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Federal reserve Bank of Dallas DALLAS. TEXAS 75222 C i r c u l a r No. 78-84 J u n e 21, 1978 REGULATION Z—CONSUMER LEASING ACT New Pam phlet on T r u t h in L e a sing TO ALL BANKS, OTHER CREDITORS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e B oard of G o v e r n o r s of th e Fe d e ra l R e s e r v e System has a n n o u n c e d th a t th e latest in a s e r i e s of c o n s u m e r e d u ca tio n p a m p h le ts , " T r u t h in L e a s i n g , " is now a v a i la b l e for p u b lic d i s t r i b u t i o n . T h e p a m p h le t g i v e s a sim plified e x p la n a ti o n of th e C o nsum er L e a sin g A ct, w h ic h w as in te n d e d to he lp c o n s u m e r s c o m p a re the cost of on e lease w ith a n o t h e r o r with t h e c o st of b u y i n g for c a s h or on c r e d it. It a ls o c o v e r s th e law 's limit on balloon p a y m e n ts u n d e r o p e n - e n d leases a n d th e r e g u l a t i o n of lease a d v e r t i s i n g . A co p y of th e new p a m p h le t is e n c l o s e d . A dditional c o p ie s may be o b ta in e d f r e e of c h a r g e from th e S e c r e t a r y ' s Office of th is B a n k , Ext. 6267. Sincerely y o u rs , R o b e r t H . Boykin F i r s t Vice P r e s i d e n t Enclosure Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank: 1 -8 0 0 -4 9 2 -4 4 0 3 (intrastate) and 1-8 00 -527 -497 0 (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) or no d ow npaym en t is required, it must also mention several other im portant terms, in cluding the total of regular paym ents, your responsibilities at the end of the lease, and w hether or not you may purchase the p ro p erty. This is to m ake sure you get enough information from the advertisem ent to under stand the offer an d to com pare it with others. A tla n ta , Georgia 104 Marietta Street, N.W. ZIP 30303 (404) 586-8500 B o s to n , Massachusetts 600 Atlantic Avenue ZIP 02106 (617) 973-3000 W hat are th e p e n a ltie s? You as an individual may sue a leasing com pany if it fails to give you the required information or does so improperly. Y ou m ay sue for 25 per cent of the total of the m onthly paym ents (but not less than $10 0 or m ore than $1,000) plus any actual dam ages. If an advertisement violates the law, you m ay sue the leasing com pany for your actual dam ages. In any suc cessful lawsuit, you are also entitled to court costs an d reasonable attorney’s fees. T he law also provides criminal penalties for intentional violations. T FND OUT/MORE . O To find Out m o r e . . . A num ber of Federal agencies are responsible for enforcing the C onsum er Leasing Act. If you have any questions about the law in connection with a lease transaction with a bank, you m ay write to the nearest Federal Reserve Bank or to the Board of G overnors of the Federal Reserve System, W ashington, D.C. 20551. Be sure to identify the nam e an d location of the bank so that your letter can be brought to the attention of the appropriate bank enforcem ent agency — the Federal Reserve B oard (for Statechartered m em ber banks), the Comptroller of the C urrency (for national banks) or the Federal Deposit Insurance C orporation (for non-m em ber insured banks). The Federal Trade C om m ission enforces the law for almost all leasing com panies other than banks. Questions or complaints can be sent to the nearest Federal T rade Com m is sion Regional Office, or, if they concern national com panies, to: Federal T rade C o m mission, C o n su m er Leasing, Washington, D.C. 20580. The Commission does not repre sent individual consum ers in private disputes, but information from consum ers about their experiences and concerns is vital to its e n forcem ent of the C onsum er Leasing Act. u 6 cd •3 S ■O Q i Un r V JO O C t o V > o O «*■ o ■o 1 3 o DQ 0 > X + 4 •u C h ica go , Illinois 230 South LaSalle Street P.O. Box 834 ZIP 60690 (312) 322-5322 C lev ela n d , Ohio 1455 East Sixth Street P.O. Box 6387 ZIP 44101 (216) 241-2800 D a lla s, T exas 400 South Akard Street Station K ZIP 75222 (214) 651-6111 K a n sa s City, Missouri 925 Grand Avenue Federal Reserve Station ZIP 64198 (816) 881 2000 M in n ea p o lis, Minnesota 250 Marquette Avenue ZIP 55480 (612) 340-2345 e to c N ew York, New York 33 Liberty Street Federal Reserve P.O. Station ZIP 10045 (212) 791-5000 E P h ila d elp h ia , Pennsylvania 100 North Sixth Street P.O. Box 66 ZIP 19105 (215) 574-6000 o 8 E o O « •9 f l « s ■V 0 1 b. w £ XI » C •o V a & R ich m on d , Virginia 100 North Ninth Street P.O. Box 27622 ZIP 23261 (804)649-3611 S a n F ra n cisco , California 400 Sansome Street P.O. Box 7702 ZIP 94120 (415) 544-2000 S t. Lomis, Missouri 411 Locust Street P.O. Box 442 ZIP 63166 (314)421-1700 IlgOOQ A tlanta, Georgia Room 1000 1718 Peachtree Street, N.W. ZIP 30309 (404) 881-4836 B o s to n , Massachusetts 1301 Analex Building 150 Causeway ZIP 02114 (617) 223-6621 C h ica g o , I l l i n o i s Suite 1437 55 East Monroe Street ZIP 60603 (312) 353-4423 FE E A TR D COMMISSION REGIONAL DRL AE C lev ela n d , O h i o Suite 500 The Mall Building 118 St. Clair Avenue, N.E. ZIP 44114 (216) 522 4207 D a lla s, Texas Suite 2665 2001 Bryan T ower ZIP 75201 (214) 749-3056 D e n v e r , Colorado Suite 2900 1405 Curtis Street ZIP 80202 (303) 837-2271 L os A n g e le s , California Room 13209 11000 Wilshire Boulevard ZIP 90024 (213) 824-7575 N ew York, New York 22nd Floor, Federal Building 26 Federal Plaza ZIP 10007 (212) 264-1207 S a n F ra n cisco , California 450 Golden Gate Avenue Box 36005 ZIP 94102 (415) 556-1270 S e a ttle , Washington 28th Floor, Federal Building 915 Second Avenue ZIP 98174 (206) 442-4655 • A re y o u w ondering w h e th e r leasing your next car would be a g o o d idea? • W o u ld yo u rather lease th a n b u y furni ture for an a p a r tm e n t y o u ’ll use for only a year? W hen lea sin g lo o k s like a good op tion , there’s a Federal law that will help you shop for the best deal. T he C o n sum er Leasing Act requires leasing co m panies to tell you the facts about the cost a n d terms of their contracts. You can use the information to com pare on e lease with an o th er or to com pare the cost of leasing with the cost of buying the sam e property. T he law also limits any extra p ay m en t you may have to m ake at the en d of a lease and regulates lease advertising. This pam phlet describes the C on sum er Leasing Act and the regulation issued by the Federal Reserve Board to carry it out. What le a s e s are covered? T he law applies to p e rso n a l p ro p e rty leased by an individual for a period of m ore than f o u r m on ths for person al, fa m ily or h o u seh o ld use. It covers long-term rentals of cars, furniture, appliances an d other p er sonal property. The law does n o t cover: • daily car rentals or m onth-to-m onth rentals which you can cancel without penalty at the end of the month; • leases for apartm ents or houses — or furniture that com es with a rented apart ment; • property leased to com panies or to in dividuals for business use. What about co sts? Before you agree to a lease, the law requires that you get a written statem ent of its co s ts , including: • the am o u n t of any advance payment, such as a security deposit; • the number, the am o u n t an d the dates your regular paym ents are due, as well as the total am o u n t of those paym ents;and • the am o unt you must pay for license, registration and taxes, and for any other fees, such as m aintenance. W hat a b o u t term s o f th e le a s e ? no m o r e t h a n t h r e e t i m e s t h e a v e r a g e You m ust also be told certain term s of the lease, including: m o n t h l y p a y m e n t — unless you agree to m ake a higher pay m en t or you have used the property m ore th an average (for ex ample, if you put m ore than average mileage on a car). T he leasing com pany m ay also seek a larger paym ent by going to court. If it goes to c o u rt the com pany has the burden of proving that its original estimate of the value of the property, although wrong, was reasonable and m ade in good faith. T he com p any must pay your attorney’s fees in such a lawsuit, whether or not it wins. • w hat kind of insurance you need; • any express warranty on the property; • w ho is responsible for maintaining and servicing the property, an d any standards for w ear and tear (which must be reaso n able) set by the leasing company; • any penalty for default or late paym ent; • how you or the leasing com pany may cancel the lease a n d the charges for doing so; and • w hether or not you can buy the property and, if you can, w hen and at w hat price. I How do I sh o p for a lea se? • W hat are o p e n e n d le a s e s and b a llo o n p a y m en ts? O ne decision that will affect leasing costs an d term s is w hether you choose an “open e n d ” (or “finance”) or “closed e n d ” lease. In an open end lease you run the risk of owing extra m oney depending on the value of the p ro p erty w hen you return it This paym en t is often called a “balloon p a y m e n t” For example, w hen you sign a three-year o p en end car lease, the leasing com pany m ay estimate that the car will be worth $2,000 after three years of normal use. If the car is w orth only $1,500 w hen you return it you may have to pay a $500 balloon paym ent. T o help you com pare the cost of buying on credit with the cost of open e n d leasing, you must be told the total am o u n t you are re sponsible for under the lease, the value of the property at the beginning of the lease, an d the difference betw een the two. For example, a three-year o pen en d car lease might show: 36 monthly payments of $125 $4,500 + Estimated value of car at end of lease 2,000 Amount you are responsible for under lease $6,500 —Value of car at beginning of lease 5,800 Difference $ 700 In a closed end lease, you are not responsible for the value of the property w hen you re turn it a n d will not have to m ake a balloon p a y m e n t As a result, closed end leases usually have higher monthly paym ents than open end leases. Y ou should know that in an open en d lease: • T he leasing com pany must tell you that you may have a balloon paym en t and how it is calculated. • At the end of the lease you have the right to obtain an estimate of the property’s worth from an in d ep en d en t appraiser. Both parties must abide by the estimate. Lim its o n b a llo o n p a y m en ts. Y ou should also know that the law limits a balloon paym ent in a n op en end lease to First, decide w hether you want to buy with cash, buy on credit, or lease. W hen making your decision, be sure to take into account such expenses as the cost of insurance, m ainte nance a n d special fees. Y ou could com pare this “difference” of $700 with the finance charge you would pay if you bought the car on credit • If you decide to lease, shop arou nd for the ’ best price and terms. C om pare the costs and H advantages of open e n d an d closed end £ leases, an d look at such options as w hether I the leasing com pany will pay for repairs and ■ m aintenance. ] ► j • What about advertising? The law also regulates the advertising of leases. It says that if a leasing com pany advertises the am o u n t or num ber of paym ents or that any