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federal reserve

Ba n k





Circular No. 82-117
S ep tem ber 16, 1982



The Board o f G overnors o f the Federal R eserve System has e x te n d ed until
S ep tem ber 27 the period for c om m en t on proposed changes in its rules concerning the
tr e a tm e n t o f s e lle r 's points in Truth in Lending disclosures. The proposed changes were
explained in our Circular No. 82-92 d ated August 12, 1982.
The Board's press r e le a s e is printed on the re v er se o f this circular. The
Federal R e g iste r m aterial r e la te d to the ruling may be obtained, upon request, from this
Bank's D ep artm en t o f C om m unications, Financial and C om m unity A ffairs.
Q uestions regarding the proposed changes should be d ir ec te d to this Bank's
L egal D ep artm en t, Extension 6171.
Additional c o p ies o f this circular will be furnished upon request to the
D ep artm en t o f C om m unications, Financial and Com m unity A ffairs, E xtension 6289.
Also, co p ies o f the O ffic ia l S t a f f C om m entary o f the Board o f G overnors o f
the Federal R eserve System on R egulation M, "Consumer Leasing", are available upon
Sincerely yours,

William H. W allace
First Vice President

Banks and others are encouraged to use the following incoming W A T S 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 (

FEDERAL RESERVE press release

For immediate release

August 30, 1982

The Federal Reserve Board today announced extension, from
August 27 to September 27 of the period for comment on its proposals
made in July with respect to methods for the treatment of seller's
points in disclosures made under revised Regulation Z (Truth in
The Board's notice extending the comment period is



Board o f Governors o f the Federal Reserve System

Official Staff Commentary
on Regulation M
Consumer Leasing


Introduction................................................ 1
Section 213.1—General P rovisions.......... 1
Section 213.2—Definitions and Rules of
Construction............................................ 2
Section 213.3—Exempted Transactions. . . 5
Section 213.4— Disclosures........................ 5
Section 213.5—Advertising........................ 13
Section 213.6—Preservation and
Inspection of Evidence of Compliance . . 1 3
Section 213.7—Inconsistent State
Requirements.......................................... 14

Section 213.8—Exemption of Certain
State-Regulated Transactions................ 14
Appendix A—Procedures and Criteria for
State Exemption...................................... 14
Appendix B—Procedures and Criteria for
Board Determination Regarding
Preemption.............................................. 14
Appendix C—Model F o rm s...................... 15
Appendix D—Federal Enforcement
Agencies.................................................. 15

Official Staff Commentary
on Regulation M

1. Official status. This commentary is the ve­
hicle by which the staff of the Division of
Consumer and Community Affairs of the Fed­
eral Reserve Board issues official staff inter­
pretations of Regulation M, effective April 1,
1981. Good faith compliance with this com­
mentary affords protection from liability un­
der section 130(0 of the Truth in Lending
Act (15 USC 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 offi­
cial or employee of the Federal Reserve
2. Procedures fo r requesting interpretations.
Under section 213.1(d) of the regulation,
anyone may request an official staff interpreta­
tion. 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. Status o f previous interpretations. All state­
ments and opinions issued by the Federal Re­
serve Board and its staff interpreting previous
Regulation Z remain effective until October 1,
1982, only insofar as they interpret that regu­
lation. When compliance with Regulation M
becomes mandatory on October 1, 1982, the
Board and staff interpretations of the previous
Regulation Z leasing provisions will be entire­
ly superseded by Regulation M and this com­
mentary, except with regard to liability under
the previous regulation.
4. Rules o f construction, (a) Lists that appear
in the commentary may be exhaustive or
illustrative; the appropriate construction
should be clear from the context. In most
cases, illustrative lists are introduced by
phrases such as “including, but not limited
to,” “among other things,” “for example,”
or “such as.”
(b) Throughout the commentary and reg­
ulation, reference to the regulation should
be construed to refer to Regulation M, un­

less the context indicates that a reference to
previous Regulation Z (12 CFR 226) is
also intended.
(c) Throughout the commentary, refer­
ence to “this section” or “this paragraph”
means the section or paragraph in the regu­
lation that is the subject of the comment.
5. Comment designations. Each comment in
the commentary is identified by a number and
the regulatory section or paragraph that it in­
terprets. The comments are designated with as
much specificity as possible according to the
particular regulatory provision addressed. For
example, some of the comments to section
213.4(a) are further divided by subparagraph,
such as comment 4(a) (1)-1 and comment
4 (a )(l)-2 . In other cases, comments have
more general application and are designated,
for example, as comment 4 (a)-l. This intro­
duction may be cited as comments 1-1
through 1-6. The appendixes may be cited as
comments app. C-l and app. C-2.

6. Cross-references. The following cross-refer­
ences to related material appear at the end of
each section of the commentary: (a) “Stat­
ute”—those sections of the Truth in Lending
Act on which the regulatory provision is
based; (b) “Other sections”—other provi­
sions in the regulation necessary to under­
stand that section; (c) “Previous regu­
lation”—parallel provisions in previous
Regulation Z; and (d) “ 1981 changes”—a
brief description of the major regulatory
changes made when the leasing rules were
moved from previous Regulation Z to Regula­
tion M.
SECTION 213.1—General Provisions
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 section 213.2(a)(16). 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.
2. Issuance o f sta ff interpretations. This com­
mentary is the method by which the staff pro­
vides interpretations that afford formal pro­
tection under section 130(f) of the act. This
commentary may be amended periodically.

Statute: §§ 102(b), 105, and 130(0
Previous regulation: § 226.1
1981 changes: None

SECTION 213.2—Definitions and Rules
of Construction
2(a) Definitions
2(a)(2) “Advertisement”
1. Coverage. Only commercial messages that
promote consumer lease transactions requir­
ing disclosures are advertisements. Messages
inviting, offering, or otherwise announcing
generally to prospective customers the avail­
ability of consumer leases, whether in visual,
oral, or print media, are covered by the defini­
tion. The list of examples in the definition is
not exhaustive; telephone solicitations and let­
ters sent to customers as part of an organized
solicitation of business, for example, are also
advertisements. The term does not include the



Direct personal contacts, such as followup letters, cost estimates for individual les­
sees, or oral or written communications re­
lating to the negotiation of a specific
Informational material distributed only to
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
News articles, the use of which is con­
trolled by the news medium
Market research or educational materials
that do not solicit business

Regulation M Official Staff Commentary
2. Persons covered. See the commentary to
section 213.5(a).
2(a)(4) “Arrange fo r Lease o f Personal
1. General. The definition of lessor in section
213.2(a)(8) includes one who, in the ordi­
nary course of business, regularly arranges for
the leasing of personal property. For example:


An automobile dealer who, pursuant to a
business relationship, completes the neces­
sary lease agreement before forwarding it
to the leasing company (to whom the obli­
gation is payable on its face) for execution
is “arranging” for the lease.
An automobile dealer who, receiving no
fee for the service, refers a customer to a
leasing company that will prepare all rele­
vant contract documents is not “arrang­
ing” for the lease.

2. M ultiple lessors. See the commentary to
section 213.4(c).
3. Consideration. The term “other considera­
tion” refers to an actual payment correspond­
ing to a fee or similar compensation. It does
not refer to intangible benefits, such as the ad­
vantage of increased business, that may flow
from the relationship between the parties.
2(a)(6) “ConsumerLease”
1. Primary purposes. A lessor must determine
in each case if the leased property will be used
primarily for personal, family, or household
purposes. If some question exists as to the pri­
mary purpose for a lease, the lessor is, of
course, free to make the disclosures, and the
fact that disclosures are made in such circum­
stances is not controlling on the question of
whether the transaction was exempt. The pri­
mary purpose of a lease is generally deter­
mined before or at consummation, and a sub­
sequent change in primary usage is governed
by section 213.4(e).
2. Period 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 proper­
ty for four months, three months or on a
month-to-month or week-to-week basis (even
though the lease actually extends beyond four


Regulation M Official Staff Commentary
months) is not a consumer lease and is not
subject to the disclosure requirements of the
regulation. A lease with a penalty for cancel­
ling 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 exten­
sion actually lasts for more than four months.
For example, a three-month lease extended on
a month-to-month basis and terminated after
one year does not require consumer lease
3. Organization. A consumer lease does not
include a lease made to an organization, as
defined in section 213.2(a)(9). 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 person­
al, family, or household purposes. Likewise, a
lease made to an organization is not a con­
sumer lease even if it is guaranteed by or sub­
sequently assigned to a natural person.
4. Credit sale. A lease that meets the defini­
tion of a credit sale in Regulation Z, 12 CFR
226.2(a) (16), is not a consumer lease. Regu­
lation Z defines a credit sale, in part, as—
a bailment or lease (unless terminable without pen­
alty at any time by the consumer) under which the
(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;
(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.

5. Safe deposit boxes. A lease of a safe deposit
box is not a consumer lease for purposes of
this regulation.

6. Leases o f personal property incidental to a
service. The following leases of personal prop­
erty that are incidental to services are not con­
sumer leases subject to the requirements of the
• Home entertainment systems requiring the
consumer to lease equipment that enables
a television to receive the transmitted

• Burglar alarm systems requiring the instal­
lation of leased equipment that triggers a
telephone call when a home is burglarized
2(a)(7) “Lessee”
1. Guarantors. Guarantors are not lessees for
purposes of the regulation.
2(a)(8) “Lessor"
1. Assignees. An assignee may be a lessor for
purposes of the regulation in circumstances
such as those described in Ford Motor Credit
Co. v. Cenance, 452 U.S. 155, 101 S.Ct. 2239
(1981). In that case, the Supreme Court held
that an assignee was a creditor for purposes of
previous Regulation Z because of its substan­
tial involvement in the credit transaction.
2(a)(9) “Organization”
1. Coverage. The term includes joint ventures
and persons operating under a business name.
2(a)(12) “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
2(a)(14) “Realized Value”
1. General. Realized value is not a required
disclosure. It refers to the value of the proper­
ty at early termination or at the end of the
lease term. It may be either the retail or
wholesale value. Realized value is relevant
only to leases in which the lessee’s liability at
early termination or at the end of the lease
term is the difference between the estimated
value of the property and its realized value.
2. Options. Subject to the contract and to
state or other applicable law, the lessor may
choose any of the three methods for calculat­
ing the realized value in determining the les­
see’s liability at the end of the lease term or at
early termination. If the lessor sells the prop­
erty prior to making that determination, the
price received for the property is the realized
value. If the lessor does not sell the property

prior to making that determination, the lessor
may choose either the highest offer or the fair
market value as the realized value.
3. Exclusions. The realized value may exclude
any amount attributable to taxes.
4. Disposition charges. Disposition charges
may not be subtracted in determining the real­
ized value. If the lessor charges the lessee a fee
to cover the disposition expenses, the fee must
be disclosed at consummation under section
213.4(g)(5). Disposition charges may be esti­
mated in accordance with section 213.4(d),
and this does not prevent the lessor from col­
lecting the actual disposition costs incurred.
5. Offers. In determining the highest offer for
disposition, the lessor need not consider offers
that the offeror has withdrawn or is unable or
unwilling to perform.

6. Appraisals. The lessor may obtain an ap­
praisal 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 section 213.4(g) (14); those provi­
sions refer to the lessee’s right to an indepen­
dent professional appraisal.

Regulation M Official Staff Commentary
not a security interest for purposes of this

2(a)(17) “Total Lease Obligation”
1. Disclosure. The total lease obligation is dis­
closed under section 213.4(g) (15) (i). It is
relevant only to so-called open-end leases in
which the lessee’s liability at the end of the
lease term is based on the difference between
the estimated value of the leased property and
its realized value.
2. Periodic payments: disclosure distinguished.
Certain items that may be paid periodically
are not part of the lessee’s total lease obliga­
tion. Therefore, the amount of the scheduled
periodic payments for purposes of calculating
the total lease obligation may be less than the
amount of the periodic payments disclosed
under section 213.4(g)(3).
3. Periodic payments: inclusions and exclu­
sions. The total of scheduled periodic pay­
ments under the lease for purposes of calculat­
ing the total lease obligation is composed of
the following items:

2(a)(15) “Security Interest”
1. Coverage. The list of security interests in
the definition is not exhaustive. Other than
those listed, only interests that are security in­
terests 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.
2. Disclosable interests. For purposes of the
regulation, a security interest is an interest
taken by the lessor to secure performance of
the lessee’s obligation. For example, if a bank
that is not a lessor makes a loan to a leasing
company and takes assignments of consumer
leases generated by that company to secure
the loan, the bank’s security interest in the
lessor’s receivables is not a security interest
for purposes of this regulation.
3. Insurance. The lessor’s right to insurance
proceeds or unearned insurance premiums is


Any portion of the periodic payments at­
tributable to depreciation, cost of money,
and profit
Taxes in some cases (See the commentary
to section 213.4(g) (15).)
The capitalized cost of mechanical break­
down protection contracts

The total of scheduled periodic payments un­
der the lease for purposes of calculating the
total lease obligation does not include the


Any amount not paid periodically
Any portion of periodic payments attribut­
able to official fees, registration, certificate
of title, or license fees
Taxes in some cases (See the commentary
to section 213.4(g) (15).)

At the lessor’s option, the capitalized cost of
service contracts and insurance premiums
may be either included or excluded from this
4. Initial payments. The following amounts
are not included among the payments at con­


Regulation M Official Staff Commentary
summation when calculating the total lease

Refundable security deposits
Official fees and charges disclosable under
section 213.4(g)(4)
“Other charges” disclosable under section
The cost of a mechanical breakdown

5. Estimated value. See the commentary to
section 213.4(d) regarding the use of esti­
mates 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.

does not occur merely because the lessee has
made some financial investment in the trans­
action (for example, by paying a nonrefundable fee) unless, of course, applicable law holds

Statute: §§ 103(g) and 181
Previous regulation: § 226.2
1981 changes: “Agricultural purpose” has
been slightly revised to conform to the amend­
ed act.

SECTION 213.3—Exempted

2(a)(18) “Value at Consummation”


1. Disclosure. The value at consummation is
relevant only to so-called open-end leases and
is disclosed and subtracted from the total
lease obligation under section 213.4(g)(15) (i).

Statute: § 105(a)
Previous regulation: § 226.3(f)
1981 changes: None

2. Taxes. The value at consummation in­
cludes taxes paid by the lessor in connection
with the acquisition of leased property and
amortized over the lease term. (See the com­
mentary to section 213.4(g) (15).)

SECTION 213.4— Disclosures

3. Other amounts. The definition of the value
at consummation explicitly permits the lessor
to include a profit or markup (without sepa­
rate itemization). The lessor may include
costs of doing business, such as insurance that
the lessor purchases on its own behalf. (See
the commentary to section 213.4(g) ( 6).) The
lessor may not include in this amount other
items (such as maintenance or extended war­
ranty insurance) that are purchased by the

4(a) General Requirements
1. Basis o f disclosures. The regulation as­
sumes that parties will perform fully accord­
ing to the lease terms. For example:

2. Minor variations. The lessor may disregard
the effects of the following in making calcula­
tions and disclosures:

2(b) Rules of Construction


1. Footnotes. Material that appears in a foot­
note has the same legal weight as material in
the body of the regulation.


2. Consummation. When a contractual rela­
tionship 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. Consummation

In a three-year lease with a one-year mini­
mum 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 provi­
sions of section 213.4(g) (12), (13), and


That payments must be collected in whole
That dates of scheduled payments may be
changed because the scheduled date is not
a business day
That months have different numbers of

3. Form o f disclosures. In making disclosures
lessors may cross-reference rather than repeat

items that are disclosed elsewhere in the lease
disclosure statement. In addition, when a re­
quired disclosure consists of a single charge,
lessors do not have to repeat the charge as an
itemization and a total amount. (See the com­
mentary to section 213.4(g)(5) and (15).)
4. Number o f transactions. Lessors have flexi­
bility in handling lease transactions that may
be viewed as multiple transactions. For


When a lessor leases two items to the same
lessee on the same day, the lessor may dis­
close the leases as either one or two lease
When a lessor sells insurance or other inci­
dental 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.

5. Rebates. In a lease transaction, a seller’s or
manufacturer’s rebate may be offered to pro­
spective lessees. At the lessor’s option, these
rebates may be either reflected in or disregard­
ed in the lease disclosures required under the
regulation. If the lessor chooses to reflect the
rebate in the leasing disclosures, it may be tak­
en into account in any manner as part of those

Paragraph 4(a)(1)
1. Clearly, conspicuously, and in meaningful
sequence. This standard requires that disclo­
sures be in a reasonably understandable form.
For example, while the regulation requires no
particular mathematical progression or for­
mat, the disclosures must be presented in a
way that does not obscure the relationship of
the terms to each other. Appendix C contains
model forms that meet this standard, al­
though lessors are not required to use these
forms. The requirement that disclosures be
made clearly and conspicuously does not
mean that they must be more conspicuous
than other terms in a combined contract-disclosure statement, nor does it preclude the use
of a multipurpose disclosure form that enables
the lessor to designate the specific disclosures
applicable to a given transaction. (See the
commentary to appendix C.)

Regulation M Official Staff Commentary
2. Type size. The term “point” in the phrase
“ 10-point type” is a printing term that refers
to the size of the body of the type, as
distinguished from the size of the typeface,
which may vary among different print

Paragraph 4(a)(2)
1. Consummation. See the commentary to
section 213.2(b).
2. Identification o f parties. While disclosures
must always be made clearly and conspicu­
ously, it is not necessary to use the words “les­
sor” or “lessee” when identifying those
3. Multiple lessors and multiple lessees. In
transactions involving multiple lessors and
lessees, the disclosure statement must identify
all the lessors and lessees; however, section
213.4(c) permits a single lessor to make all
the disclosures to a single lessee.
4. Integrated lease/disclosure forms. 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 on a single page (which
may include both sides) and above the place
for the lessee’s signature. Generally, other
terms and disclosures may precede, follow, or
be intermingled with the regulation’s disclo­
sures within the limits of section 213.4(b)
governing the use of additional information
and the clear, conspicuous, and meaningful
sequence disclosure standard in section
5. Lessee’s signature. The regulation does not
require the lessee to sign the disclosures but, if
disclosures are combined with contract terms,
the lessor may require the lessee’s signature
for contract or evidentiary purposes. In such a
case, the disclosures must be made above the
place for the lessee’s signature. When disclo­
sures and contract terms appear on both sides
of a page, the consumer’s signature usually
appears on the bottom of the second side. For
purposes of the regulation, the consumer’s sig­
nature may appear on the bottom of the first
side if all the disclosures appear on that side.

Regulation M Official Staff Commentary
Paragraph 4(a)(4)
1. Permissible uses. If the lessor chooses to
provide foreign-language translations of the
disclosures or is required to do so by state,
federal, or local law, the translations are not
inconsistent per se with disclosures under the
regulation and may be provided as additional
information under section 213.4(b).
2. Advertisements in Puerto Rico. The require­
ment for providing English disclosures upon
request does not apply to advertisements sub­
ject to section 213.5 of the regulation.

4(b) Additional Information
1. State law disclosures. If state law disclo­
sures are not inconsistent with the act and
regulation under section 213.7, the lessor may
make those disclosures in accordance with the
first sentence of this paragraph. If state law
disclosures are inconsistent under section
213.7 and the lessor elects to make them, it
must do so in accordance with the second sen­
tence of this paragraph.

4(c) Multiple Lessors; Multiple Lessees
1. M ultiple lessors. If a lease transaction in­
volves more than one lessor, the lessors may
choose which of them will make the disclo­
sures. All disclosures for the transaction must
be given, even if the disclosing lessor would
not otherwise have been obligated to make a
particular disclosure.

4(d ) Unknown-Information Estimate
1. Time o f estimated disclosure. The lessor
may use estimates to make disclosures if nec­
essary information is unknown or unavailable
at the time the disclosures are made. For
• Section 213.4(g)(4) requires the lessor to
disclose the total amount payable by the
lessee during the lease term for official
fees, registration, certificate of title, license
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

2. Basis o f estimates. Estimates must be made
on the basis of the best information reason­
ably available at the time disclosures are
made. The “reasonably available” standard
requires that the lessor, acting in good faith,
exercise due diligence in obtaining informa­
tion. The lessor normally may rely on the rep­
resentations of other parties in obtaining in­
formation. For example, the lessor might look
to the consumer to determine the purpose for
which leased property will be used, to insur­
ance companies for the cost of insurance, or to
an automobile manufacturer or dealer for the
date of delivery.
3. Estimated value o f leased property at termi­
nation. When the lessee’s liability at the end
of the lease term is based on the estimated
value of the leased property (see section
213.4(g) (15)), the estimate must be reason­
able and based on the best information reason­
ably available to the lessor. That standard per­
mits 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 com­
puter equipment to derive 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:

An automobile lessor offering a three-year
open-end lease intends to assign a whole­
sale value to the vehicle at the end of the
lease term. The lessor may disclose as an
estimated value a wholesale value derived
from a credible trade publication listing
current wholesale values, if the trade pub­
lication is the best information available.
• Same facts as above, except that the lessor
discloses an estimated value derived by ad­
justing the value quoted in the trade publi­
cation because, in its experience, the trade
publication values either understate or
overstate the prices actually received in lo­
cal used-vehicle markets. The lessor may
adjust estimated values quoted in trade
publications based on the lessor’s experi­
ence or reasonable belief that such values
will be understated or overstated.
4. Retail or wholesale value. The lessor may

choose either a retail or a wholesale value in
estimating the value of the leased property at
termination, provided that choice is consistent
with the lessor’s general practice or intention
when determining the value of the property at
the end of the lease term.
5. Labelling estimates. Generally, only the
particular disclosure for which the exact in­
formation is unknown is labelled as an esti­
mate. However, when several disclosures are
affected because of the unknown information,
the lessor has the option of labelling as an esti­
mate either every affected disclosure or only
the disclosure primarily affected.

Regulation M Official Staff Commentary
under section 213.4(g)(9). (See the commen­
tary to appendix C.)
2. Other required disclosures. The disclosure
statement must include the date and identify
the lessor and the lessee. (See the commentary
to section 213.4(a)(2).) The lessor need only
be identified by name; no address is required.
Paragraph 4(g)(1)
1. Multiple-item lease. In a multiple-item
lease, the property may be described in sepa­
rate statements as provided in section

6. Understating the estimated value. In non-

Paragraph 4(g)(2)

purchase-option leases, the lessor may not use
a value lower than that indicated by the best
information available when disclosing the esti­
mated value of leased property at the end of
the lease term under section 213.4(g)(15).

4(e)Effect of Subsequent Occurrence

1. Itemization not required. The lessor must
disclose one total initial payment amount and
identify the components of this one amount
(for example, capitalized cost reduction, me­
chanical breakdown protection, registration
fees). The lessor may, but need not, disclose
the dollar aount of each component.

1. Subsequent occurrences. Examples of sub­
sequent occurrences include:

2. Consummation. See the commentary to
section 213.2(b).


3. Fees payable upon delivery. This provision
does not apply to fees paid at delivery, when
delivery occurs after consummation. For

A change from a monthly to a weekly pay­
ment schedule
• The addition of insurance or a security in­
terest by the lessor because the lessee has
not performed obligations contracted for
in the lease
• An increase in official fees or taxes (See
the commentary to section 213.4(d).)
• An increase in insurance premium or cov­
erage caused by a change in law
• Late delivery of an automobile caused by a

2. Redisclosure. When a disclosure becomes
inaccurate because of a subsequent occur­
rence, the lessor need not make new disclo­
sures unless new disclosures are required un­
der section 213.4(h).

4(g) Specific Disclosure Requirements
1. Inapplicable disclosures. The disclosures re­
quired by this section need be made only as
applicable. Any disclosure not relevant to a
particular transaction may be eliminated en­
tirely. For example, if the lessor does not take
a security interest, no disclosure is required


• The lessee agrees to pay registration fees,
sales taxes, and a delivery charge in one
lump sum on the date the automobile is
delivered, some time after consummation.
None of these charges is an initial payment
under section 213.4(g)(2) because they
are paid after consummation of the lease.
The registration fees and sales taxes are
disclosed under section 213.4(g)(4), and
the delivery charge is disclosed as an “oth­
er charge” under section 213.4(g)(5).
Paragraph 4(g)(3)
1. Itemization
213.4(g)(3) does not require the lessor to
itemize the components of the periodic pay­
ments. Some of the components must be dis­
closed separately if their disclosure is required
by other provisions of the regulation, such as
official fees and lessee’s insurance.
2. Periodic payments. The phrase “number,


Regulation M Official Staff Commentary
amount, and due dates or periods of pay­
ments” requires the disclosure of all payments
made periodically. The disclosed payments
must include all amounts, such as mainte­
nance and insurance charges, that are paid pe­
riodically. In addition, the lessor must dis­
close the total of such 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 re­
ferred to in section 213.2(a)(17). (See the
commentary to section 213.2(a) (17).)
Paragraph 4(g)(4)
1. Taxes. Taxes that are included in the value
at consummation are not disclosed pursuant
to this paragraph. (See the commentary sec­
tion 213.2(a) (18).)
Paragraph 4(g)(5)
1. Coverage. Section 213.4(g)(5) requires the
disclosure of charges that are anticipated by
the parties as incident to the normal operation
of the lease agreement. It does not require dis­
closure of charges that are imposed when the
lessee terminates early or fails to abide by the
lease agreement, such as charges for:

Late payment
Early termination
Deferral of payments
Extension of the lease

2. Form o f disclosure. Although the disclo­
sure of an “other charge” or the total of all
other charges must be clear and conspicuous,
the lessor need not use the specific terminolo­
gy “other charge.” Moreover, the regulation
does not impose a location requirement for
the disclosure of other charges. For example:

A lessor has a single other charge, which is
a disposition fee of $100. The lessor may
disclose the disposition fee with related
disclosures about early or scheduled termi­
nation. It may but need not repeat the
charge as a total with the label of “other
charge” or show a total of other charges.

3. Relationship to other provisions. The other
charges mentioned in section 213.4(g)(5) are

charges that are not required to be disclosed
under another provision of section 213.4(g).
For example:


A delivery charge that is paid after con­
summation is disclosed as an “other
charge.” A delivery charge that is paid at
consummation, however, is disclosed as
part of the total initial charges under sec­
tion 213.4(g)(2), not as an “other
Occasionally, the price of a mechanical
breakdown protection (MBP) contract is
disclosed as an “other charge.” More of­
ten, the price of MBP is reflected in the
periodic payment disclosure under section
213.4(g)(3), in which case it is not dis­
closed as an “other charge.” In states
where MBP is regarded as insurance, how­
ever, the cost should be disclosed in ac­
cordance with section 213.4(g)(6), not as
an “other charge.” (See the commentary
to section 213.4(g)(6).)

4. Lessee liabilities at the end o f the lease
term. Liabilities that the lease imposes upon
the lessee at the end of the scheduled lease
term and that must be disclosed include, but
are not limited to, disposition and “pick-up”

Paragraph 4(g)(6)
1. Lessor’ insurance. Insurance that is pur­
chased by the lessor primarily for its own ben­
efit, and that is absorbed as a business expense
and not separately charged to the lessee, need
not be disclosed under section 213.4(g)(6)
even if it provides an incidental benefit to the
2. Mechanical breakdown protection. Whether
mechanical breakdown protection (MBP)
purchased in conjunction with a lease should
be treated as insurance is determined by state
or other applicable law. In states that do not
treat MBP as insurance, the lessor need not
make section 213.4(g)(6) disclosures. The
lessor may, however, disclose the section
213.4(g)(6) information in such cases in ac­
cordance with the additional information pro­
vision in section 213.4(b).

Paragraph 4(g)(7)
1. B rief identification. The statement identify­
ing warranties may be brief. For example,
manufacturer’s warranties may be identified
simply by a reference to the standard manu­
facturer’s warranty.
2. Warranty disclaimers, Although a dis­
claimer of warranties is not required by the
regulation, the lessor may give a disclaimer as
additional information in accordance with
section 213.4(b).
3. State law. Whether an express warranty or
guaranty exists is determined by state or other
applicable law.
Paragraph 4(g)(8)
1. Standards fo r wear and use. The lessor is
permitted, but not required, to set standards
for wear and use (such as excess mileage).
The disclosure may be omitted by lessors that
do not set such standards. (See the commen­
tary to section 2 13.4(g) (15).

Regulation M Official Staff Commentary
accounting lease, the additional lease charge
that accrues on the lease balance when a peri­
odic payment is made after the due date does
not constitute a penalty or other charge for
late payment. Similarly, continued accrual of
the lease charge after termination of the lease
because the lessee fails to return the leased
property does not constitute a default charge.
In either case, if the additional charge accrues
at a rate higher than the normal lease charge,
the lessor must disclose the amount of or the
method of determining the additional charge
under section 213.4(g) (10).
4. Extension charges. Extension charges that
exceed the lease charge in a simple-interest ac­
counting lease or that are added separately are
disclosed under section 213.4(g)(10).
5. Reasonableness o f charges. Penalties or
other charges for delinquency, default, or ear­
ly termination may be specified in the lease,
but only in an amount that is reasonable. Sec­
tion 183(b) of the act sets forth the standards
for determining a reasonable penalty or

Paragraph 4(g)(9)
1. Disclosable security interests. See section
213.2(a) (15) and accompanying commentary
to determine what security interests must be
Paragraph 4(g)(I0)
1. Collection costs. The automatic imposition
of collection costs or attorney fees upon de­
fault must be disclosed under section
213.4(g) (10). Collection costs or attorney
fees that are not imposed automatically, but
are contingent upon expenditure of amounts
in conjunction with a collection proceeding or
upon the employment of an attorney to effect
collection, need not be disclosed.
2. Charges fo r early termination. When de­
fault is a condition for early termination of a
lease, default charges must also be disclosed
under section 2 13.4(g) (12). The section
213.4(g) (10) and (12) disclosures may be
combined. Examples of combined disclosures
are provided in the model lease disclosure
forms in appendix C.
3. Simple-interest leases. In a simple-interest

Paragraph 4(g) (11)
1. Mandatory disclosure o f no purchase op­
tion. Although generally the lessor need only
make the specific required disclosures that ap­
ply to a transaction, it must disclose affirma­
tively that the lessee has no option to pur­
chase the leased property when the purchase
option is inapplicable.
2. Existence o f purchase option. Whether a
purchase option exists is determined by state
or other applicable law. The lessee’s right to
submit a bid to purchase property at termina­
tion of the lease is not an option to purchase
under section 213.4(g) (11) if the lessor is not
required to accept the lessee’s bid and the les­
see does not receive preferential treatment.
3. Purchase option fees. A purchase option fee
must be disclosed under this paragraph unless
the lessor discloses the fee under section
213.4(g)(5) as an other charge.
Paragraph 4(g) (12)
1. Default. When default is also a condition
for early termination of a lease, default

Regulation M Official Staff Commentary
charges must be disclosed under this para­
graph. (See 'the commentary to section
2. Lessee's liability at early termination. When
the lessee is liable for the difference between
the unamortized capitalized cost and the real­
ized value at early termination, the amount or
the method of determining the amount of the
difference must be disclosed under this
3. Reasonableness o f charges. Penalties or
other charges for delinquency, default, or ear­
ly termination may be specified in the lease,
but only in an amount that is reasonable. Sec­
tion 183(b) of the act sets forth the standards
for determining a reasonable penalty or

Paragraph 4(g)(14)
1. Disclosure inapplicable. When the lessee is
liable at the end of the lease term or at early
termination for unreasonable wear or use but
not for the estimated value of the leased prop­
erty, the lessor need not disclose the lessee’s
right to an independent appraisal. For
• The automobile lessor may reasonably ex­
pect 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
2. Lessor’ appraisal. The lessor may obtain
an appraisal of the leased property to deter­
mine its realized value. Such an appraisal,
however, is not the one addressed in section
183(c) of the act, and the lessor still must
disclose the lessee’s independent right to an
appraisal under section 213.4(g)(14).
3. Time restriction on appraisal. Neither the
act nor the regulation specifies any time peri­
od in which the lessee must exercise the ap­
praisal right. The lessor may require a lessee
to obtain the appraisal within a reasonable

time after termination of the lease. The regu­
lation does not define what is a “reasonable

Paragraph 4(g) (15)
1. Coverage. The disclosure under section
213.4(g) (15) limiting the lessee’s liability for
the value of the leased property does not ap­
ply at early termination.
2. Total lease obligation. The requirement
that the total lease obligation be itemized is
satisfied by disclosing the three components in
the definition of total lease obligation in sec­
tion 213.2(a) (17) with their corresponding
amounts. The lessor may cross-reference the
individual components disclosed elsewhere in
the lease disclosure statement, as done in ap­
pendix C-l.
3. Taxes. Taxes included in the value at con­
summation are included in the total lease obli­
gation. Taxes not included in the value at con­
summation may, but need not, be included in
the total lease obligation at the lessor’s option.
(See the commentary to section 213.2(a)(18).)
4. Leases with a minimum term. If a lease has
an alternative minimum term, the section
213.4(g) (15) disclosures governing the liabil­
ity limitation are not applicable for the mini­
mum term. (See the commentary to section
5. Average payment allocable to a monthly pe­
riod. The phrase “average payment allocable
to a monthly period” is based on the periodic
payment used to compute the total lease obli­
gation. (See the commentary to section
213.2(a) (17).)

6. Charges not subject to rebuttable presump­
tion. 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:

Disposition charges
Excess-mileage charges
Late payment and default charges

Regulation M Official Staff Commentary


Amounts by which the unamortized capi­
talized cost exceeds the estimated residual
value that have accrued in simple interest
accounting leases because the lessee has
made late payments

4(h ) Renegotiations or Extensions
1. General coverage. Section 213.4(h) applies
only to existing leases that were covered by
the requirements of the regulation or previous
Regulation Z. 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 section 213.2(a)(6).
2. Renegotiation defined. A renegotiation oc­
curs when an existing consumer lease is satis­
fied and replaced by a new lease undertaken
by the same lessee. A renegotiation is a new
lease requiring new disclosures. Whether and
when a lease is satisfied and replaced by a new
lease is determined by state or other applica­
ble law.
3. Renegotiation exceptions. The following
events are not renegotiations even if they are
accomplished by satisfying and replacing an
existing lease:

A substitution of leased property in a mul­
tiple-item lease, provided the average pay­
ment is not changed by more than 25
• A reduction in the lease charge
• A substitution of leased property with
property that has a substantially equiva­
lent or greater economic value, provided
no other lease terms are changed

4. Extension defined. An extension is any
continuation of an existing consumer lease be­
yond the originally scheduled termination
date, but only if the continuation is not the
result of a renegotiation. The continuation
must be agreed to by both the lessor and the
lessee. An extension that exceeds six months
is a new lease requiring new disclosures.
5. Time o f extension disclosures. If a consum­
er lease is extended for a specified term greater
than six months, new disclosures are required
at the time the extension is agreed to. If the
lease is extended on a month-to-month basis

and exceeds six months, new disclosures are
required at the commencement of the seventh
month. If a consumer lease is extended for
several terms, one of which will exceed six
months beyond the originally scheduled ter­
mination date of the lease, new disclosures are
required at the commencement of the term
that will exceed six months beyond the origi­
nally scheduled termination date.

6. Inapplicable disclosures. Disclosures that
are inapplicable to the terms of a renegotia­
tion or extension need not be given. For


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
If a renegotiation involves no initial
charges, no disclosure of initial charges is

7. Court proceedings. No disclosures are re­
quired if a renegotiation or extension results
from an agreement involving a court

8. Deferrals. No disclosures are required if
one or more payments are deferred, whether
or not a fee is charged.
9. Assumptions. No disclosures are required
when a consumer lease is assumed by another
person, whether or not an assumption fee is

Statute: §§ 102(b), 121, 122, 124, 182, and
Other sections: §§ 213.2, 213.5, and 213.7 and
appendix C
Previous regulation: §§ 226.6 and 226.15
1981 changes: Although reorganized, the dis­
closure requirements are substantially the
same as the previous requirements. The sole
amendment implements section 121 of the
Truth in Lending Act pertaining to multiple
lessors and lessees.


Regulation M Official Staff Commentary

SECTION 213.5—Advertising

5 (c) Terms That Require Additional

5(a) General Rule

1. Clear and conspicuous standard. Section
213.5(c) 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

1. Persons covered. All “persons” must com­
ply with the advertising provisions in this sec­
tion, not just those that meet the definition of
“lessor” in section 213.2(a)(8). Thus, auto­
mobile dealers, merchants, and others who are
not themselves lessors must comply with the
advertising provisions of the regulation if they
advertise consumer lease transactions. The
owner and personnel of the medium in which
an advertisement appears or through which it
is disseminated, however, are not subject to
civil liability for violations under section
184(b) of the act.
2. “Usually and customarily. ” Section
213.5(a) is not intended to prohibit the adver­
tising of a single item or the promotion of new
leasing programs, but to bar 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

5(b) Catalogs and Multipage
1. General rule. The multiple-page advertise­
ments to which section 213.5(b) refers are ad­
vertisements 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 mate­
rial in a single envelope is not a single multi­
ple-page advertisement.
2. Cross-references. A multiple-page adver­
tisement is a single advertisement (requiring
only one set of lease disclosures) if it contains
a table, chart, or schedule clearly stating suffi­
cient information for the reader to determine
the disclosures required under section
213.5(c)(1) through (5). If one of the trig­
gering terms listed in section 213.5(c) appears
on another page of the catalog or multiplepage advertisement, that page must clearly re­
fer to the specific page where the table, chart,
or schedule begins.

2. Triggering terms. Whenever certain trig­
gering terms appear in lease advertisements,
the additional terms enumerated in section
213.5(c)(1) through (5) 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 re­
quired payments—a triggering term—is readi­
ly apparent.

5(d ) Multiple-item Leases; Merchandise
1. Merchandise tags. Section 213.5(d) pro­
vides a method for using merchandise tags
without including all the required disclosures
on the tags. As an alternative to this disclo­
sure 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

Statute: §§ 105(a) and 184
Other sections: § 213.2(a)(2) and ( 6)
Previous regulation: § 226.10(a), (b), (g),
and (h)
1981 changes: None

SECTION 213.6— Preservation and
Inspection of Evidence of Compliance
1. Preservation methods. Lessors must retain
evidence that they performed required actions
as well as made required disclosures. Ade­
quate evidence of compliance does not require

actual paper copies of disclosure statements or
other business records. The evidence may be
retained on microfilm, microfiche, or by any
other method designed to reproduce records
accurately (including computer programs).
The lessor need retain only enough informa­
tion to reconstruct the required disclosures or
other records.


Regulation M Official Staff Commentary
tions of those provisions must be generally the
same as the federal act and the regulation. A
state will be eligible for an exemption even if
its law covers classes of transactions not cov­
ered by the federal law. For example, if a
state’s law covers leases for agricultural pur­
poses, this will not prevent the Board from
granting an exemption for consumer leases,
even though leases for agricultural purposes
are not covered by the federal law.

Statute: § 105(a)
Previous regulation: § 226.6(i)
1981 changes: A uniform two-year record
retention rule replaces the previous
requirement that records be retained through
at least one compliance examination.

3. Adequate enforcement. The standard re­
quiring adequate provision for enforcement
generally means that appropriate state officials
are authorized to enforce the state law
through procedures and sanctions comparable
to those available to federal enforcement

SECTION 213.7— Inconsistent State


1. Procedures. Only states (through their au­
thorized officials) may request and receive de­
terminations on inconsistency. The proce­
dures for requesting a Board determination on
inconsistency are contained in appendix B.

Statute: §§ 111(a)(2) and 186(b)
Other sections: §§ 213.2(a) (16) and 213.4(b)
and appendix A
Previous regulation: § 226.6(b)(3)
1981 changes: None

2. Inconsistent state disclosures. A lessor that
chooses to make inconsistent state disclosures
must do so in the manner prescribed by sec­
tion 213.4(b).

APPENDIX A—Procedures and
Criteria for State Exemptions



Statute: §§ 111(a)(1) and 186(a)
Other sections: §§ 213.2(a)(16) and 213.4(b)
and appendix B
Previous regulation: § 226.6(b)(3)
1981 changes: None

Statute: § 186(b)
Other sections: § 213.8
Previous regulation: § 226.80 (supplement VI,
1981 changes: None

SECTION 213.8—Exemption o f Certain
State-Regulated Transactions

APPENDIX B— Procedures and Criteria
for Board Determination Regarding

1. Classes eligible. The state determines the
classes of transactions for its exemption and
makes it application for those classes. Classes
might be, for example, all automobile leases or
all leases in which the lessor is a bank.
2. Substantial similarity. The “substantially
similar” standard requires that state statutory
or regulatory provisons and state interpreta14

Statute: § 186(a)
Other sections: § 213.7
Previous regulation: § 226.80 (supplement VI,
§H )
1981 changes: None

Regulation M Official Staff Commentary

APPENDIX C— Model Forms
1. Permissible changes. Although use of the
model forms is not required, lessors using
them properly will be deemed to be in compli­
ance with the regulation. Lessors may make
certain changes in the format or content of the
forms and may delete any disclosures that are
inapplicable to a transaction without losing
the act’s protection from liability. The chang­
es to the model forms may not be so extensive
as to affect the substance, clarity, or meaning­
ful sequence of the forms. Examples of accept­
able changes include:

Using the first person, instead of the sec­
ond person, in referring to the lessee
• Using “lessee,” “lessor,” or names instead
of pronouns
• Rearranging the sequence of the
• Incorporating certain state “plain En­
glish” requirements
• Deleting inapplicable disclosures by whit­
ing out, blocking out, filling in “N /A ”
(not applicable) or “’O,” crossing out,
leaving blanks, checking a box for applica­
ble items, or circling applicable items.
(This should permit use of multipurpose
standard forms.)
• Adding language or symbols to indicate
2. Model open-end or finance vehicle lease dis­
closures. Model C-l is designed for an openend or finance lease of a vehicle. An open-end
or finance lease is one in which the lessee’s
liability at the end of the lease term is based
on the difference between the estimated value
of the leased property and its realized value.
Section 213.4(g)(15)(i) requires disclosure
of an itemized total lease obligation for such
leases. To facilitate this disclosure, model C-l
divides the initial charges (item 3) into two
categories: those that are included in the total
lease obligation and those that are not. The
amount of the monthly payment (item 4) is
similarly divided. This format permits the
components of the total lease obligation (item

Appendix D

11) to be disclosed simply by cross-reference
to the previous items. See the commentary to
section 213.2 (a) (17). The inclusion of taxes
in the basic monthly payment disclosure
(mentioned in the instructions to item 4 (a))
is not madatory in all cases. (See the com­
mentary to section 213.4(g) (15).)
3. Model closed-end or net vehicle lease disclo­
sures. Model C-2 is designed for a closed-end
or net lease of a vehicle. A closed-end or net
lease is one in which the lessee’s liability at the
end of the lease term is not based on the differ­
ence between the estimated value of the leased
property and its realized value. Item 13(c) is
included for those closed-end vehicle leases in
which the lessee’s liability at early termination
is based on the vehicle’s estimated value. (See
section 213.4(g) (14).)
4. Model furniture lease disclosures. Model
C-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
section 213.4(g) (14) because few closed-end
furniture leases base the lessee’s liability at
early termination on the estimated value of
the leased property. The disclosure may be
added, if it is applicable, without loss of the
form’s protection from civil liability.

Statute: §§ 105, 130, and 185
Previous regulation: §§ 226.1501, 226.1502,
and 226.1503
1981 changes: References in the instructions
to the previous regulation have been deleted.

APPENDIX D—Federal Enforcement
Statute: § 108
Previous regulation: Appendix E
1981 changes: None