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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 10671 ”1 December 6, 1993 REGULATION M — CONSUMER LEASING Review of the Regulation u nder the B oard’s Regulatory Planning and Review P rogram To All Depository Institutions, and Others Concerned, in the Second Federal Reserve District: The following statement has been issued by the Board of Governors of the Federal Reserve System: The Federal Reserve Board has requested public comment on an advance notice of proposed rulemaking on Regulation M (Consumer Leasing) under the Board’s Regulatory Planning and Review program. Comment is requested by January 24, 1994. The purpose of the program is to periodically analyze each of the Board’s regulations to determine whether a regulation can be eliminated, simplified, or modified to ease compliance burdens, within the framework of the law. Comment on the proposal is sought generally on provisions of the regulation and the Consumer Leasing Act. Specific comment is solicited on issues concerning the disclosure of early termination charges, lease advertising, and the format for leasing disclosures. Printed on the following pages is the text of the proposal, which has been reprinted from the Federal Register of November 19; comments thereon should be submitted by January 24, 1994, and may be sent to the Board, as specified in the notice, or to our Compliance Examinations Department. W il l ia m J. M c D o n o u g h , President. Fed eral Register / Vol. 58, No. 222 / Friday, November 19, 1993 / Proposed Rules 61035 FEDERAL RESERVE SYSTEM 12 CFR Part 213 [Regulation M; Docket No. R-0815] Consumer Leasing AGENCY: Board of Governors of th e Federal Reserve System. ACTION: Advance notice of proposed rulemaking. SUMMARY: The Board is planning to undertake a review of Regulation M, which carries out the provisions of die Consumer Leasing Act, pursuant to the Board’s policy of periodically reviewing its regulations. The Consumer Leasing Act requires lessors to provide uniform cost and other disclosures about consumer lease transactions. The Board plans to review Regulation M to determine whether it can be simplified and clarified to carry out more effectively the purposes of the Consumer Leasing Act without diminishing the consumer protections afforded by the statute. To gather information needed for this review and to ensure the participation of interested parties at the beginning of the process, the Board is soliciting comment generally on revisions io.the regulation, while also soliciting comment on several specific issues. DATES: Comments must be received by January 24,1994. ADDRESSES: Comments should refer to Docket No. R-0815, and may 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 between 8:45 am and 5:15 pm 61036 Federal Register / Vol. 5 8 , No. 222 / Friday, November 19, 1993 / Proposed Rules The Review of Regulation M The Board’s Regulatory Planning and Review Program calls for the periodic review of a regulation with four goals in mind: to clarify and simplify regulatory language; to determine whetherregulatory amendments are needed to address technological and other developments; to reduce undue regulatory burden on the industry; and to delete obsolete provisions. The Board FOR FURTHER INFORMATION CONTACT: plans to begin a review of Regulation M Kyung H. Cho or W. Kurt Schumacher, in accordance with the goals of that Staff Attorneys (202/452-2412 or 202/ program. Regulation M has not been 452-3667), Division of Consumer and Community Affairs, Board of Governors substantially revised or reviewed since its inception. The Board is soliciting of the Federal Reserve System, comments on the provisions of Washington, DC 20551. For the hearing Regulation M and the CLA, including impaired only, Telecommunications coverage, exempt transactions, and Device for the Deaf (TDD), Dorothea general format and disclosure Thompson (202/452-3544), Board of requirements. The Board requests that Governors of the Federal Reserve commenters include specific System, 20th and C Streets, NW., suggestions for improvements to the Washington, DC 20551. regulation, as well as the rationale for SUPPLEMENTARY INFORMATION: the suggested changes. In addition, the Board has identified the following Background of the Consumer Leasing specific issues on which comment Act and Regulation M would be helpful: Disclosure o f early termination The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted into law charges. The CLA and Regulation M require lessors to disclose the amount or in 1976 as an amendment to the Truth method of determining the amount of a in Lending Act (TILA). It was based on charge if the consumer terminates a findings that there was a trend toward lease early. Virtually all leases include leasing as an alternative to purchasing such a charge and lessors typically certain consumer items on credit and disclose the method to determine the that consumers were not receiving charge rather than an amount adequate leasing cost disclosures. The Recently, a United States Court of Board was given rulewriting authority, Appeals held a lessor liable for violating and its Regulation M (12 CFR part 213) the ’’reasonably understandable” implements the CLA. An official staff standard for disclosure under commentary which interprets the Regulation M by providing an early regulation has also been published (12 termination formula that me court CFR part 213, Supp. I). found to be overly complex and beyond The CLA generally applies to the understanding of the average consumer leases of personal property consumer. Lundquist v. Security Pacific, involving less than $25,000 with a term 993 F.2d 11 (2d Cir. 1993). Though of more than four months. A long-term some lessors would generally admit to automobile lease is the most common the complexity of the disclosure, they type of consumer lease covered by the would insist that, due to the complexity act. Like the credit provisions of the of modem automobile lease TILA, the CLA requires lessors to transactions, the formula was written as provide uniform cost and other understandably as it could be. disclosures about consumer lease Some representatives of automobile transactions, including in advertising. lessors have requested that the Board Prior to entering into a lease agreement, amend the regulation to allow them to lessors must give consumers disclose the name of the method to be ipproximately 15 to 20 disclosures that used in determining the amount of any nclude the amount of initial charges to penalty or other charge for early lease )e paid, an identification of leased termination, rather than providing a )roparty, a payment schedule, the description of the method by giving the iability for maintenance of leased precise formula. On the other hand, iroperty, and penalties forthe early consumer interest representatives have argued that the formulas used in ermination of a lease. The law also determining such charges could be made more understandable to consumers, and that simply allowing the disclosure of the name o f the 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 MP-500 of the Martin Building between 9:00 am and 5:00 pm weekdays, except as provided in 12 CFR section 261.8 of the Board’s rules regarding the availability of information. method would not allow consumers to determine the cost o f an early termination charge—either before or during the performance of the lease. Specific comment is solicited on this issue, including commenters* views on whether the disclosure of the name of the method along with a representative example of a lease termination charge should be considered (as well as any other disclosure alternative) to help inform consumers of the consequences of terminating a lease early. Broadcast media advertising o f leases. Under the regulation, if any advertised lease transaction states certain terms (such as the amount or number of any lease payment) as many as five additional disclosures are required to be given. Due to time and space constraints in television and radio advertisements, some lease disclosures are being provided in small sometimes scrolling print at the bottom of the television screen, or very quickly at the end of the advertisement, arguably with little consumer benefit. Because the oral disclosure of required lease terms is very difficult, there is little radio advertising of leases. ; Several representatives of State attorneys general offices have questioned the way that television advertisements for auto leases display the required Regulation M disclosures. They argue that the text is hard to read and appears on the screen only briefly, arguably foiling the CLA clear and conspicuous standard. Some leasing representatives have expressed concern about exposure to liability due to the potential for differing State interpretations of what is clear and conspicuous disclosure. They advocate Board action on this issue, offering as an alternative a requirement that a toll-free number be provided in lieu of some or all of the disclosures now required, so consumers could call and obtain them. Comment is specifically solicited on this issue, though this type o f change may be more appropriately within the purview of the Congress. Two bills introduced in Congress (S. 1447 and H.R. 3102) would modify the advertising disclosure requirements under the CLA, as well as under the TILA and the Truth in Savings Act, by allowing a toll-free number to be provided in the advertisement instead of the currently required terms. Both bills, however, would only apply to radio advertisements. Segregation o f leasing disclosures from other information. The CLA, unlike m ost of the consumer credit provisions of the TILA, does not require the segregation of the required disclosures from other terms; In many Federal Register / Vol. 58, No. 222 / Friday, November 19, 1993 / Proposed Rules lease agreements, a number of the leasing disclosures and the contract terms are one and the same. There is a question whether 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 the consumer protection goal of the CLA—to assure meaningful disclosure of lease terms for comparison shopping. The Board solicits comments on whether a segregation requirement should be proposed for adoption in the regulation. The Board will review the issues and information offered by commenters responding to this notice, and conduct its own research on legal, economic, operational and other issues and data as they relate to Regulation M. Based on the results of its review of Regulation M, including consideration of the comments received on this notice, the Board will decide whether to pursue proposed revisions to the regulation during 1994. The Board contemplates that any proposal to amend the Regulation would be published in the spring of 1994. B y o rd e r o f th e B o a rd o f G o vern ors o f th e F e d e ra l R eserve S y ste m , N o vem b er 1 5 , 1 9 9 3 . W illia m W . W ile s, Secretary of the Board. [F R D oc. 9 3 - 2 8 4 6 6 F ile d 1 1 -1 8 - 9 3 ; 8 :4 5 am i MUJNQ CODE *21041* 61037
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