which such changes have been made can be summarized as follow s: o When a s t a tu t o r y change has r e s u lte d 1n a new or d i f f e r e n t re g u la to ry provision ( fo r example, Comment 4 ( c ) - l on th e treatm en t of m u ltip le l e s s o r s ) . o When recen t Supreme Court d e c is io n s have I n te rp r e te d p ro vision s of th e a c t or r e g u la tio n (fo r example, Comment 2 ( a ) ( 8 ) - l on the d e f i n i t i o n of " l e s s o r " ) . o When an area o f concern to consumers or le s s o r s can be p r o f i t a b l y addressed, and the b e n e f i t of adding a new I n t e r p r e t a t i o n outweighs any burden ( fo r example, Comments 4 ( h ) - l and 4 (h )-3 on r e n e g o ti a tio n s and e x te n s io n s ) . The proposed commentary adopts th e substance o f most o f th e Individual le a s in g I n t e r p r e t a t i o n s issued under previous Regulation Z. However, I n t e r p r e t a t i o n s have not been incorporated 1f they rep eat information found elsew here, 1f they have been rendered v a lu e le s s by th e passage o f tim e, or 1f they deal with f a c t s t h a t are unique or too p a r t i c u l a r to warrant treatm en t 1n th e new commentary. In a few I n s ta n c e s , th e previous I n t e r p r e t a t i o n s d e a l t with Issu es of c i v i l l i a b i l i t y , such as th e a p p l i c a b i l i t y o f th e three-monthly payment l i m i t a t i o n o f § 183 o f th e a c t . These I n t e r p r e t a t i o n s have not been in corporated 1n the proposed commentary because th e s t a f f b e lie v e s t h a t l i a b i l i t y I ss u e s a re In ap p ro p riate fo r reg u la to ry tre a tm e n t. Comment i s welcome on both the substance o f th e m aterial and th e f o r mat in which i t 1s p resented . Commenters a re encouraged t o focus on m aterial of p a r t i c u l a r I n t e r e s t t o them; they need not address every p r o v is io n . The s t a f f w ill consider fo r Inclusion 1n th e commentary any m aterial a p p ro p ria te fo r a s t a f f I n t e r p r e t a t i o n of t h i s scope. No comments t h a t have th e e f f e c t of re v isin g or elim in atin g any requirements o f th e re g u la tio n I t s e l f will be co n s i d ered . The s t a f f p a r t i c u l a r l y s o l i c i t s comments on I t s decisio n to r e t a i n th e 3 - - substance o f e x i s ti n g I n t e r p r e t a t i o n s whenever f e a s i b l e . To expedite a n a ly s is of th e comments, commenters are requested to i d e n t i f y p o rtio n s of the commentary according to se c tio n and paragraph numbers and t o begin d isc u ssio n of each sec t io n on a se p a ra te page. After c o n s id e ra tio n of comments and p o ss ib le rev isio n of th e commentary, th e s t a f f expects t o is s u e o f f i c i a l s t a f f i n t e r p r e t a t i o n CL-1 in fin a l form in the Federal R e g is te r . * * * * * [NOTE: The complete t e x t o f th e proposed commentary can be obtained from any Federal Reserve Bank or from th e Division o f Consumer and Community A f f a ir s , Board o f Governors o f the Federal Reserve System, Washington, D.C. 20551.]
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