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FEDERAL RESERVE BANK
OF NEW YORK
I- Circular No. 10805 "1
October 2, 1995
REGULATION M — CO N SUM ER LEA SIN G
Proposed Amendments to the Regulation and its Commentary
To All Depository Institutions, and Others
Concerned, in the Second Federal Reserve District:
Follow ing is the text o f a statem ent issued by the Board o f G overnors o f the Federal R eserve
System :
The Federal Reserve Board has requested comment on proposed amendments to Regu
lation M, which implements the Consumer Leasing Act. The Act requires lessors to provide
uniform cost and other disclosures about consumer lease transactions.
The proposal is the result of the increased use of automobile leasing over the last several
years and the Board’s review of Regulation M, pursuant to its policy o f periodically reviewing
its regulations and to more effectively carry out the purposes of the Act.
Comment is requested by November 17, 1995.
The proposed amendments include:
• additional disclosure requirements about early termination charges;
• disclosure o f the gross costs of leases, the residual value, and the estimated lease charge;
• a requirement that certain leasing disclosures be segregated from other information; and,
• pursuant to a statutory change, new advertising provisions for radio and television.
The Board also proposed changes to the official staff commentary on Regulation M.
E nclosed is the text o f the B oard ’s o fficia l n o tice in this matter, as published in the F e d e r a l
R e g is te r. C om m ents thereon should be subm itted by N ovem ber 17, 19 9 5 , and may be sent to the
Board, as specified in the notice, or to our C om p liance Exam inations D epartm ent.
W
il l ia m
J. M c D o n o u g h ,
P r e s id e n t .
Wednesday
September 20, 1995
Part II
Federal Reserve
System
12 CFR Part 213
Consumer Leasing; Proposed Rules
[Enc. Cir. No. 10805]
48752
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-0892]
System, Washington, DC 20551, at (2 0 2 )
452-2412 or 452-3667; for the hearing
impaired only, contact Dorothea
Thompson, Telecommunications Device
for the Deaf, at (2 0 2 ) 452-3544.
Consumer Leasing
SUPPLEMENTARY INFORMATION:
AGENCY: Board of Governors of the
I. Background on the Consumer Leasing
Act and Regulation M
Federal Reserve System.
ACTION: Proposed rule.
SUMMARY: The Board is issuing this
proposal to revise Regulation M, which
implements the Consumer Leasing Act.
The act requires lessors to provide
uniform cost and other disclosures
about consumer lease transactions. The
Board has reviewed Regulation M,
pursuant to its policy of periodically
reviewing its regulations, and proposes
revisions to simplify and clarify its
provisions to carry out more effectively
the purposes of the act. The proposal
contains several substantive revisions,
for example: additional disclosure
requirements about early termination
charges, disclosure of the gross cost of
leases, the residual value, and the
estimated lease charge: a requirement
that certain leasing disclosures be
segregated from other information; and
pursuant to a statutory change, new
advertising provisions for radio and
television. The proposal also simplifies
the language and format of the
regulation, deleting obsolete provisions
and eliminating the footnotes or moving
them to the Official Staff Commentary.
A proposal to revise the commentary is
being published elsewhere in today’s
issue of the Federal Register.
D A TE S : Comments must be received by
November 17, 1995.
ADDRESSES: Comments should refer to
Docket No. R-0892, and be mailed to
Mr. William W. Wiles, Secretary, Board
of Governors of the Federal Reserve
System, 2 0 th Street and Constitution
Avenue, NW, Washington, DC 20551.
Comments also may be delivered to
Room B-2222 of the Eccles Building
between 8:45 a.m. and 5:15 p.m.
weekdays, or to the guard station in the
Eccles Building courtyard on 20th
Street, NW (between Constitution
Avenue and C Street) any time.
Comments may be inspected in Room
MP-500 of the Martin Building between
9 a.m. and 5 p.m. weekdays, except as
provided in 1 2 CFR section 261.8 of the
Board’s rules regarding the availability
of information.
FOR FURTHER INFORMATION CONTACT:
Kyung H. Cho-Miller, Obrea O.
Poindexter, or W. Kurt Schumacher,
Staff Attorneys, Division of Consumer
and Community Affairs, Board of
Governors of the Federal Reserve
The Consumer Leasing Act (CLA), 15
U.S.C. 1667-1667e, was enacted into
law in 1976 as an amendment to the
Truth in Lending Act (TILA), 15 U.S.C.
1601 et seq. The Board was given
rulewriting authority, and its Regulation
M (12 CFR part 213) implements the
CLA. An official staff commentary that
interprets the regulation has also been
published (Supplement I-CL- 1 to 1 2
CFR 213).
The CLA generally applies to
consumer leases of personal property
involving $25,000 or less and a term of
more than four months. An automobile
lease is the most common type of
consumer lease covered by the CLA.
Like the credit provisions of the TILA,
the CLA requires lessors to provide
uniform cost and other disclosures in
consumer lease transactions and lease
advertising. Prior to entering into a lease
agreement, lessors must give consumers
15 to 20 disclosures, including the
amount of initial charges to be paid, an
identification of leased property, a
payment schedule, the responsibilities
for maintaining the leased property, and
the liability for terminating a lease early.
The law also regulates balloon payments
by limiting liability at the end of a lease
term to no more than three times the
monthly payment.
II. The Review of Regulation M
The Board’s Regulatory Planning andReview Program calls for the periodic
review of a regulation with four goals in
mind: to clarify and simplify regulatory
language; to determine whether
regulatory amendments are needed to
address technological and other
developments; to reduce undue
regulatory burden on the industry; and
to delete obsolete provisions. Regulation
M has not been substantially revised or
reviewed since it was first issued. The
Board began a review of Regulation M
in November 1993 by publishing an
advance notice of proposed rulemaking
(58 FR 61035, November 19, 1993).
While comment was solicited generally
on the provisions of Regulation M and
the CLA, the Board identified three
specific issues on which comment was
desired: (1) Disclosure of early
termination charges, (2 ) broadcast media
advertising of leases, and (3) segregation
of leasing disclosures from other
information.
The Board received 70 comment
letters on the advance notice of
proposed rulemaking. Most commented
only on the three issues addressed in
the advance notice. Based on its review
and on the comments received, the
Board now proposes revisions to
Regulation M. While several revisions
would make substantive changes to the
regulation, including new disclosure
requirements, the proposal leaves many
provisions substantively unchanged. In
addition to seeking comment on the
proposed regulatory changes, the Board
again solicits views on whether specific
legislative revisions to the CLA may also
be warranted. For example, several
commenters on the advance notice
suggested that CLA coverage be
expanded to cover leases that exceed the
current $25,000 total contractual
obligation limitation.
The proposal simplifies the language
and format of the regulation to state the
requirements more clearly. Footnotes
have been either moved to the staff
commentary or deleted as unnecessary.
Obsolete provisions have been deleted
and explanatory material transferred to
the commentary. In addition to
comments on the proposed changes, the
Board requests specific suggestions for
other revisions that would facilitate
compliance without causing an adverse
impact on consumer protections.
Although the regulation applies to all
consumer leases covered by the CLA
(for example, automobile leases and
furniture leases), much of the focus of
the review has been on automobile
leasing. The Board solicits specific
comment on whether any of the
proposed rules are more appropriately
limited to automobile lease transactions.
It is anticipated that proposed
revisions to Regulation M will be
adopted in final form in the Spring of
1996 with compliance optional until
October 1,1996, the uniform effective
date for mandatory compliance.
III. Discussion of Proposed Revisions
The following discussion covers the
proposed revisions section-by-section.
In many cases, the proposed changes
would simplify or clarify the current
text, with no substantive change
intended. Captions have been added to
each paragraph, to conform with current
Board style; the addition or wording of
captions alone is not meant as a
substantive change in the meaning of
the paragraph itself. The entire
proposed regulation and its appendices
have been printed in full.
»-
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
Section 213.1 — Authority, Scope,
Purpose, and Enforcement
1(b) Scope and Purpose
This paragraph is revised to add a
sentence about the scope of the law and
to more closely parallel the purpose
clause in § 1 0 2 of the TILA, 15 U.S.C.
1601.
1(d) Issuance of Staff Interpretations.
>
v
Current paragraph 1 (d) has been
moved to appendix C.
Section 213.2 — Definitions
2(a) Definitions
S4
Most of the definitions remain
unchanged and are not discussed below.
The current definitions of “Period” and
“Real Property” in paragraphs (a) (1 0 )
and (13) respectively have been deleted
as unnecessary. Definitions of “gross
cost,” “estimated lease charge,”
“residual value,” and of a “closed-” and
an “open-end lease” are added.
The following definitions are
redesignated as indicated below:
Current
“Arrange for lease of
personal property”
in 2(a)(4).
“Board” in 2 (a)(5) .....
“L essee” in 2(a )(7) ...
“ Lessor” in 2 (a )(8) ....
“Organization" in
2 (a )(9).
“Person” in 2(a)(11 )
“Personal property”
in 2 (a )(12 ).
“R ealized value” in
2 (a )(1 4 ).
“Security interest” in
2 (a )(15 ).
Exam ples of security
interests in 2 (a )(15 ).
“S tate” in 2(a)(16 ) ....
“Total lease obligation” in 2(a) (17).
“V alue at consum m ation” in 2(a) (18).
Proposed
moved to comment
2 (a )(1 0 )-1 .
moved to section
2 (a )(4).
m oved to section
2 (a )(9).
moved to section
2(a) (10).
moved to section
2 (a )(1 2 ).
moved to section
2 (a )(1 3 ).
m oved to section
2 (a )(1 4 ).
moved to section
2 (a )(1 5 ).
moved to section
2 (a ) ( l7 ) .
moved to comment
2(a)(l7)-1.
moved to section
2 (a )(1 8).
moved to section
2 (a )(1 9).
m oved to section
2 (a )(2 0 ).
2(a)(2) A dvertisem en t
The definition of “advertisement” is
simplified and the examples moved to
the commentary as part of proposed
comment 2(a)(2)-l. The simplified
language is consistent with other
consumer regulations. The definition of
an advertisement is broad; it covers
commercial messages in any medium
that directly or indirectly promote a
consumer lease transaction. No
substantive change in the definition is
intended by the proposed revision.
2(a)(3) Agricultural Purpose
For simplicity, the portion of this
statutory definition which describes
agricultural products is moved to the
commentary as proposed comment
2(a)(3)—1.
2(a)(5) Closed-End Lease
The proposal adds a definition of a
closed-end lease, modeled after the
definition of closed-end credit in
Regulation Z ( 1 2 CFR § 226.2(a)(10)).
The term covers any lease that does not
fall within the definition of an open-end
lease. In closed-end leases, sometimes
referred to as “walk-away” leases, the
lessee is not responsible for the residual
value of the leased property at the end
of the lease term.
48753
and other charges paid out-of-pocket at
consummation by the lessee are also
included in the gross cost figure. The
gross cost is the amount upon which the
periodic and other payments and terms
of the lease are based. The Board solicits
comment on this definition.
2(a)(10) Lessor
The rule of construction, currently in
§ 213.2(b)(1), has been moved to this
paragraph.
The proposal deletes the phrase “in
the ordinary course of business,” as it
may not be very helpful in determining
whether a person must comply with the
CLA. In its place, a numerical test is set
forth. Under this test, a person who
leases, offers, or arranges to lease
personal property more than five times
in the preceding calendar year is subject
to the CLA and Regulation M. If a
person did not meet this numerical test
in the preceding calendar year, the test
is applied to the current year. The Board
solicits comment on the proposed
numerical test.
2(a)(7) E stim ated Lease Charge
2(a)( 11) O pen-End Lease
The proposal adds a definition of
“estimated lease charge” to provide
guidance in making the proposed
disclosure in § 213.5(q). The estimated
lease charge would reflect the total
dollar amount of the cost of the lease
attributable to interest and other charges
(whether paid upfront or during the
term of the lease). The Board believes
that such a disclosure together with a
statement indicating what the figure
represents and the formula for
calculating the estimated lease charge
(as provided in § 213.5(q)) would further
assist the consumer in comparing leases.
A first monthly or other periodic
payment paid at or before
consummation is not included in the
calculation of the estimated lease
charge, as it is reflected in the total
periodic payment disclosure. Any
refundable charge such as a security
deposit would also not be included in
the calculation.
The proposal adds a definition of
“open-end lease.” The Board believes
the definition will provide useful
guidance given that certain disclosures
are only relevant to open-end leases,
those in § 213.5(m), and (o), and
§ 213.8(d)(2)(vi).
2(a)(6) Consum er Lease
2(a)(8) Gross Cost
The proposal adds a definition of
“gross cost” to provide guidance in
making the proposed disclosure in
§ 213.5(p) for closed-end lease
transactions. The Board proposes to
define gross cost as the total dollar
amount of all items included in the
value of a lease at consummation. This
figure would include the bass price of
the leased property and any other items
added to that price—such as a lessor’s
markup, taxes, service agreements,
insurance, and any outstanding balance
from a prior lease that is included in a
new lease—prior to being offset by any
downpayment or trade-in by the
consumer. Amounts consisting of fees
2 (a )(l6 ) R esidual Value
The proposal adds a definition of
“residual value” to provide guidance in
making the proposed disclosure in
§ 213.5(r) for closed-end lease
transactions. The residual value of
leased property is the amount
determined at consummation to be the
value of the leased property at the end
of the lease term.
2(b) R ules o f Construction
This section is deleted from the
regulation. Current paragraph 2 (b)(1 ) is
moved to paragraph 2 (a)(6 ) of this
section. Paragraphs (b)(2 ) and (b)(3) of
this section are deleted as unnecessary.
Section 213.3—E xem pt Transactions
No changes have been proposed to
this section.
Section 213.4— General disclosure
requirem ents
4(a) G eneral R equirem ents
Paragraph (a) contains general rules
about the disclosures required under
§ 213.5, including the form, content, and
timing of disclosures. The major
revision is the proposed requirement
that certain disclosures be segregated
from other information. Several existing
format rules have been eliminated as
unnecessary because of the proposed
segregation requirement. Other
48754
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
provisions would be simplified and
clarified to ease compliance.
4(a)(1) Form o f Disclosures
The general disclosure requirements
are found in section 182 of the CLA.
Clear and conspicuous lease disclosures
must be given prior to consummation of
a lease on a dated written statement that
identifies the lessor and lessee.
Generally, all the disclosures must be
made together on a separate statement
or in the lease contract to be signed by
the lessee. Under the proposal, the
segregated disclosures in § 213.4(a)(2),
discussed below, may be provided on a
separate document and other CLA
disclosures provided in the lease
contract, as long as all disclosures are
given to a consumer at the same time.
Where the disclosures are included in
the lease contract, the regulation
currently requires that the disclosures
be provided above the lessee’s signature.
Under the proposal, this specific
requirement is deleted as unnecessary.
However, lessors must continue to
ensure that the disclosures are given to
lessees before the lessee becomes
obligated on the lease transaction. To
provide evidence of compliance,
disclosures may still be placed above
the lessee’s signature where disclosures
are included in a lease agreement.
Alternatively, lessors may include
instructions alerting a lessee to read the
disclosures prior to signing the lease or
could provide a signature line or an
acknowledgement of receipt for the
lessee on the disclosure statement.
To satisfy the statutory standard that
disclosures be made clearly and
conspicuously, the regulation currently
requires that disclosures be made on the
same page and in a meaningful
sequence—the grouping together of
related disclosures. The regulation also
imposes type-size requirements on
numerical disclosures. In light of the
proposal to segregate certain
disclosures, discussed below, the
meaningful sequence and the same page
rule, and type-size disclosure
requirements are deleted as
unnecessary.
Nonsegregated disclosures need not
be on the same page but they should be
grouped together. Disclosures should
also be presented in a way that does not
obscure the relationship of the terms to
each other.
4(a)(2) Segregation o f Certain
Disclosures
The CLA does not require the
segregation of the required leasing
disclosures from other information
given to the consumer in a lease
transaction. There is some concern that
the absence of a requirement that the
consumer leasing disclosures be
segregated from general contract or
other terms limits the effectiveness of
these disclosures in meeting one of the
goals of the CLA—to assure clear,
conspicuous, and meaningful disclosure
of lease terms to consumers.
Lease contracts can be long, detailed,
and complex and often contain leasing
disclosures interspersed among contract
provisions. Consumers generally have
little time to review their lease contracts
before signing them. The Board believes
a requirement that certain of the
mandated disclosures be segregated
would highlight these disclosures and
thereby enhance consumers’ ability to
understand lease terms and thus make
more informed choices.
In its advance notice of proposed
rulemaking, the Board specifically
requested comment on whether a
segregation requirement should be
imposed. Thirty of the seventy
commenters addressed the issue.
Twenty-six commenters favored some
form of disclosure segregation. The
other four commenters believed that any
consumer benefit associated with
isolating certain disclosures would not
outweigh the costs to lessors of revising
forms, or that a segregated disclosure
requirement would require a statutory
change.
Under section 105(a) of the TILA,
which includes the CLA, the Board has
the authority to prescribe regulations
containing “such classifications,
differentiations, or other provisions, and
may provide for such adjustments and
exceptions for any class of transactions,
as in the judgment of the Board are
necessary or proper to effectuate the
purpose of this title, to prevent
circumvention or evasion thereof, or to
facilitate compliance therewith.”
Pursuant to this authority, the Board
proposes that certain disclosures be
segregated from other disclosures and
information. As discussed previously,
lessors may include the segregated
disclosures in their lease contracts, but
would be required to separate them
from other information. Alternatively,
lessors may provide the segregated
disclosures to consumers on a separate
document. The content, format, and
headings for these disclosures should be
substantially similar to those contained
in the model forms in appendix A of the
regulation. To ensure uniformity, no
additional information may be included
among the segregated disclosures,
except as permitted under any future
provision found in the official staff
commentary to Regulation M.
The following disclosures (some of
which are new) would be segregated
from other information:
• Gross cost of the lease (new)—
§ 213.5(p).
• Total payment due at lease signing,
subdivided into an itemization of the
costs to be paid at lease signing, and an
itemization of the means of paying these
costs (this type of itemization would be
new)—§ 213.5(b).
• Total of periodic payments and
payment schedule—§ 213.5(c).
• Total of other charges payable to
lessor—§ 213.5(e).
• Residual value (new)—§ 213.5(r).
• Statement concerning the
consumer’s right to purchase the leased
property at the end of the lease term—
§213.5(k)(l).
• Estimated lease charge (new)—
§ 213.5(q).
• Statement that a substantial charge
may be imposed for terminating a lease
early and an example of an early
termination charge (new)—§ 213.5(1)(2).
• Statement concerning lessee’s
possible wear and use liability,
including liability for excessive mileage
(new in part)—§ 213.5(h)(3).
• Statement that the consumer should
refer to lease documents for
nonsegregated CLA-required
information (new)—§213.5(s).
• In an open-end lease, the value of
the property at consummation, the total
lease obligation, and the difference
between them—§ 213.5(o)(l).
The remaining disclosures required
by Regulation M and the CLA would
continue to be provided in a
nonsegregated format (typically,
together with the other terms and
conditions that comprise the lease
agreement). Comment is solicited on
whether any items should be excluded
from, or others added to, the segregated
disclosures.
Regulation M currently contains
model forms for open-end leases, for
closed-end leases, and for furniture
leases. These forms have been revised to
reflect how the segregated disclosures
would appear. The model forms are in
appendix A.
4(a)(5) Language o f Disclosures
Current paragraph 4(a)(4) states that
lease disclosures must be provided in
English, except in the Commonwealth of
Puerto Rico. The proposal revises this
position. Lessors would be permitted to
give disclosures in another language as
long as-disclosures in English are given
to a lessee who requests them. The
Board believes that a more permissive
rule could promote the delivery of more
meaningful disclosures to consumers.
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
4(b) Additional Information
Current paragraph 4(b) permits
additional information to be included
with any disclosures required by the
regulation. The proposal would permit
additional information only with the
nonsegregated CLA leasing disclosures,
provided the information does not
detract from those disclosures.
Current paragraphs 4(b) (1) and (2)
have been deleted as unnecessary.
Pursuant to section 186(a) of the CLA
and Regulation M, proposed § 213.10, if
information required by state law is
inconsistent with the requirements of
the act or regulation, the state law is
preempted.
(1)(2), and (p) through (s). Paragraphs
which have not been changed, or which
contain no substantive changes, have
been redesignated as follows:
Current
Paragraph
Paragraph
Paragraph
Paragraph
Paragraph
Paragraph
Paragraph
Paragraph
Paragraph
Paragraph
4(g )(1) .....
4 (g )(3) .....
4(g )(4 ) .....
4 (g )(5) .....
4 (g )(6) .....
4 (g )(7) .....
4 (g )(9 ) .....
4(g )(1 1 ) ...
4 (g )(1 3) ...
4 (g )(1 5) ...
Proposed
redesignated
redesignated
redesignated
redesignated
redesignated
redesignated
redesignated
redesignated
redesignated
redesignated
as
as
as
as
as
as
as
as
as
as
5(a).
5(c).
5(d).
5(e).
5(f).
5(g).
5(i).
5(k).
5(m ).
5(o).
5(b) Total Am ount Due at Lease Signing
4(c) Multiple Lessors or Lessees
Paragraph 5(b), currently § 213.4(g)(2),
requires lessors to disclose to consumers
the total amount of any payment due at
the consummation of a lease. The
payment may include a security deposit,
a trade-in allowance or a downpayment
(the “capitalized cost reduction”), a first
periodic payment in advance, and fees
such as delivery charges. Under the
current regulation, these charges must
4(d) Use of Estimates
be itemized by type but need not be
itemized by amount. The Board is
Current paragraph 4(d), which
proposing several changes to this
implements section 182 of the CLA on
paragraph. The language has been
the use of estimated disclosures, is
revised to clarify that a total amount of
proposed (4)(d)(l) and (2).
payments due at lease signing is
4(e) Effect o f Subsequent Occurrence
required. The Board proposes to require
Paragraph 4(e) provides that generally that amounts paid at lease signing be
when an event occurs after disclosures
itemized by amount as well as by type.
have been delivered which makes a
The Board believes that these lease costs
disclosure inaccurate, the inaccuracy
should be more completely and
does not constitute a violation of the act. uniformly disclosed, and requiring
This paragraph clarifies that this rule
itemization by type and amount would
applies to events occurring after
ensure this result. Under the proposal,
consummation of a lease. The first
the type and amount of each charge due
at consummation is included among the
sentence of footnote 1 of the current
segregated disclosures under the
regulation, which contains a specific
subheading “itemized costs.” Also, to
example of a subsequent occurrence,
enhance consumer understanding of
has been incorporated into the staff
what payments are made and how they
commentary in comment 4(e)-3. The
are allocated—particularly the amount
second sentence of the footnote is
agreed upon as the trade-in allowance of
deleted as unnecessary guidance under
property being provided by the lessee—
this regulation.
the lessor should disclose the net trade4(f) Minor Variations
in allowance, any rebate, payments in
Current paragraph 4(f) allows lessors
cash, and any other credits under the
to disregard February 29 in a leap year
subheading “means of paying itemized
when making disclosures. Proposed
costs.” (See the model forms in
paragraph (f) incorporates into the
appendix A for format.) The Board
regulation all rules on minor variations
believes that standardization of the
that may be disregarded in making
terminology to be used and the full
disclosures, thus provisions currently
itemization of the initial costs and
contained in comment 4(a)—2 of the
means of payment will provide
commentary have been moved to this
consumer benefit without imposing
paragraph. No substantive change is
substantial compliance costs on lessors.
intended.
Paragraph (c) provides that when a
transaction involves multiple lessors,
one lessor may make the disclosures on
behalf of all of them. The phrase “and
the one that discloses shall be the one
chosen by the lessors” is deleted as
unnecessary. No substantive change is
intended.
5(h) Maintenance Responsibilities
Section 213.5— Content of Disclosures
Section 213.4(g) is proposed § 213.5.
Several new disclosures have been
added under paragraphs (b), (h)(3),
Paragraph 5(h), currently § 213.4(g)(8),
requires disclosures about maintaining
or servicing leased property. Lessors
currently must identify the party
48755
responsible for maintaining or servicing
the leased property, along with a
description of the responsibility, and as
applicable, a statement of reasonable
wear and use standards. For example,
an automobile lease may state that a
consumer will be liable for excessive
wear and use if the vehicle is returned
with little tread on the tires, with rust,
dents or broken parts or accessories, or
if the vehicle is driven over a certain
number of miles.
Some of the consumer representatives
commenting on the Board’s advance
notice expressed concerns about excess
wear and use standards. Generally, they
suggested that lessors should have to
describe, in detail, the standard applied
and the penalties that would be charged.
They also called for the development of
standardized measurements of excess
wear and use. One commenter suggested
that the Board prohibit charges for
excess wear and use beyond actual
repair costs. In addition, the Board’s
Consumer Advisory Council and others
have advised the Board that highlighting
information about excessive mileage
charges is important.
Although tne Board receives very few
consumer complaints about leasing, it
has over the years received complaints
about reasonable wear and use
standards. Consumers sometimes do not
realize that lessors may impose strict
standards for what they consider normal
use of lease property, particularly leased
automobiles, and that these standards
may vary depending on the lessor.
While issues concerning excessive wear
and use liability are generally a matter
of contract between a lessee and lessor,
the Board believes that a disclosure
notice about the possibility that a charge
may be imposed at the end of the lease
term for excessive wear and use of
leased property, based on the standards
imposed by the lessor, may heighten a
consumer’s awareness about
maintenance responsibilities without
any substantial compliance costs on
lessors. Therefore, the Board proposes to
add a disclosure requirement in
paragraph 5(h)(3), to be included among
the segregated disclosures, that “you
may be charged for excessive wear and
use based on the lessor’s standard for
normal use.” In a vehicle lease
transaction, any applicable charge for
excessive mileage must also be
included. The Board solicits comment
on the proposed new disclosure,
including the required language.
5(j) Penalties and Other Charges for
Delinquency
The Board proposes to add that any
penalty or charge shall be reasonable, to
reflect the requirement found in section
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Federal Register / Vol. 60, No. 182 / Wednesday, .September 20, 1995 / Proposed Rules
reference to the name of the method
employed to determine the unamortized
capitalized cost portion of the early
5(1) Early Termination
termination formula instead of requiring
Paragraph 5(1), currently
a detailed description of that method.
§ 213.4(g)(12), requires a disclosure
Some suggested that the Board also
about charges for terminating a lease
define the most common amortization
early. The Board proposes additional
methods currently used (such as the
disclosure requirements, in § 213.5(1)(2), “actuarial” or the “constant yield”
that would be included among the
methods) to provide for uniformity.
segregated disclosures. Lessors would
They believed that through education
have to include a statement alerting
and exposure to the names of the most
consumers about charges for terminating commonly used methods„consumers
a lease early, including an example of
would eventually become aware of their
an early termination penalty based on
advantages and disadvantages.
an assumed termination of the lease at
Opponents believed that merely
the end of the first year.
providing the name of the method
The CLA requires lessors to disclose
would not be useful and would make it
the conditions under which the lessee
difficult or impossible for consumers to
or lessor may terminate the lease before compute the amount of an early
the end of the lease term and the
termination charge. Some consumer
amount or method of determining a
advocates said that in using complex
penalty or other charge for early
methods and highly complicated
termination. Lessors typically disclose
descriptions in determining early
the method of determining an early
termination charges, lessors preclude
termination charge and such a
consumers from determining whether
disclosure is often complex.
the charges themselves are reasonable.
In its advance notice of proposed
(The CLA specifies that charges for early
rulemaking, the Board solicited
termination must be “reasonable.”)
comment on whether the disclosure of
Other commenters, including both
early termination charges could be
lessors and consumer representatives,
revised to more easily inform consumers favored a full description of all aspects
about these charges. The Board also
of a lessor’s early termination method,
solicited comment on whether the
along with an example of how that
disclosure of the name of the lessor’s
method would work. In addition, some
early termination method along with a
commenters suggested a general
representative example of a lease
statement warning the consumer of the
termination charge should be
possibility of a substantial charge for
considered, as well as any other
early termination.
disclosure alternative. The notice
Based on the comments received and
mentioned a U.S. Court of Appeals case, upon further analysis, the Board
Lundquist v. Security Pacific
proposes to require that, along with an
Automotive Financial Services Corp.,
example of an early termination charge,
993 F.2d 11 (2d Cir.), cert, denied, 62
a statement be given by lessors among
U.S.L.W. 3320 (U.S. Nov. 1, 1993), that
the segregated disclosures that “you
has caused lessors concern. In that case, may have to pay a substantial charge if
the court held a lessor liable for
you end this lease early,” that “the
violating the “reasonably
actual charge will /ary depending on
understandable” standard for disclosure when the lease is terminated,” and that
under Regulation M; the lessor had an
“other charges such as for excessive
early termination formula that the court wear and use may also be imposed.”
found to be overly complex and beyond The Board believes these highlighted
the understanding of the average
disclosures would serve to better inform
consumer. Many lessors say that, given
consumers about the consequences if
the complexity of modem automobile
they were to terminate their leases early.
The Board believes that the CLA
lease transactions, it is difficult to
mandates full disclosure of a lessor’s
describe every part of an early
method of determining an early
termination formula in terms clearly
termination charge, even if it is
understandable to consumers. In
complex. Therefore, in addition to the
particular, lessors state that the various
above statement and example, a full
methods used to determine the
description of the complete early
“unamortized capitalized cost” portion
termination method must be disclosed
of their early termination formulas are
by lessors outside of the segregated
inherently complex and cannot be
disclosures. However, given the
reduced to a disclosure that is easily
complexity of the methods involved, a
understandable.
lessor is permitted—in giving the full
In responding to the Board’s request
description of its early termination
for comment on this issue, many lessor
method—to include a reference to the
representatives favored allowing a ,
183(b) of the CLA. No substantive
change is intended.
name of a generally accepted method of
computing the unamortized gross or
capitalized cost (also known as the
“adjusted lease balance”) portion of its
early termination charge. For example, a
lessor may state that the “constant
yield” method would be utilized in
obtaining the unamortized portion of
the gross cost, but the lessor would have
to specify how that figure—and any
other term or figure—is used in
computing the total early termination
charge that would be imposed upon the
consumer. Additionally, if a lessor
refers to a named method in this
manner, it would have to provide a
written explanation of that method if
requested by the consumer. While
lessors should attempt to provide clear
and understandable explanations of
their early termination provisions to
consumers, explanations that are full,
accurate, and not intended to be
misleading are in compliance with CLA
and Regulation M disclosure
requirements. (And, of course, the
statute requires that the early
termination charges themselves must be
“reasonable.”) These positions are
codified in the proposed revisions to the
Official Staff Commentary to Regulation
M.
Finally, regarding the selection of an
assumed termination period for the
early termination example, several
approaches were considered by the
Board. The proposed example is based
on an assumption that the consumer
terminates the lease near the beginning
of the lease term—at the end of the first
year. This approach provides a “worst
case” scenario. Early termination
charges are typically highest at the
beginning of the lease term. The
example could have been based on an
assumption that the consumer
terminates the lease towards the end of
the lease—such as the end of the third
year for a four-year lease, and at the end
of the second year for a three-year lease.
The last year of a lease is the period
when many early terminations occur.
An example could have been based on
an assumed early termination occurring
for instance, at the 50 percent mark of
the lease term. Arguably, this approach
could allow an easier comparison of
early termination examples among
leases, in contrast to the first two
approaches where the assumed early
termination would not occur at
proportionately equivalent points in
leases of different lengths.
While there is some merit to each
alternative (and there are others), the
Board is proposing an early termination
example based on the assumption that
the lease terminates at the end of the
first year, which illustrates to
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
consumers how substantial the charge
could be if the lease is terminated very
early during the lease term. The figure
used to calculate the example must be
calculated in the same manner the
residual value is calculated for purposes
of § 213.5(r). Therefore, if a lessor uses
the fair market value of the leased
property to estimate the value of the
property at the end of the lease, the
early termination example must also be
calculated using the fair market value.
Comment is solicited on the proposed
example including whether using an
assumed termination period other than
the one proposed would be more
appropriate.
5(n) Right o f Appraisal
Paragraph 5(n), currently
§ 213.4(g)(14), requires disclosure of the
right to an appraisal of leased property.
Generally this provision is applicable to
open-end leases, but it also applies to
closed-end leases. Language is revised
for clarity and accuracy, for example,
the term “realized value” replaces
“estimated value.” No substantive
change is intended.
5(p) Gross Cost
The Board proposes to require
disclosure of the gross cost among the
segregated disclosures. This disclosure
is applicable only to closed-end leases;
proposed § 213.5(o), currently
§213.4(g)(15), requires the disclosure of
the “value at consummation” in openend leases. Federal law does not
currently require disclosure of
information on the base price of the
leased property in closed-end leases.
Because this figure usually is not given,
consumers may assume that the lease is
based on the manufacturer’s suggested
retail price, or on the negotiated sales
price (if the parties initially
contemplated that the consumer would
finance or purchase the property).
However, the starting price of the leased
property may actually be significantly
higher than either of these figures.
Sixteen of the seventy commenters on
the advance notice favored a
“capitalized cost” disclosure. They
included representatives of both the
leasing industry and consumer groups.
Several trade associations representing a
large segment of the industry have
recently asked their members to
voluntarily disclose this item. In
addition, a few lessors have been
disclosing this figure for some time.
Pursuant to its authority under
section 105(a) of the TILA, the Board
proposes to require disclosure of the
“gross cost” in closed-end lease
transactions, using that term, in order to
further effectuate the purposes of the
law. The Board believes such a
disclosure (together with a brief
description such as “the agreed upon
acquisition value of the vehicle
including but not limited to items such
as taxes, fees, service contracts, and
insurance”) would further the CLA’s
goal that cost disclosures enable
consumers to draw comparisons
between leases and, where appropriate,
between leases and credit transactions.
The gross cost would include the agreed
upon price of the leased property and
any other items added to that price—
such as a lessor’s markup, taxes, fees,
extended warranties, insurance, and any
outstanding balance from a prior lease
that is included in a new lease—prior to
being offset by any downpayment or
trade-in by the consumer. The ^ o ss cost
is the amount that the periodic and
other payments and terms of the lease
are based upon, and is intended to be
used by consumers to compare a lease
with similar lease and non-lease
transactions. The gross cost would be
readily available to lessors from
worksheets they utilize in setting the
terms and conditions of the lease.
However, as discussed in 5(q) below,
the inclusion of a gross cost figure in the
segregated disclosures in some cases
could invite consumers to make
misleading comparisons of leasing and
financing options. The Board solicits
specific comment on this disclosure and
its definition.
5(q) Estimated Lease Charge
Pursuant to its authority under
section 105(a) of the TILA, the Board
proposes to require disclosure of the
estimated lease charge among the
segregated disclosures to further
effectuate the CLA’s goal of enabling
consumers to comparison shop. This
figure would show the total dollar
amount of the “financing” costs that
will be charged to the consumer over
the lease term, including the amount
attributable to interest, or the “timeprice differential.” Although this figure
is similar in concept to the finance
charge required to be disclosed in
consumer credit transactions subject to
the TILA, it is not identical to a finance
charge. As proposed, the lease charge
would include items such as use taxes,
registration and other fees, and
insurance—items that are (under certain
circumstances, at least) excluded from
the finance charge. Therefore, the lease
charge would not typically be an
appropriate tool to make comparisons
between lease and financing
transactions.
The Board currently does not propose
to exclude any of the fees and charges
in the lease transaction from the
48757
estimated lease charge. However,
comment is solicited on whether and
how this disclosure could be made more
comparable to the finance charge under
the TELA. For example, the Board
requests comment on whether insurance
charges—which typically are not
included directly in the finance
charge— or charges payable in a
comparable cash transaction (such as
automobile registration fees)—should be
excluded from the estimated lease
charge.
When consumers are comparing
different lease transactions with the
same gross costs and durations (for
example, three-year auto leases from
two different dealers with the same
gross cost but different monthly
payments and purchase option prices),
the estimated lease charge could be used
to compare the transactions. However,
as discussed below, an estimated lease
charge disclosure would not be useful in
comparing different leases where the
gross costs or durations differ
substantially.
Lease rate. Some commenters on the
advance notice—including a number of
consumer representatives and several
small depository institutions—
recommended that the Board require
lessors to disclose the interest rate
implicit in a lease transaction. Some
recommended that this lease rate reflect
an annual percentage rate concept—that
is, a uniformly calculated rate that
would include both interest and other
charges imposed in connection with the
lease transaction. These commenters
suggested that the true cost of leasing
would not be known to consumers
without a lease rate disclosure. They
noted that if the gross or capitalized cost
and residual value of leased property
are to be disclosed to consumers, the
lease rate would be the only missing
component necessary to determine the
full cost of a lease. Commenters
opposed to an interest rate disclosure
noted that it would not necessarily
reflect the “true cost” of leasing, as
lessors might simply be able to
manipulate the residual value in order
to show a lower interest rate.
As noted by some commenters, the
lease rate is the only key information
about the cost of leasing property that
would not be disclosed to consumers
under the Board’s proposed rule.
Showing a lease rate seems important if
consumers are to consider adequately
the choice between leases involving
different gross costs or leases of
different durations. For example, if the
same automobile could be leased for
eitherthree or five years, and the lessor
applies the same rate in either case, the
two transactions would have
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
significantly different estimated lease
charges (based on one lease incurring
interest charges for two years more than
the other), yet they would have the same
annual lease rate.
A lease rate is clearly defined only in
leases that have a fixed dollar purchase
option. In that case, a lease rate would
be based on a standard formula using
the same information as in the estimated
lease charge: gross cost, total payment
due at lease signing (less a first monthly
or other periodic payment and any
refundable charges), total of monthly
payments, total of other charges payable
to the lessor, and the purchase option
price. In view of some commenters’
concerns that the residual value could
be manipulated to show a misleading
lease rate, the Board would not
contemplate requiring a lease rate in
leases that do not have a dollar purchase
price option.
Unlike the estimated lease charge, the
lease rate disclosure may be of use to
consumers in comparing a lease with a
credit transaction. However, the lease
rate may be of less use in cases when
the fees reflected in that rate differ
substantially’ from the fees reflected in
the APR under the TILA. For example,
leases typically include insurance
charges; these are included in the
estimated lease charge, and the Board
would contemplate them being included
in a lease rate disclosure as well. If a
lease and a credit transaction had the
same annualized rate, but the lease rate
included insurance charges that are not
included in the credit transaction, the
consumer would be misled if he or she
simply compared the two rates. In the
instance where insurance was not a
factor and other fees were similar in
amount, however, such a comparison
could prove to be of use to consumers
in analyzing the costs of these
alternative transactions. The Board
solicits comment on whether and how
a lease rate could be made more
comparable to an APR to facilitate such
comparisons.
If the disclosure of a lease rate were
not required, the inclusion of a gross
cost figure (which is prominently
displayed in the disclosure statement)
could, in some instances, invite
misleading comparisons between
competing leases or between a lease and
a financed purchase. For example,
assume a consumer and an auto dealer
negotiate a $17,000 purchase price and
a 9 percent APR to finance a car. The
dealer then suggests that the consumer
consider leasing the car instead.
Assuming that potential lessees are
likely to attach significance to the gross
cost of the leased car, the dealer could
agree to base the monthly lease
the Board solicits comments on how
payments on a gross cost figure of
and whether the costs of imposing a
$17,000. The dealer could then apply a
higher interest rate of 14 percent to
lease rate disclosure would outweigh
calculate the monthly payments, and
the consumer benefit of having such a
this rate would not be disclosed to the
rate disclosed.
consumer. Even using this 14 percent
5(s) Statement Referencing
interest rate, the monthly payments on
Nonsegregated
Disclosures
the lease may be less than the monthly
It is important that the value of the
payments if the car were financed. The
nonsegregated CLA disclosures not be
consumer might prefer the financing
diminished. Therefore, the Board
alternative if he or she realized that the
implicit interest rate on the lease was 14 proposes to add a statement among the
segregated disclosures to alert
percent. However, absent a lease rate
consumers to other CLA-required
disclosure, the consumer could
disclosures (not contained among the
conclude that the lease was a better
deal. On the other hand, since the dollar segregated disclosures) that they should
read in the lease documents. The
amount of the increase attributable to
the lessor’s use of a higher interest rate
disclosures include information about
would be reflected in the estimated
conditions for and the amount or
lease charge, this could be sufficient to
method of determining early
inform the consumer. In addition, there
termination charges, charges for
may be competitive and operational
delinquency, default or late payments,
pressures upon lessors that could
maintenance responsibilities, any
prevent them from artificially
purchase option prior to the end of the
decreasing the gross cost, such as limits
lease term, insurance, total taxes and
on dealer markups in interest rates.
official fees, warranties, liability at the
Thus any deception that would be
end of the lease term, and any security
associated with disclosure of a low gross interest in the leased property.
cost may be minimal.
Section 213.6—Renegotiations,
While an annualized lease rate may
Extensions,
and Assumptions
improve comparison shopping between
leases, some believe that the disclosure
Section 213.6 contains all the
of the estimated lease charge would be
redisclosure rules governing leases that
sufficient for these purposes (assuming
are renegotiated, extended, or assumed,
that consumers comparison shop items
including the exceptions, which
with similar gross costs and lease
currently are generally contained in
durations), and thus the disclosure of a
§ 213.4(h). The section has been
lease rate would be unnecessary.
rearranged and revised for clarity. For
Moreover, disclosure of a uniform lease
example, rules on assumptions in the
rate disclosure may significantly
current staff commentary have been
increase the cost of complying with the
moved to this section. Proposed
requirements of the CLA and Regulation § 213.6(d) retains the substance of the
M, and this burden may outweigh any
exceptions found in the current
benefit to consumers of such a
regulation, but has been rephrased.
disclosure.
Several exceptions located in the
In light of the above discussion, the
current commentary under current
Board has not proposed requiring the
comments 3, 7, and 8 to § 213.4(h) have
disclosure of a lease rate. However,
also been moved to proposed § 213.6(d).
comment is solicited on this matter,
Section 213.7—Reserved
including the advantages and
disadvantages of such a disclosure to
Section 213.7 has been reserved.
consumers. In the event that the Board
Section 213.7 in the current regulation
were to require disclosure of a lease
has been moved to § 213.10.
rate, the Board further solicits comment
Section 213.8—Advertising
on whether the rate should be defined
Section 213.5 in the current
in such a way as to make it more
regulation is proposed § 213.8. Some of
comparable to the APR in a credit
the language of the existing provisions
transaction (such as by excluding
insurance charges from the calculation
have been revised for simplicity.
Under the CIA, if a lease
in certain circumstances). The Board
advertisement states certain cost
also solicits comment on whether the
information (such as the amount of a
gross cost (and therefore the estimated
monthly lease payment) as many as six
lease charge) figures should be deadditional disclosures must be clearly
emphasized or removed from the
and conspicuously given. The Board
required disclosures to avoid potential
manipulation of these figures in order to proposes to make several clarifications
and substantive revisions in this section
mislead consumers; or whether in
that it believes will ease the compliance
commenters’ views, this type of
manipulation would not arise. Finally,
concerns of lessors while providing
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
uniform and more meaningful
information to consumers and
furthering the CLA mandate that
disclosures in advertisements be clearly
and conspicuously displayed.
8(b) Clear and Conspicuous Standard
For clarity and simplicity, the Board
proposes to state the clear and
conspicuous standard in this section in
one place; currently in § 213.5
references to the clear and conspicuous
standard are made in several places.
Several representatives of state
attorneys general and others have
questioned the way advertisements of
automobile leases display the required
Regulation M disclosures. Lessors
sometimes conspicuously advertise low
or no downpayments when, in much
smaller print, other upfront charges
such as an acquisition fee, a security
deposit, or the first monthly lease
payment may be given. Some leasing
representatives have expressed concern
about their possible exposure to liability
due to the potential for differing state
interpretations of what is clear and
conspicuous. The Board is therefore
proposing that a reference in an
advertisement to any component of the
total amount of payments due at
consummation, such as the
downpayment (or that there is no
downpayment), may not be more
prominently displayed in the
advertisement than the required
disclosure in § 213.8(d)(2)(ii) of the total
amount of payments due at lease
signing. The Board believes this rule
would address some of the concerns
about lease advertisements without
adding significant burdens on lessors or
interfering with the effective marketing
of their products. The proposed rule
would not control what terms are to be
advertised, but only that components of
the total amount due at lease signing
could not be emphasized without giving
equal prominence to the disclosure of
the total amount due itself. It should be
noted that lessors can advertise lease
transactions without including any CLA
disclosures. Disclosures are only
required when certain “trigger” terms
are included in the advertisement, for
example, a payment amount.
8(c) Catalogs and Multi-Page
Advertisements
Section 8(c), currently § 213.5(b), has
been simplified. No substantive change
is intended.
8(d) Advertisement of Terms That
Require Additional Disclosure
S e c tio n 8 (d ) in c o r p o ra te s c u rre n t
§ 2 1 3 . 5 ( c ) . T h e i n t r o d u c t o r y la n g u a g e o f
current § 213.5(c) is simplified. No
substantive change is intended.
Currently, some advertisements do
not provide a total of payments required
at or before consummation, but instead
give an itemization of each charge due
at that time. In paragraph 8(d)(2)(ii), the
Board proposes to clarify that the CLA
requires only that the total of payments
due by the consumer before or at lease
signing be stated in an advertisement in
which a trigger term has been used. (The
language of the statute is somewhat
ambiguous on this point.) Lessors may
provide an itemized list of the payments
due by lease signing but would not be
required to under the proposed rule.
Full disclosure of these initial fees by
type and amount are among the required
disclosures given to consumers who
actually enter into lease transactions.
In paragraph 8(d)(2)(iv), the Board
proposes to clarify that disclosing the
method for determining the purchase
price is limited to instances where the
lessee has the option to purchase the
leased property prior to the end of the
lease. Language is added to the second
sentence of this paragraph, consistent
with the specific disclosure
requirements in § 213.5(k), which the
Board believes is consistent with
congressional intent to provide the price
of the leased property if the option to
purchase is available at the end of the
term.
Current § 213.5(c)(5) contains two
requirements. Under the first
requirement, lessors must disclose the
amount of “any liabilities” that the
lessee may be required to pay at the end
of the term. To remove any ambiguity as
to the applicability of this provision to
both open- and closed-end leases, the
Board proposes to incorporate this
portion of the current paragraph in
p aragraph 8(d)(2)(v). For exam ple,
charges for excessive wear and use
(such as an excessive mileage charge) on
an automobile lease under both openand closed-end leases would have to be
disclosed in advertisements under this
proposed provision.
Under tne second requirement in
current § 213.5(c)(5), lessors must
disclose whether the lessee is liable for
any difference between the estimated
value of the leased property and its
realized value at the end of the lease,
applies only to open-end leases. The
Board has moved this requirement to
§ 213.8(d)(2)(vi).
8(e) Alternative Disclosures—
Merchandise Tags
Section 213.8(e) broadens current
§ 213.5(d) by allowing the use of
triggering terms on merchandise tags,
for items normally used in multiple-
48759
item leases, without providing full
advertising disclosures on the tag itself.
8(f) Alternative Disclosures— Telephone
or Radio Advertisements
Section § 213.8(f) implements
amendments to section 184 of the CLA
made by section 336 of the Riegle
Community Development and
Regulatory Improvement Act of 1994
(Pub. L. 103-325,108 Stat. 2160).
Section 336 amended the CLA to
provide an alternative disclosure
scheme for radio lease advertisements in
order to reduce the amount of
information in such advertisements.
Before the statutory revisions, if any
of the trigger terms (such as a payment
amount) were used in any type of lease
advertisement, as many as six additional
disclosures had to be given. These
disclosures include statements
specifying (1) whether or not the lessee
has the option to purchase the leased
property, and at what price and time, (2)
the amount or method of determining
the amount of any liabilities the lease
imposes at the end of the term, and (3)
that the consumer is liable for the
difference between the estimated value
of the leased property and its realized
value at the end of the term, if such
liability exists.
Under the statutory amendments, in
radio advertisements, lessors are
permitted to substitute a reference to a
toll-free telephone number or to a
specified print advertisement for the
disclosures about the purchase option
and the end-of-term liability. If
consumers call the toll-free number,
they must receive all the required
disclosures (not simply the ones omitted
from the radio advertisement) orally, or
in writing if requested by the consumer.
Alternatively, all of the disclosures
could be provided in a publication in
general circulation in the community
served by the radio station.
Although the statutory amendment is
limited to radio advertisements, the
legislative history takes note of the
Board’s Regulation M review and states
that, after public comment, the Board
should consider extending the new
radio advertising provisions to
television and print advertisements. It
stated that television advertisements, for
example, “raise complex questions
regarding the content prominence, and
duration of disclosures necessary to
simplify the process and to convey more
meaningful information to consumers.”
The Board believes that television lease
advertisements have time constraints
similar to those on radio; given these
constraints, it is generally agreed that
consumers cannot comprehend all the
disclosure information provided
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
currently. It is not clear that similar
concerns exist with print
advertisements. Therefore, in § 213.8(f),
pursuant to its authority under section
105(a) of the TILA, the Board is
proposing to apply the new statutory
disclosure alternative to lease
advertisements in both radio and
television broadcasts to effectuate the
purpose of the CLA and to facilitate
compliance. The Board specifically
solicits comment on this matter and on
whether similar constraints exist for
print advertisements that would warrant
their inclusion in any final rule.
When a television or radio
advertisement includes any of the
trigger terms in § 213.8(d)(1), the
alternative disclosure rules allow lessors
to comply with § 213.8(d)(2) by
combining certain required disclosures
with a referral to either a toll-free
number or a written advertisement.
Required information in § 213.8(d)(2)(i)—
(iii) must be stated in the television or
radio advertisement along with the
alternative disclosures in § 213.8(f)(1).
The remaining disclosures in
§ 213.8(d)(2)(iv)—(vi), are not required to
be disclosed. However, all the required
disclosures in § 213.8(d)(2) must be
given to consumers through the toll-free
number or in a written advertisement
appearing in a publication of general
circulation in the community served by
the media station on which {he
advertisement is broadcast.
The Board solicits comment on its
approach in implementing section 336
of the Riegle Community Development
and Regulatory Improvement Act.
criteria for an exemption determination
has been removed. Such information
would be available from the Board upon
request.
Model forms, currently in appendix C
of the regulation, have been moved to
this appendix and revised to illustrate
the new segregated disclosure scheme
required by § 213.4(a)(2). Instructions to
the current model forms have been
deleted as repetitive of the regulation
and unnecessary. The Board solicits
comment on whether any additional
model forms or model clauses are
warranted (such as for single or “lump
sum” payment leases). Specific
comment is also solicited on whether
the open-end lease model form is
needed and to what extent such leases
are being offered.
undertaken by large firms. Therefore,
elements of revised Regulation M that
might increase burden on lessors should
not have much impact, if any, on small
firms. There is evidence from other
regulations of economies of scale (that
is, cost conditions that lead to higher
average costs at small firms than large
firms) in start-up costs for new
regulations or for changes in
regulations. Thus, implementation of
proposed revisions to Regulation M
could be disproportionately costly to
small firms, to the extent that they
engage in covered consumer leasing.
Provisions of the CLA are similar to
those of the credit provisions of the
TILA, and available evidence suggests
also the existence of economies of scale
in on-going costs for Truth in Lending.
Since the requirements of the existing
Appendix B—Federal Enforcement
regulation and the proposed revised
Agencies
regulation do not differ by size of firm,
small firms would possibly continue to
The list of federal agencies that
enforce the CLA for particular classes of face relatively higher costs under the
businesses is moved from appendix D to proposed revised rule.
It appears, however, that few, if any,
this appendix. To simplify the
firms that provide consumer leases are
regulation, the written information
contained in the current appendix about small firms. Moreover, evidence on
scale economies for other regulations
the procedures and criteria for a
indicates that scale economies are
preemption determination has been
exhausted at relatively low levels of
removed. Such information would be
output. Therefore, it is unlikely that the
available from the Board upon request.
proposed revisions would cause any
Appendix C—Issuance of Staff
firms in the industry to incur
Interpretations
disproportionately higher costs because
Current paragraph § 213.1(d) is moved of their size.
to this appendix. Model forms have
V I. P a p e rw o rk Reduction A ct
been moved to proposed appendix A.
In accordance with section 3507 of
IV . Form o f Com m ent Letters
the Paperwork Reduction Act of 1980
(44 U.S.C. 35; 5 CFR 1320.13), the Board
Comment letters should refer to
Section 213.9—Record Retention
Docket No. R—0892. The Board requests reviewed the proposed rule under the
authority delegated to the Board by the
that, when possible, comments be
Section 213.9, currently § 213.6, has
Office of Management and Budget.
prepared using a standard courier type
been revised for simplicity. The
Comments on the collections of
face with a type-size of 10 or 12
language "or action is required to be
characters per inch. This will enable the information should be sent to the Office
taken” has been added to cover
of Management and Budget, Paperwork
Board to convert the text into machinecircumstances requiring action by a
Reduction Project (7100-0202),
readable form through electronic
lessor other than providing disclosures.
Washington, DC 20503, with copies of
scanning, and will facilitate automated
The language in current § 213.6(b) is
such comments to be sent to Mary M.
retrieval of comments for review.
eliminated as unnecessary. The caption
McLaughlin, Federal Reserve Board
Comments may also be submitted on
"Preservation and Inspection of
Clearance Officer, Division of Research
3 V2 inch or 5V4 inch computer diskettes
Evidence of Compliance” has been
and Statistics, Mail Stop 97, Board of
in any IBM-compatible DOS-based
changed to “Record Retention” to
format, but must be accompanied by an
Governors of the Federal Reserve
conform with usage in other of the
System, Washington, DC 20551.
original document in paper form.
Board’s regulations.
The third-party disclosure
V
.
Regulatory
Flexibility
A
n
a
ly
sis
Section 213.10—Relation to State Laws
requirements contained in 12 CFR 213.5
The Board’s Office of the Secretary
will aid consumers in understanding
Section 213.10 combines and
has prepared a preliminary regulatory
leases they negotiate. The respondents
simplifies current §§ 213.7 and 213.8.
analysis of the proposal. A copy of the
are for-profit institutions, including
No substantive changes are intended.
analysis may be obtained from
small businesses. Because the notices
Information about procedures and
Publication Services, Board of
are not provided to the Federal Reserve,
criteria for preemption or exemption
Governors of the Federal Reserve
no issue of confidentiality under the
determinations is removed.
System, Washington, DC 20551, at (202) Freedom of Information Act arises.
Appendix A—Model Forms
Institutions are not required to
452-3245.
Concerning the impact on small firms, respond to this collection of information
To simplify the regulation, the written
the Board believes that most consumer
information contained in the current
unless it displays a currently valid OMB
leasing subject to Regulation M is
control number. The OMB control
appendix about the procedures and
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
number is 7100-0202. OMB has deemed
that inclusion of the OMB control
number in this preamble satisfies this
requirement.
The Board estimates that the annual
burden for state member banks will
increase from 9,272 hours to 10,786
hours. The Board estimates that the
average length of time to disclose the
costs and terms to a consumer will
increase from fifteen minutes to
seventeen minutes. The Board also
estimates that the average length of time
to prepare basic lease information for
inclusion in all advertisements will
decrease from thirty minutes to twentyfive minutes.
The Board has found that few state
member banks engage in consumer
leasing and that while the prevalence of
leasing has increased in recent years, it
has not increased substantially among
state member banks. It also has been
found that among state member banks
that engage in consumer leasing, only a
very few advertise consumer leases. For
estimates of the annual burden imposed
on other institutions that engage in
consumer leasing, please contact their
regulator.
List o f Subjects in 12 C F R Part 213
Advertising, Federal Reserve System,
Reporting and recordkeeping
requirements, Truth in lending.
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR part 213 as follows:
P A R T 2 1 3 — C O N S U M E R L E A S IN G
( R E G U L A T IO N M )
1 . The authority citation for part 213
continues to read as follows:
Authority: 15 U.S.C. 1604.
2 . T h e ta b l e o f c o n t e n t s t o p a r t 2 1 3 is
r e v i s e d to r e a d a s f o l l o w s :
Sec.
213.1 Authority, scope, purpose, and
enforcement.
213.2 Definitions.
213.3 Exempt transactions.
213.4 General disclosure requirements.
213.5 Content of disclosures.
213.6 Renegotiations, extensions, and
assumptions.
213.7 [Reserved].
213.8 Advertising.
213.9 Record retention.
213.10 Relation to State laws.
Appendix A to Part 213— Model Forms
Appendix B to Part 213— Federal
Enforcement Agencies
Appendix C to Part 213—Issuance of Staff
Interpretations
Supplement I-C L -1 to Part 213—Official
Staff Commentary to Regulation M
3. Part 213 would be amended as
follows:
a. Sections 213.1 through 213.6 are
revised;
b. Section 213.7 is removed and
reserved;
c. Section 213.8 is revised;
d. Sections 213.9 and 213.10 are
added;
e. Appendices A through C are
revised; and
f. Appendix D is removed.
The revisions and additions read as
follows:
48761
use of personal property by a natural
person primarily for personal, family, or
household purposes, for a period
exceeding four months and for a total
contractual obligation not exceeding
$25,000, whether or not the lessee has
the option to purchase or otherwise
become the owner of the property at the
expiration of the lease. It does not
include a lease that meets the definition
of a credit sale in Regulation Z, 12 CFR
226.2(a). It also does not include a lease
for agricultural, business, or commercial
§ 213.1 A u th o rity , s c o p e , p u rp o s e , and
purposes or a lease made to an
en fo rc e m e n t.
organization. Unless the context
(a) Authority. The regulation in this
indicates otherwise in this part, “lease”
part, known as Regulation M, is issued
by the Board of Governors of the Federal shall be construed to mean “consumer
lease.”
Reserve System to implement the
(7) Estimated lease charge means the
consumer leasing provisions of the
estimated total dollar amount of the cost
Truth in Lending Act, which is Title I
of the lease attributable to interest and
of the Consumer Credit Protection Act,
other charges regardless of when such
as amended (15 U.S.C. 1601 et seq.).
charges are paid, as calculated under
(b) Scope and purpose. This part
applies to all persons who are lessors of § 213.5(q).
(8) Gross cost means the total dollar
consumer leases as defined in § 213.2(a)
(6 ) and (1 0 ). The purpose of this part is: amount of all items included in the
value of a lease at consummation,
(1 ) To ensure that lessees of personal
property receive meaningful disclosures including but not limited to the. base
that enable them to compare lease terms price of the leased property and any
other items added to that price, such as
with other leases and with credit
any markup by the lessor, taxes,
transactions, where appropriate;
insurance, service agreements, and any
(2 ) To limit the amount of balloon
outstanding balance from a prior lease
payments in consumer lease
that is included in the new lease.
transactions; and
(9) Lessee means a natural person who
(3) To provide for the accurate
leases or who is offered a consumer
disclosure of lease terms in advertising.
lease.
(c) Enforcement and liability. Section
(10) Lessor means a person who
108 of the act contains the
regularly leases, offers to lease, or
administrative enforcement provisions.
arranges for the lease of personal
Sections 1 1 2 , 130, 131, and 185 of the
property under a consumer lease. A
act contain the liability provisions for
failing to comply with the requirements person who leased, offered, or arranged
to lease personal property more than
of the act and this part.
five times in the preceding calendar
§ 2 1 3 .2 D efin itio n s .
year is subject to the act and this part;
(а) Definitions. For the purposes of
if a person did not meet this numerical
this part the following definitions apply: test in the preceding calendar year, the
(1 ) Act means the Truth in Lending
numerical test is applied to the current
Act (15 U.S.C. 1601 et seq.).
year.
(2) Advertisement means a
(11) Open-end lease means a
commercial message in any medium
consumer lease in which the lessee’s
that directly or indirectly promotes a
liability at the end of the lease term is
consumer lease transaction.
based on the difference between the
(3) Agricultural purpose means a
estimated value of the leased property
purpose related to the production,
and its realized value.
harvest, exhibition, marketing,
(12) Organization means a
transportation, processing, or
corporation, trust, estate, partnership,
manufacture of agricultural products
cooperative, association, or government
including but not limited to the
entity or instrumentality.
acquisition of personal property and
(13) Person means a natural person or
services used primarily in farming.
an organization.
(4) Board refers to the Board of
(14) Personal property means any
Governors of the Federal Reserve
property that is not real property under
System.
the law of the state where the property
(5) Closed-end lease means a
is located at the time it is offered or
consumer lease other than an open-end
made available for lease.
lease as defined in this section.
(15) Realized value means:
(б ) Consumer lease means a contract
(i) The price received by the lessor for
in the form of a bailment or lease for the the leased property at disposition;
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
(ii) The highest offer for disposition;
or
(iii) The fair market value at the end
of the lease term.
(16) Residual value means the amount
determined at consummation to be the
value of the leased property at the end
of the lease term.
(17) Security interest and security
mean any interest in property that
secures the payment or performance of
an obligation.
(18) State means any state, the District
of Columbia, the Commonwealth of
Puerto Rico, and any territory or
possession of the United States.
(19) Total lease obligation applicable
to an open-end lease, means the total of:
(i) The scheduled periodic payments
under the lease;
(ii) Any nonrefundable cash payment
required of the lessee or agreed upon by
the lessor and lessee including any
trade-in allowance made at
consummation; and
(iii) The estimated value of the leased
property at the end of the lease term.
(20) Value at consummation means
the cost to the lessor of the leased
property including, if applicable, any
increase or markup by the lessor prior
to consummation.
(b) [Reserved)
§ 2 1 3 .3
E xem p t tra n s a c tio n s.
This part does not apply to consumer
lease transactions of personal property
which are incident to the lease of real
property and which provide that:
(a) The lessee has no liability for the
value of the property at the end of the
lease term except for abnormal wear and
use; and
(b) The lessee has no option to
purchase the leased property.
§ 2 1 3 .4
G en eral d is c lo su re re q u ire m e n ts .
(a) General requirements. A lessor
shall make the disclosures required by
§ 213.5, as applicable. The disclosures
shall be made clearly and conspicuously
in writing, and in accordance with this
section.
(l) Form of disclosures. Except as
provided in paragraph (a)(4) of this
section, the disclosures required by
§ 213.5 shall be given to the lessee
together on a dated statement that
identifies the lessor and the lessee. All
the disclosures may be made either on
a separate statement that identifies the
consumer lease transaction or on the
contract or other document evidencing
the lease transaction. As an alternative,
the disclosures required under
paragraph (a)(2) of this section to be
segregated from other information may
be provided on a separate statement that
identifies the lease transaction and other
required disclosures provided in the
lease contract.
(2) Segregation of certain disclosures.
The following disclosures shall be
segregated from other information and
shall contain only permissible related or
additional information: the disclosures
required by § 213.5(b), (c), (e), (h)(3),
(k)(l), (1)(2), (o)(l) and (p) through (s).
The content, format, and headings for
these disclosures shall be provided in a
manner substantially similar to the
applicable model form in appendix A of
this part.
(3) Timing of disclosures. A lessor
shall provide disclosures to the lessee
prior to the consummation of a
consumer lease.
(4) Multiple leased items. In a lease of
multiple items, the description required
by § 213.5(a) may be given on a separate
statement that is incorporated by
reference in the disclosure statement
required by paragraph (a)(1) of this
section.
(5) Language of disclosures. The
disclosures required by § 213.5 may be
made in a language other than English,
provided that the disclosures are made
available in English upon the lessee’s
request.
(b) Additional information.
Additional information may be
provided with the disclosures that are
not required by paragraph (a)(2) of this
section to be segregated from other
information. The additional information
shall not be stated, used, or placed so
as to mislead or confuse the lessee or
contradict, obscure, or detract attention
from any disclosures required by this
part.
(c) Multiple lessors or lessees. When
a transaction involves more than one
lessor, the disclosures required by this
part may be made by one lessor on
behalf of all of the lessors. When a lease
involves more than one lessee, the
disclosures may be provided to any
lessee who is primarily liable on the
lease.
(d) Use of estimates— (1) Standard. At
the time disclosures are made, if an
amount or other item required to be
disclosed, or needed to determine a
required disclosure, is unknown or is
not available to the lessor and the lessor
has made a reasonable effort to ascertain
the information, the lessor may use an
estimate, provided that the estimate is
reasonable, is clearly identified as an
estimate, is based on the best
information available to the lessor, and
is not used to circumvent or evade the
disclosure requirements of this part.
(2) Open-end purchase option lease.
Notwithstanding that an estimate shall
be based on the best information
available, a lessor is not precluded in an
open-end lease with a purchase-option
from understating the estimated value of
the leased property at the end of the
term in computing the total lease
obligation required by § 213.5(o)(l).
(e) Effect of subsequent occurrence. If
information required to be disclosed
becomes inaccurate because of an event
occurring after consummation of a lease,
the inaccuracy is not a violation of this
part.
(f) Minor variations. A lessor may
disregard the effects of the following in
making calculations and disclosures:
(1) That payments must be collected
in whole cents;
(2) That dates of scheduled payments
may be different because the scheduled
date is not a business day;
(3) That months have different
numbers of days; and
(4) That February 29 occurs in a leap
year.
§ 2 1 3 .5
C o n te n t o f d is c lo su re s .
For a consumer lease subject to this
part, the lessor shall disclose the
following information, as applicable:
(a) Description of property. A brief
description of the leased property
sufficient to identify the property to the
lessee and lessor.
(b) Total amount due at lease signing.
The tptal amount to be paid by the
lessee prior to or at consummation of
the lease, using the term “total amount
due at lease signing.” The lessor shall
itemize each payment by type and
amount, including any refundable
security deposit, advance monthly or
periodic payment, and any
downpayment (capitalized cost
reduction), and shall disclose the means
of payment, including any trade-in
allowance, payments in cash, or rebates,
in a format substantially similar to that
contained in the model forms in
appendix A of this part.
(c) Payment schedule. The number,
amount, and due dates or periods of
payments scheduled under the lease,
and the total amount of the periodic
payments.
(d) Fees and taxes. The total dollar
amount for all official and license fees,
registration, title, or taxes required to be
paid by the lessee in connection with
the lease.
(e) Other charges. The total amount of
other charges payable by the lessee to
the lessor, itemized by type and amount,
that are not included in the periodic
payments. This total includes the
amount of any liability the lease
imposes upon the lessee at the end of
the term, but excludes the potential
difference between the estimated and
realized values referred to in paragraph
(m) of this section.
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
(f) Insurance. A brief identification of
insurance associated with the consumer
lease including:
(1) If provided or paid for by the
lessor, the types and amounts of
coverage and cost to the lessee; or
(2) If not provided or paid for by the
lessor, the types and amounts of
coverage required of the lessee.
(g) Warranties or guarantees. A
statement identifying all express
warranties and guarantees available to
the lessee made by the manufacturer or
lessor with respect to the leased
property.
(h) Maintenance responsibilities. The
following are required:
(1) A statement identifying the party
responsible for maintaining or servicing
the leased property together with a brief
description of the responsibility;
(2) A statement of standards for wear
and use, which must be reasonable, if
the lessor sets such standards; and
(3) A notice regarding wear and use
which shall be substantially similar to
the following: “ wear and use\ you may
be charged for excessive wear and use
based on the lessor’s standard for
normal use.” In a vehicle lease
transaction, the notice shall also specify
any charge for excess mileage.
(i) Security interest. A description of
any security interest, other than a
security deposit disclosed under
paragraph (b) of this section, held or to
be retained by the lessor and a clear
identification of the property to which
the security interest relates.
“You may have to pay a substantial
charge if you end this lease early. For
example, if you terminate this lease at
the end of the first year, you may owe
the lessor [amount]. The actual charge
will vary depending on when the lease
is terminated. Other charges such as for
excessive wear and use may also be
imposed.”
(m) Liability between estimated and
realized values. A statement that the
lessee is liable for the difference
between the estimated value of the
leased property and its realized value at
early termination or at the end of the
lease term, if such liability exists.
(n) Right of appraisal. If the lessee’s
liability at early termination or at the
end of the lease term is based on the
realized value of the leased property, a
statement that the lessee may obtain at
the lessee’s expense, a professional
appraisal, by an independent third party
agreed to by the lessee and the lessor,
of the value that could be realized at
sale of the leased property. The
appraisal shall be final and binding on
the parties.
(o) Liability at end o f lease term based
on estimated value. If the lessee’s
liability at the end of the lease term is
based on the estimated value of the
leased property:
(1) Value at consummation and total
lease obligation. The value of the
property at consummation, the itemized
total lease obligation at the end of the
lease term, and the difference between
them;
(2) Excess liability. A statement about
(j) Penalties and other charges for
delinquency. The amount or the method the rebuttable presumption that the
estimated value of the leased property at
of determining the amount of any
penalty or other charge for delinquency, the end of the lease term is
unreasonable and not in good faith to
default, or late payments, which must
the extent that it exceeds the realized
be reasonable.
(k) Purchase option. A statement of
value by more than three times the
whether or not the lessee has the option average payment allocable to a monthly
period; and that the lessor cannot
to purchase the leased property and:
(l) If at the end of the lease term, the
collect the excess amount unless the
purchase price; and
lessor brings a successful action in court
(2) If prior to the end of the lease
in which the lessor pays the lessee’s
term, the purchase price or the method
attorney’s fees;
for determining the price and when the
(3) Exception for unreasonable wear.
lessee may exercise this option.
A statement that the provision regarding
(1) Early termination— (1) Conditions
the rebuttable presumption and
and disclosure of charges. A statement
attorney’s fees does not apply to the
of the conditions under which the lessee extent the excess of the estimated value
or lessor may terminate the lease prior
over the realized value is due to
to the end of the lease term and the
unreasonable or excessive wear or use;
amount or the description of the method and
(4) Mutually agreeable final
of determining the amount of any
adjustment. A statement that the
penalty or other charge for early
requirements of this paragraph (o) do
termination, which must be reasonable.
not preclude a willing lessee from
(2) Notice and example. A notice
making any mutually agreeable final
about any charge for terminating a
consumer lease early, and an example of adjustment regarding such excess
liability.
a charge for terminating a lease at the
(p) Gross cost. In a closed-end
end of the first year, which shall be
consumer lease, the gross cost, using
substantially similar to the following:
48763
that term, with a brief description such
as “the agreed upon acquisition value of
the vehicle including but not limited to
items such as taxes, fees, service
contracts, and insurance.”
(q) Estimated lease charge. The
estimated lease charge.
(1) Closed-end lease. In a closed-end
lease, the estimated lease charge is
calculated by subtracting the gross cost
from the sum of the total payment due
at lease signing (less a first periodic
payment and any refundable charges),
the total of periodic payments, the total
of other charges payable to the lessor
and the price the leased property may
be purchased for at the end of the lease
term. Where there is no purchase
option, the residual value shall be used
in the calculation.
(2) Open-end lease. In an open-end
lease, the estimated lease charge is
calculated in the same manner set forth
in paragraph (q)(l) of this section,
except that the initial value of the leased
property, the value at consummation, is
substituted for the gross cost, and the
estimated value of the leased property
substitutes for the residual value, to the
extent there is any difference.
(r) Residual value. In a closed-end
consumer lease, the residual value.
(s) Statement referencing
nonsegregated disclosures. A statement
that the lessee should refer to the lease
documents for information on:
conditions for and the amount or
method of determining early
termination charges; charges for
delinquency, default, or late payments;
maintenance responsibilities; any
purchase option prior to the end of the
lease term; insurance; total taxes and
official fees paid; warranties; liability at
the end of the lease term; and any
security interest.
§ 2 1 3 .6 R e n e g o tia tio n s , exten sio n s, and
a s s u m p tio n s .
(a) Renegotiations. A renegotiation
occurs when a consumer lease subject to
this regulation is satisfied and replaced
by a new lease undertaken by the same
consumer. A renegotiation is a new
lease requiring new disclosures, except
as provided in paragraph (d) of this
section.
(b) Extensions. An extension is the
continuation of an existing consumer
lease beyond the originally scheduled
termination date that is agreed to by the
lessor and the lessee, except when the
continuation is the result of a
renegotiation. An extension that exceeds
six months is a new lease requiring new
disclosures, except as provided in
paragraph (d) of this section.
(c) Assumptions. New disclosures are
not required when a consumer lease is
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
assumed by another person, whether or
not an assumption fee is charged.
(d)
Exceptions. New disclosures
under this part shall not be required for
the following, even if they meet the
definition of a renegotiation or an
extension:
(1 ) The addition, deletion, or
substitution of leased property in a
multiple-item lease, provided the
average payment is not changed by more
than 25 percent;
(2) A lease that is extended for not
more than six months on a month-tomonth basis or otherwise;
(3) A reduction in the lease charge;
(4) A substitution of leased property
with property that has a substantially
equivalent or greater economic value,
provided no other lease terms are
changed;
(5) An agreement involving a court
proceeding; or
(6 ) The deferment of one or more
payments, whether or not a fee is
charged.
§ 2 1 3 .7
[R eserved]
§ 2 1 3 .8
A d vertisin g
(a) General rule. No advertisement for
a consumer lease may state that a
specific lease of property at specific
amounts or terms is available unless the
lessor usually and customarily leases or
will lease the property at those amounts
or terms.
(b) Clear and conspicuous standard.
Disclosures required by this section
shall be made clearly and
conspicuously. Any reference to a
charge that is a part of the total of
payments required prior to or at
consummation under § 213.8(d)(2)(ii),
such as the amount of any
downpayment (or that no downpayment
is required), shall not be more
prominent than the disclosure of the
total amount required to be paid by the
lessee prior to or at consummation of
the lease.
(c) Catalogs and multi-page
advertisements. If a catalog or other
multi-page advertisement provides a
table or schedule of the disclosures
required by this section for the leased
property being advertised, the catalog or
multi-page advertisement shall be
considered a single advertisement if,
whenever any lease term not
accompanied by all the required
disclosures is located elsewhere, it
refers to the page or pages on which the
table or schedule appears.
(d) Advertisement of terms that
require additional disclosure.—(1 )
Triggering terms. An advertisement that
states any of the following items shall
contain the disclosures required by
paragraph (d)(2 ) of this section, except
as provided in paragraphs (e) and (f) of
this section:
(1) The amount of any payment;
(ii) The number of required payments;
or
(iii) A statement of any downpayment
or other payment required at
consummation, or that no payment is
required.
(2) Additional terms. An
advertisement containing any item
under paragraph (d)(1 ) of this section
shall state the following items:
(i) That the transaction advertised is
a lease;
(ii) The total amount required to be
paid by the lessee prior to or at
consummation of the lease, or that no
payment is required;
(iii) The number, amounts, due dates
or periods of scheduled payments, and
the total of payments under the lease;
(iv) A statement of whether or not the
lessee has the option to purchase the
leased property and at what price and
time. The method of determining the
price may be substituted for the price in
disclosing that the lessee has the option
to purchase the leased property prior to
the end of the lease;
(v) A statement of the amount or
method of determining the amount of
any liabilities the lease imposes on the
lessee at the end of the term; and
(vi) A statement that the lessee will be
liable for any difference between the
estimated value of the leased property
and its realized value at the end of the
lease term, if the lessee has such
liability.
(e) Alternative disclosures—
merchandise tags. A merchandise tag
setting forth information listed under
paragraph (d)(1 ) of this section need not
contain the disclosures required by
paragraph (d)(2 ) of this section,
provided the tag refers to a sign or
display prominently posted in the
lessor’s showroom. The sign or display
shall contain a table or schedule of the
information required to be disclosed by
paragraph (d)(2 ) of this section.
(f) Alternative disclosures— television
or radio advertisements.—(1 ) Toll-free
number or print advertisement. An
advertisement made through television
or radio containing any information
listed in paragraph (d)(1 ) of this section
complies with paragraph (d)(2 ) of this
section if the advertisement states the
information required by paragraphs
(d)(2 )(i)—(iii) of this section; and:
(i) Lists a toll-free telephone number
established in accordance with
paragraph (f)(2 ) of this section that may
be used by consumers to obtain the
information required by paragraph (d)(2 )
of this section; or
(ii) Refers to a written advertisement
appearing in a publication of general
circulation in the community served by
the media station on which the
advertisement is broadcast, including
the name and the date of the
publication, published beginning three
days before and ending ten days after
the broadcast. The written
advertisement shall include the
information required to be disclosed by
paragraph (d)(2 ) of this section.
(2 ) Establishment of toll-free number.
If a toll-free telephone number is
referred to in a television or radio
advertisement for the purposes of
complying with this section, the lessor
shall:
(i) Establish the toll-free telephone
number no later than the date the
advertisement is broadcast;
(ii) Maintain the telephone number
for no less than ten days, beginning on
the date of the broadcast; and
(iii) Provide the information required
by paragraph (d)(2 ) of this section to any
person who calls. The information shall
be provided orally, or in writing if
requested by the consumer.
§ 2 1 3 .9
R eco rd re te n tio n .
A lessor shall retain evidence of
compliance with the requirements
imposed under this part, other than the
advertising requirements under § 213.8,
for a period of not less than two years
after the date disclosures are required to
be made or action is required to be
taken.
§ 2 1 3 .1 0
R e la tio n to s ta te law s.
(a) Inconsistent state laws. A state law
that is inconsistent with the
requirements of the act and this part is
preempted to the extent of the
inconsistency. If a lessor cannot comply
with a state law without violating a
provision of this part the state law is
inconsistent with the requirements of
the act and this part within the meaning
of section 186(a) of the act and is
preempted, unless the state law gives
greater protection and benefit to the
consumer. A state, through an
appropriate official having primary
enforcement or interpretative
responsibilities for its consumer leasing
law, may apply to the Board for a
preemption determination.
(b) Exemptions.—(1 ) Applications. A
state may apply to the Board for an
exemption from the requirements of the
act and this part for any class of lease
transactions within the state. The Board
will grant such an exemption if the
Board determines that:
(i) The class of leasing transactions is
subject to state law requirements
substantially similar to the act and this
V
>
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
part or that lessees are afforded greater
protection under state law; and
(ii) There is adequate provision for
state enforcement.
(2) Enforcement and liability. After an
exemption has been granted, the
requirements of the applicable state law
(except for additional requirements not
imposed by federal law) will constitute
A -l
the requirements of the act and this part.
No exemption will extend to the civil
liability provisions ofsections 130, 131,
and 185 of the act.
(c)
Procedures and criteria for
preemptions and exemptions. The
procedures and criteria for requesting a
preemption or an exemption
48765
determination are available from the
Board upon request.
Appendix A to Part 213—Model Forms
A -l
Model Open-End or Finance Vehicle
Lease Disclosures
A -2 Model Closed-End or Net Vehicle
Lease Disclosures
A -3 Model Furniture Lease Disclosures
Model Open-End or Finance Vehicle Lease Disclosures
Federal Consumer Leasing Act Disclosure Statement
Date____________________
1. LESSOR(S)
LESSEE(S)
2. Description of leased property
Y ear
Make
M odel
Body style
a. Initial Value of Vehicle..................................................................................................................................
b. Total Payment Due at Lease Signing .............................................................................................................
(Total of the itemized costs should equal the means of paying itemized costs)
Itemized Costs
Means of paying Itemized Costs
Downpayment ................
$_______ Net Trade-in Allowance .....................
$
Registration Fee ............................
$_______ Rebate..................................................
...........................
$_______ Cash.....................................................
$
* First Monthly Payment ..............
$.............
.........................................................
* Refundable Security Deposit.....
$.............
.........................................................
c. Total of Monthly Payments ...........................................................................................................................
Base Payment......................................................................................................................................................
Use/Lease Tax .....................................................................................................................................................
Insurance .............................................................................................................................................................
Vehicle ID#
3.
$.
$.
$
$
Total Monthly Payment ...................................................................................................................................................................................
$ ________
Payment Schedule: The first monthly payment of $________ is due o n _____, followed b y ____ payments o f _____due
on th e ____of each month.
d. Total of Other Charges Payable to Lessor (not included in b or c) .............................................................................................
Disposition Fee ...................................................................................................................................................................................................
$________
$________
................. .................................................................................................................
$ ______
e. Estimated [Retail/Wholesale] Value of V ehicle...................................................................................................................................
$________
(Your liability for this sum may be limited, see item 6)
f. Purchase Option: You h a v e __/do not h ave__ an option to purchase the leased property at the end of the lease
term. If you purchase the property at that time, the price will be $________
g. Total Lease Obligation (Downpayment, trade-in + c + e) ...............................................................................................................
$________
h. Estimated Lease Charge ..............................................................................................................................................................................
$________
(Cost of the lease attributable to interest and other charges obtained by adding b (less less ‘ first monthly payment
and *any refundable charges) + c + d + f (but if no purchase option is available then e) -a ) )
Early Termination. You may have to pay a substantial charge if you end this lease early. For example, if you terminate this lease
at the end of the first year, you may owe the lessor $________ . The actual charge will vary depending on when the lease is terminated.
Other charges such as for excessive wear and use may also be imposed.
Excessive Wear and Use. You may be charged for excessive wear and use of the vehicle based on the lessor’s standards for normal
use. [In addition, you will be charged ________ cents per mile for each mile in excess o f ________ miles shown on the odometer.]
Other Important Terms. Before signing this lease, please read your lease documents for further information about Conditions for
and the Amount or Method of Determining Early Termination Charges, Charges for Delinquency, Default, or Late Payments, Maintenance
Responsibilities, Any Purchase Option Prior to the End of the Lease Term, Insurance, Total Taxes and Official Fees Paid, Warranties,
Liability at the End of the Lease Term, and Any Security Interest, if applicable.
4. Official Fees and Taxes
The total amount you will pay for official and license fees, registration, title and taxes during the lease term is $________ .
5 . Insurance
The following types and amounts of insurance will be acquired in connection with this lease:__________________________________________
We (lessor! will provide the insurance coverage quoted above for a total premium cost of $________ .
____You (lessee) agree to provide insurance coverage in the amounts and types indicated above.
6. End of Term Liability
(a) The estimated value of the vehicle stated in item 3(e) is based on a reasonable, good faith estimate of the value of the
vehicle at the end of the lease term. If the actual value of the vehicle at that time is g r e a t e r than the estimated value, you will
have no further liability under this lease, except for other charges already incurred [and are entitled to a credit or refund of any
surplus]. If the actual value of the vehicle is l e s s than the estimated value, you will be liable .for any difference up to $ ________
(3 times the monthly payment). For any difference in excess of that amount, you will be liable only if
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
1. Excessive use or damage [as described in item 7] [represent)ng-more than normal wear and tear] resulted in an unusually
low value at the end of the term.
2. You voluntarily agree with us after the end of the lease term to make a higher payment.
3. The matter is not otherwise resolved and we win a lawsuit against you seeking a higher payment. Should we bring a lawsuit
against you, we must prove that our original estimate of the value of the leased property at the end of the lease term was reasonable
and was made in good faith. For example, we might prove that the actual was less than the original estimated value, although
the original estimate was reasonable, because of an unanticipated decline in value for that type of vehicle. Unless we prove that
the excess amount owed was the result of excessive use or unreasonable wear and use, we will pay your reasonable attorney’s
fees.
' (b) If you disagree with the value we assign to the vehicle, you may obtain, at your own expense, from an independent third
party agreeable to both of us, a professional appraisal of the ________ value of the leased vehicle which could be realized at sale.
The appraised value shall then be used as the actual value.
7. Standards for Wear and Use
The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle ____________________
8.
Maintenance
[You are responsible for the following maintenance and servicing of the leased vehicle:
_____________________________________________________ :________ .]
[We are responsible for the following maintenance and servicing of the leased vehicle:
9.
Warranties
The leased vehicle is subject to the following express warranties:
10. Early Termination and Default
(a) You may terminate this lease before the end of the lease term under the following conditions:
The charge for such early termination is
(b) We may terminate this lease before the end of the lease term under the following conditions:__________________________________________
Upon such termination we shall be entitled to the following charge(s) for __________________________________ ____________________________
(c)
To the extent these charges take into account the value of the vehicle at the end of the lease term, you have the same
right to a professional appraisal as that stated in item 6(b):
11.
Security Interest
We reserve a security interest of the following type in the property listed below to secure performance of your obligations under
this lease:
12. Late Payments
The charge for late payments is
13.
Option to Purchase
[You have an option to purchase the leased vehicle prior to the end of the term. The price will be $________ /or the method
of determining the price].
[You have no option to purchase the leased vehicle.]
A -2
Model Closed-End or Net Vehicle Lease Disclosures
FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT
D ate_____________________
1. LESSOR(S)
LESSEE(S)
2. Description of leased property
Y ear
3.
M ake
Model
Body style
Vehicle ID#
a. Gross Cost ........................................................................................................................................................................................................
(The agreed upon acquisition value of the vehicle including but not limited to items such as taxes, fees, service
contracts, and insurance. The gross cost is commonly referred to by the industry as the “gross capitalized cost.”)
b. Total Payment Due at Lease Signing ......................................................................................................................................................
(Total of the itemized costs should equal the means of paying itemized costs)
Itemized Costs
Downpayment....................................
Registration Fee .................................
$________
•First Monthly Payment .................
•Refundable Security Deposit ......
...................................
$________
$________
$________
$________
$________
Means of Paying Itemized Costs
Net Trade-in Allowance ..........................
R ebate............................................................
C a s h ................................................................
$.
$________
$________
$________
c. Total of Monthly Payments .......................................................................................................................................................................
Base P aym en t.......................................................................................................................................................................................................
Use/Lease T a x ......................................................................................................................................................................................................
Insurance ...............................................................................................................................................................................................................
$.
$.
$.
$.
$.
Federal Register / Vol. 60, No. 182' / Wednesday, September 20, 1995 / Proposed Rules
$
..............................................................................................................................
Total Monthly Payment ...................................................................................................................................................
Payment Schedule: The first monthly payment of $_______is due on____, followed by___ payments o f_______
due on the___ of each month.
d. Total of Other Charges Payable to Lessor (not included in b or c) ............................................................................
Disposition Fee ................................................................................................................................................................
................... ........................... .....................................................................................
e. Residual Value..................................................................................
(The estimated value of the vehicle at the end of the lease term)
f. Purchase Option: You have_/do not have__ an option to purchase the leased property at the end of the lease
term. If you purchase the property at that time, the price will be
g. Estimated Lease Charge ..................................................................................
(Cost of the lease attributable to interest and other charges obtained by adding b (less ‘ first monthly payment and
*any refundable charges) + c + d + f (but if no purchase option is available, then e) - a))
48767
$.
$.
$.
$
$.
$.
$.
$.
Early Termination. You may have to pay a substantial charge if you end this lease early. For example, if you terminate this lease
at the end of the first year, you may owe the lessor $________ . The actual charge will vary depending on when the lease is terminated.
Other charges such as for excessive wear and use may also be imposed.
Excessive Wear and Use. You may be charged for excessive wear and use of the vehicle based on the lessor’s standards for normal
use. (In addition, you will be charged ________ cents per mile for each mile in excess o f ________ miles shown on the odometer.)
Other Important Terms. Before signing this lease, please read your lease documents for further information about Conditions for
and the Amount or Method of Determining Early Termination Charges, Charges for Delinquency, Default, or Late Payments, Maintenance
Responsibilities, Any Purchase Option Prior to the End of the Lease Term, Insurance,. Total Taxes and Official Fees Paid, Warranties,
Liability at the End of the Lease Term, and Any Security Interest, if applicable.
4. Official Fees and Taxes
The total amount you will pay for official and license fees, registration, title and taxes during the lease term is $________ .
5. Insurance
The following types and amounts of insurance will be acquired in connection with this lease: ___________________________________________
____We (lessor) will provide the insurance coverage quoted above for a total premium cost of $________ .
____You (lessee) agree to provide insurance coverage in the amounts and types indicated above.
6. Standards for Wear and Use
The following standards are applicable for determining unreasonable or excess wear and use of the leased vehicle: _______________________
7. Maintenance
[You are responsible for the following maintenance and servicing of the leased vehicle:
______________________________________________________________ .]
[We are responsible for the following maintenance and servicing of the leased vehicle:
___________________________________________________________________________________ •]
8. Warranties
The leased vehicle is subject to the following express warranties: ____________________
9.
Early Termination and Default
(a) You may terminate this lease before the end of the lease term under the following conditions:
The charge for such early termination is ___________________________________________________
(b) We may terminate this lease before the end of the lease term under the following conditions:
Upon such termination we shall be entitled to the following charge(s) for:
(c)
To the extent that these charges take into account the value of the vehicle at the end of the lease term, if you disagree
with the value we assign to the vehicle, you may obtain, at your own expense, from an independent third party agreeable to both
of us, a professional appraisal of the ________ value of the leased vehicle which could be realized at sale. The appraised value
shall then be used as the actual value.
10. Security interest
We reserve a security interest of the following type in the property listed below to secure performance of your obligations under
this lease:
11. Late Payments
The charge for late payments is:
12.
Option to Purchase
[You have an option to purchase the leased vehicle prior to the end of the term. The price will be $________ / the method
of determining the price.)
[You have no option to purchase the leased vehicle.)
A -3 Model Furniture Lease Disclosures
FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT
D ate____________________
1. LESSOR(S)
LESSEE(S)
2.
Description of leased property
48768
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
Item
Stock #
Color
Mfg.
a. Gross Cost ....................................................................................................................................................................
(The agreed upon acquisition value of the furniture including but not limited to items such as taxes, fees, and in
surance.)
b. Total Payment Due at Lease Signing .................................................................................................. ........................
(Total of the itemized costs should equal the means of paying itemized costs)
Itemized Costs
Means of Paying Itemized Costs
Downpayment..............................
$_______ Net Trade-in Allowance ....................
$_______
Delivery F ee.................................
$_______ Rebate.................................................
$_______
....................
$_______ Cash....................................................
$_______
•First Monthly Payment ..............
$_______
•Refundable Security Deposit .....
$_______
c. Total of Monthly Payments .........................................................................................................................................
Base Payment...............................
$_______
Use/Lease T ax..............................
$_______
Qty.
3.
.............. .......................
$ ______
Total Monthly Payment ...............
$_______
Payment Schedule: The first monthly payment of $_______is due on _______ , followed by_______payments of
$_______due on the____of each month.
d. Total of Other Charges Payable to Lessor (not included in b or c) ............................................................................
Pick-up Charge.............................
5 _______
.............. .......................
S.
$_______
$ ______
e. Residual Value........................................................................................................................................... .................
$_______
(The estimated value of the furniture at the end of the lease term)
f. Purchase Option: You have___ / do not have____ an option to purchase the leased property, at the end of the
lease term. If you purchase the property at that time, the price will be
$_______
g. Estimated Lease Charge ...............................................................................................................................................
$_______
(Cost of the lease attributable to interest and other charges obtained by adding b (less ‘ first monthly payment and
•any refundable charges) + c + d + f (but if no purchase option is available, then e) —a))
Early Termination. You may have to pay a substantial charge if you end this lease early. For example, if you terminate this lease
at the end of the first year, you may owe the lessor $_______. The actual charge will vary depending on when the lease is terminated.
[Other charges such as for excessive wear and use may also be imposed.]
Excessive Wear and Use. You may be charged for excessive wear and use of the furniture based on the lessor’s standards for normal
use.
Other Important Terms. Before signing this lease, please read your lease documents for further information about Conditions for
and the Amount or Method of Determining Early Termination Charges, Charges for Delinquency, Default, or Late Payments, Maintenance
Responsibilities, Any Purchase Option Prior to the End of the Lease Term, Insurance, Total Taxes and Official Fees Paid, Warranties,
Liability at the End of the Lease Term, and Any Security Interest, if applicable.
4. Official Fees and Taxes
The total amount you will pay for official and license fees, registration, title and taxes during the lease term is $_______.
5. Insurance
The following types and amounts of insurance will be acquired in connection with this lease:_
___ We (lessor) will provide the insurance coverage quoted above for a total premium cost of $_
___ You (lessee) agree to provide insurance coverage in the amounts and types indicated above.
6 . Maintenance
[You are responsible for the following maintenance of the leased furniture: _______________
[We are responsible for the following maintenance of the leased furniture:_________
_________________________________-_____________________________•]
7.
8
.
9.
Warranties
The leased furniture is subject to the following express warranties: ______________
Standards for Wear and Use
The following standards are applicable for determining unreasonable or excess wear and use of the leased furniture:
Early Termination and Default
(a) You may terminate this lease before the end of the lease term under the following conditions:
The charge for such early termination is
(b) We may terminate this lease before the end of the lease term under the following conditions:
Upon such termination we shall be entitled to the following charge(s) for:
10. Security interest
We reserve a security interest of the following type in the property listed below to secure performance of your obligations under this
lease: _____________________________ __________________________________________________________________ ____________
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
48769
11. Late Paym ents
The charge for late paym ents is: _____________________________________ _______________
12. Option to Purchase
[You have an option to purchase the leased furniture prior to the end o f the term . T h e price w ill be $_________/ the m ethod
o f determ ining the price).
[You have no option to purchase the leased vehicle.)
Appendix B to Part 213—Federal
Enforcement Agencies
Appendix C to Part 213—Issuance of
Staff Interpretations
T h e follow ing list in d ica te s w h ich federal
agency en forces R egu lation M (12 C F R p art
2 1 3 ) for p a rticu la r c la sse s o f b usin ess. A ny
q uestions co n ce rn in g co m p lia n ce by a
p articu lar b u sin ess sh o u ld be d ire cte d to the
ap p rop riate e n fo rce m e n t ag en cy . T erm s that
are not defined in th e F e d e ra l D eposit
In su ran ce A c t (1 2 U .S .C . 1 8 1 3 (s )) sh all h ave
the m ean ing given to th em in the
In tern ational B an k in g A c t of 1 9 7 8 (1 2 U .S.C .
3 1 0 1 ).
1. National banks and federal branches
O fficials in the B oard ’s Division of
Consum er and Com m unity A ffairs are
authorized to issue o fficial staff
interpretations o f th is Regulation M (12 CFR
part 213). T hese interpretations provide the
formal protection afforded under section
130(f) o f the act. E xcep t in unusual
circu m stan ces, interpretations w ill not be
issued separately but w ill be incorporated in
an official com m entary to Regulation M,
w hich w ill be am ended periodically. No staff
interpretations w ill be issued approving
lessor’s forms, statem ents, or calculation
tools or m ethods.
and federal agencies of foreign banks.
D istrict office o f the O ffice o f the
C o m p troller of th e C u rre n cy for the d istrict
in w h ich the in stitu tio n is loca te d .
2. State member banks, branches and
By order of the Board o f G overnors o f the
Federal Reserve System , Septem ber 1 2 ,1 9 9 5 .
agencies of foreign banks (other than federal
branches, federal agencies, and insured state
branches of foreign banks), commercial
lending companies owned or controlled by
foreign banks, and organizations operating
under section 25 or 25A of the Federal
Reserve Act.
W illiam W. W iles,
F ed eral R eserve B an k servin g the D istrict
in w h ich the in stitu tio n is located .
3. Nonmember insured banks and insured
FEDERAL RESERVE SYSTEM
state branches of foreign banks.
Fed eral D eposit In su ra n ce C o rp o ration
R egional D irecto r for th e region in w h ich the
institu tion is located .
4. Savings institutions insured under the
Savings Association Insurance Fund of the
FDIC and federally chartered savings banks
insured under the Bank Insurance Fund of
the FDIC (but not including state-chartered
savings banks insured under the Bank
Insurance Fund).
O ffice of T h rift S u p e rv isio n regional
d ire cto r for the region in w h ich the
institu tion is loca te d .
5. Federal credit unions.
R egional office o f th e N ation al C redit
U nion A d m in istra tio n servin g th e area in
w h ich the fed eral cre d it u n io n is located .
6. Air carriers.
A ssistan t G eneral C o u n sel for A viation
E n fo rcem en t an d P ro ce e d in g s , D ep artm en t o f
T ran sp o rtatio n , 4 0 0 S even th S tre e t, S .W .,
W ash in gton , DC 2 0 5 9 0 .
7. Those subject to Packers and Stockyards
Act.
N earest P ack ers an d S to ck y a rd s
A d m in istratio n a rea su p erviso r.
8. Federal Land Banks, Federal Land Bank
Associations, Federal Intermediate Credit
Banks, and Production Credit Associations.
Farm C redit A d m in istra tio n , 4 9 0 L ’E n fan t
P laza, S .W ., W ash in g to n , DC 2 0 5 7 8 .
9. All other lessors (lessors o p eratin g on a
lo ca l or regional b asis sh o u ld use the ad d ress
o f th e FT C reg io n al office in w h ich th ey
operate).
D ivision o f C red it P ra ctice s , B u reau o f
C on su m er P ro te ctio n , F e d e ra l T rad e
C om m ission , W ash in g to n , DC 2 0 5 8 0 .
Secretary of the Board.
[FR Doc. 9 5 -2 3 0 4 8 F iled 9 - 1 9 - 9 5 ; 8:45 am]
BILUNG CODE 6210-01-P
12 CFR Part 213
[R eg u latio n M; D o c k e t N o . R -0 8 9 3 ]
Consumer Leasing
Board of Governors of the
Federal Reserve System.
ACTION: Proposed official staff
interpretation.
AGENCY:
The Board is publishing for
comment proposed revisions to the
official staff commentary to Regulation
M which implements the Consumer
Leasing Act. The Consumer Leasing Act
requires lessors to provide uniform cost
and other disclosures about consumer
lease transactions. The Board is issuing
this proposal to revise the commentary
that applies and interprets the
requirements of Regulation M pursuant
to the Board’s policy of periodically
reviewing its regulations and official
interpretations. A proposal to revise
Regulation M is published elsewhere in
today’s issue of die Federal Register.
DATES: Comments must be received by
November 17,1995.
ADDRESSES: Comments should refer to
Docket No. R-0893, and be mailed to
Mr. William W. Wiles, Secretary, Board
of Governors of the Federal Reserve
System, 2 0 th Street and Constitution
Avenue, NW, Washington, DC 20551.
Comments also may be delivered to
Room B- 2 2 2 2 of the Eccles Building
SUMMARY:
between 8:45 a.m. and 5:15 p.m.
weekdays, or to the guard station in the
Eccles Building courtyard on 2 0 th
Street, NW (between Constitution
Avenue and C Street) any time.
Comments may be inspected in Room
MP-500 of the Martin Building between
9 a.m. and 5 p.m. weekdays, except as
provided in 1 2 CFR section 261.8 of the
Board’s rules regarding the availability
of information.
FOR FURTHER INFORMATION CONTACT:
Kyung Cho-Miller, Obrea O. Poindexter,
or W. Kurt Schumacher, Staff Attorneys,
Division of Consumer and Community
Affairs, Board of Governors of the
Federal Reserve System, Washington,
DC 20551, at ( 2 0 2 ) 452-2412 or 4523667; for the hearing impaired only,
contact Dorothea Thompson,
Telecommunications Device for the
Deaf, at (2 0 2 ) 452-3544.
SUPPLEMENTARY INFORMATION:
I. General
The Consumer Leasing Act (CLA), 15
U.S.C. 1667—1667e, governs consumer
leasing transactions and is implemented
by the Board’s Regulation M ( 1 2 CFR
part 213). Effective May 13,1982, an
official staff commentary (Supplement
I-CL - 1 to 12 CFR part 213) was
published to interpret the regulation.
The commentary is designed to provide
guidance to lessors in applying the
regulation to specific transactions and is
intended to be updated periodically to
address significant questions that arise.
It is anticipated that the proposed
revisions to the Regulation M
commentary will be adopted in final
form in the Spring of 1996 with
compliance optional until October 1 ,
1996, the uniform effective date for
mandatory compliance.
II. The Review of Regulation M
The Board’s Regulatory Planning and
Review Program calls for the periodic
review of a regulation and its official
interpretations with four goals in mind:
to clarify and simplify regulatory
language; to determine whether
regulatory amendments are needed to
address technological and other
developments; to reduce undue
regulatory burden on the industry; and
to delete obsolete provisions. The
official staff commentary has never been
48770
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
substantially revised or reviewed. The
Board initially began a review of
Regulation M according to the goals of
its review program in November 1993,
when it published an advance notice of
proposed rulemaking on Regulation M
(58 FR 61035, November 19,1993). In
its advance notice, the Board solicited
comments generally on the provisions of
Regulation M and the CLA, including
coverage, exempt transactions, and
general format and disclosure
requirements. In addition, the Board
identified specific issues about
disclosures of early termination charges,
broadcast media advertising of leases,
and segregation of leasing disclosures
from other information. Most of the
seventy comment letters on the
advanced notice addressed those issues.
The proposed revisions to the regulation
are published elsewhere in today’s issue
of the Federal Register.
III. Discussion of Proposed Revisions
The following discussion covers the
proposed revisions to the Regulation M
commentary section-by-section. Most of
the discussion focuses on new
comments and significant revisions to
existing comments.
Introduction
Comments 1-3,1-4, and 1-6 are
deleted as obsolete or unnecessary.
Section 213.1—Authority, Scope,
Purpose, and Enforcement
Current
1 -2 ......
Proposed
Deleted as unnecessary.
Section 213.2—Definitions
2(a) Definitions
Current
Proposed
2 (a )(2 )-1 ......................
2 (a )(2 )-2 ......................
2 (a )(2 )-1 and - 2 .
2 (a )(2 )-3 .
2 (a )(3 )-1 new.
2 (a )(1 0 )-1 .
2 (a )(1 0 )-4 .
2 (a )(1 0 )-2 .
2 (a )(6 )-3 new.
2 (a )(6 )-4 through 7.
2 (a )(9 )-1 .
2 (a )(1 0)—3.
2 (a )(1 2)—1.
2 (a )(1 4)—1.
2 (a )(1 5 )-1 through
—6.
2 (a )(1 7 )-1 incor
porates list from
the regulatory defi
nition of security in
terest.
2 (a )(1 7 )-2 through
—4.
2 (a )(1 9 )-1 through
—4.
2 (a )(1 9 )-5 and - 6 .
2 (a )(4)—1 ......................
2 (a )(4)—2 ......................
2 (a )(4)—3 ......................
2 (a )(6 )-3 through - 6 .
2 (a )(7)—1 ......................
2 (a )(8)—1 ......................
2 (a )(9)—1 ......................
2 (a )(1 2 )-l ....................
2 (a )(1 4 )-1 through - 6
2 (a )(1 5)—1 through - 3
2 (a )(1 7 )-1 through - 3
2 (a )(1 7 )-4 a n d - 5 .....
Proposed
Current
2(a)(18>—1 through - 3
2 (a )(2 0 )-1 through
2 (b )-1 and - 2 ............
“ 3- <
D eleted.
deposit would also not be included in
the calculation.
2(a)(8) Gross Cost
Comment 2 (a)(2 ) — 1 would be revised
to incorporate examples of
advertisements, currently in
§ 213.2(a)(2).
Proposed comment 2 (a)(8 ) — 1 provides
guidance in making the proposed
disclosure in § 213.5(p). Amounts
consisting of fees and other charges paid
out of pocket at consummation by the
lessee are included in the gross cost
figure.
2(a)(3) Agricultural Purpose
2(a)(10) Lessor
Proposed comment 2(a)(3) — 1
incorporates the portion of current
§ 213.2(a)(3) and the statutory definition
in section 103(s) of the Truth in Lending
Act which describes agricultural
products.
Proposed comment 2 (a)(1 0 ) — 1
incorporates the existing regulatory
definition of “arrange for leasing of
personal property” (in § 213.2(a)(4) and
provisions in the current commentary)
into the proposed commentary under
the definition of lessor.
2(a)(2) Advertisement
2(a)(6) Consumer Lease
Comment 2 (a)(6 ) — 2 would be revised
to provide additional guidance on when
a lease is deemed to exceed four months
and, therefore, covered under the act
and regulation. An example has been
added to clarify that a month-to-month
lease with a penalty for cancelling
within the first year is deemed to be a
consumer lease subject to the act and
regulation.
Proposed comment 2(a)(6)—3 provides
guidance on the total contractual
obligation for purposes of determining
whether a lease is covered under the
regulation, and clarifies that the total
contractual obligation may be different
from the total lease obligation which
applies only to open-end leases.
Comment 2(a)(6)-7, currently
comment 2 (a)(6 )- 6 , would be revised to
add another example of a lease deemed
incidental to a service. The narrow list
of exceptions in the existing
commentary of leases incidental to a
service is exhaustive, rather than
illustrative. Questions have arisen about
Regulation M coverage of cellular
phones leased in conjunction with
obtaining cellular service. Cellular
service providers typically offer
customers the opportunity to lease or
purchase cellular telephones when
subscribing for cellular service. The
leasing of a cellular telephone is not
incidental to obtaining cellular service
and is, thus, covered under the
regulation.
2(a)(7) Estimated Lease Charge
Proposed comment 2(a)(7) — 1 clarifies
that a monthly or other periodic
payment paid at or before
consummation is not included in the
calculation of the estimated lease
charge, as it is reflected in the total
periodic payment disclosure. Any
refundable charge such as a security
Section 213.4— General Disclosure
Requirements
4(a) General requirements
Current
4 (a )-1
Proposed
.........
4 (a ) - 2 .........
4 (a ) - 3 .........
4 ( a j- 5 .........
4 (a )(1 )—1 ....
4 (a )(1 )—2 ....
4 (a )(2 )—1
4 (a )(2 )-2
4 (a )(2 )-3
4 (a )(2) - 4
4 (a )(2)—5
....
....
....
....
....
4 (a )(4 H
....
4 (a )(4 )-2 ....
R evised to adopt “legal obliga
tion” terminology of Regula
tion Z .
M oved to proposed § 2 1 3 .4 (0
of the regulation on minor
variations that m ay be dis
regarded in making disclo
sures.
4 (a )(1 )—1.
Deleted as no longer applica
ble.
4 (a ) - 2 (deleted the word “or
form at”); 4 (a )-3 .
D eleted as no longer applica
ble.
D eleted.
4 (a )(1 )-2 .
4 (a )(1 )-3 .
4 (a )(1 )-4 .
4 (a )(1)—5.
4 (a )(2 )-1 new.
Deleted as unnecessary be
cause of revised position in
proposed § 2 1 3 .4 (a )(5 ).
Deleted as unnecessary be
cause of revised position in
proposed § 2 1 3.4(a )(5 ).
4(a)(2) Segregation o f Certain
Disclosures
Proposed comment 4(a)(2)-l provides
guidance in making the segregated
disclosures required by § 213.4(a)(2).
4(b) Additional Information
Comment 4(b )-l would be revised by
deleting the second sentence.
4(d)(2) Open-End Purchase Option
Lease
Comment 4(d)(2)—1 , currently
comment 4(d)-6, would be revised to
clarify that this paragraph only applies
to open-end leases. No substantive
change is intended.
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
4(e) Effect of Subsequent Occurrence
Proposed comment 4(e)-3
incorporates the first sentence of
footnote 1 of the regulation.
Section 213.5—Content o f Disclosures
All of the comments in § 213.4(g)
would be redesignated according to a
new proposed § 213.5.
Current
Proposed
Deleted as unneces
sary.
5 -1 .
D eleted as unneces
sary.
D eleted as unneces
sary 5 (b )-1 new
(incorporated from
the instructions to
the model form in
the current appen
dix C -2 ).
5 (b )-2 (incorporates
current com ment
2(b )—2).
5 (b )-3 .
5 (c )-1 and - 2 .
4 (g )-1 ............................
4 ( g ) - 2 ............................
4(g)dH .................
4(g) ( 2 H
......................
4 ( g ) ( 2 ) - 2 ......................
4 ( g ) ( 2 > - 3 ......................
4(g)(3)—1 and - 2 .......
4 (g )(4)—1 ......................
4(g )(5)—1 ......................
4 (g )(5 )-2 ......................
5 (d H 5 (e )-1 and - 2 .
D eleted as unneces
sary.
5 (e ) - 3 and - 4 .
5(e )—5.
5(f)—1 and - 2 .
5 (f)-3 new.
5(g)—1 through - 3 .
5(h)—1 5(i)—1.
5 (j)-1 through - 5 .
5 (k )-1 through - 3 .
5 (l)-1 through - 3 ; the
word "capitalized”
in com m ent 2 is de
leted.
5 (l)-4 new.
5(l)—5 new.
5 (n )-1 through - 3 .
5(0 )—1.
5 (0 )0 M .
5(o)(1 ) -2 .
5 (o )-2 .
4 (g )(5 )-3 ......................
4 ( g ) ( 5 M ......................
4(g )(6)—1 and - 2 .......
4(g )(7)—1 through - 3 .
4(g )(8)—1 ......................
4 (g )(9)—1 ......................
4(g) (1 O H through - 5
4 (g )(1 1)—1 throu gh - 3
4 (g )(1 2)—1 throu gh - 3
4 (g )(1 4 )-1
4 (g )(1 5 h 1
4 (g )(1 5 )-2
4 (g )(1 5 )-3
4 (g )(1 5 )-4
4(g )(15> -5
4 (g )(1 5 )-6
through - 3
...................
...................
...................
...................
...................
...................
5(o)(2)-1.
5 (o )(2 )-2 ; the word
“capitalized” is de
leted.
5 (o )(2 )-3 new.
5 (p )-1 new.
5(b) Total Amount Due at Lease
Signing
Proposed comment 5(b)—1
incorporates a definition of “capitalized
cost reduction” from the instructions in
current appendix C -l.
Comment 5(b)—2 would incorporate
the first sentence of current comment
2(b)—2.
5(d) Fees and Taxes
Comment 5(d)—1 is revised to provide
guidance on taxes that should be
disclosed pursuant to this paragraph. If
the tax is payable by the lessor (such as
a gas guzzler tax), but the tax is passed
on to the consumer and the existence of
the tax is indicated in the consumer’s
lease documents—for example on the
lease agreement—or the sticker or tag
affixed to the personal property—then
the tax should be disclosed pursuant to
this paragraph. However, if the
existence of the tax is not indicated, and
the tax is absorbed by the lessor as a
cost of doing business, then the tax
should not be disclosed under this
section.
5(f) Insurance
Proposed comment 5(f)—3 is added to
indicate that this paragraph applies to
voluntary and required insurance
provided in connection with a lease
transaction.
5(1) Early Termination
Proposed comment 5(1)—4 provides
guidance in disclosing a full description
of the method used to determine the
amount of an early termination charge.
A full description of the complete early
termination method must be disclosed
by lessors outside of the segregated
disclosures. However, given the
complexity of the methods involved, a
lessor is permitted—in giving the “full
description” of its early termination
method—to include a reference to the
name of a generally accepted method of
computing the unamortized gross or
capitalized cost portion of its early
termination charge. For example, a
lessor may state that the “constant
yield” method would be utilized in
obtaining the unamortized portion of
the gross cost, but the lessor would also
have to specify how that figure—and
any other term or figure—is used in
computing the total early termination
charge that would be imposed upon the
consumer. A lessor referring to a named
method in this manner must provide a
written explanation of that method if
requested by the consumer.
Proposed comment 5(1)—5 provides
guidance on what value such as the fair
market value or the wholesale value
should be used when calculating the
required example of an early
termination charge based on termination
at the end of the first year.
5(o) Liability at End of Lease Term
Based on Estimated Value
The proposed regulation reformats
this section, currently section
213.4(g)(15), for clarity. The
commentary has been similarly
reformatted.
Proposed comment 5(o)(2)—3 states
the intent of section 183(a) of the CLA
48771
that lessors must pay the lessees’
attorney’s fees in all actions brought by
lessors under this subsection, even if
those actions are decided in favor of the
lessee.
5(s) Statement Referencing
Nonsegregated Disclosures
Proposed comment 5(s)-l provides
guidance in making the proposed new
disclosure referencing and alerting
consumers to read CLA required
disclosures not included among the
segregated disclosures. It is only
necessary to refer to the applicable
items, thus, the lessor may delete
inapplicable items from the disclosure.
Section 213.6—Renegotiations,
Extensions, and Assumptions
Current
Proposed
4 (h )—1 ....
4 (h )—2 ....
6—1.
First sentence moved to regulation; second sentence moved
to 6—1.
M oved to the regulation.
M oved to the regulation.
6(b)—1.
6 (b )-2 new.
6 -2 .
Moved to the regulation.
Moved to the regulation.
Moved to the regulation.
4 (h )-3 ....
4 (h )-4 ....
4 (h )—5 ....
4 (h ) -6
4 (h )—7
4 (h ) -8
4 (h )-9
....
....
....
....
Section 213.6 of the proposed
regulations contain the disclosure rules
governing leases that are renegotiated,
extended or assumed (currently in
section 213.4(h) and the commentary).
Many of the commentary provisions
have been moved to the regulation. For
example, the definitions of a
renegotiation and an extension would
be included in the regulation. (This
change parallels the approach under
Regulation Z for refinancings and
assumptions, section 226.20.) Other
commentary provisions have been
reformatted to conform to the proposed
regulatory changes.
Comment 6(b)-l, currently comment
4(h)—5, would be revised to clarify that
where a consumer lease is extended on
a month-to-month basis for more than 6
months, new disclosures are required at
the beginning of the seventh month, and
also at the start of each seventh month
thereafter. This revision incorporates
into the commentary a longstanding
interpretation originally issued under
leasing provisions that were a part of
Regulation Z (Truth in Lending) prior to
1982.
Proposed comment 6(b)—2 also
incorporates a longstanding
interpretation originally issued under
the pre-1982 leasing provisions in
Regulation Z that disclosures for a
consumer lease, as defined by the
48772
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
regulation, extended on a month-tomonth basis for more than 6 months
should reflect the month-to-month
nature of the transaction.
Section 213.8—A dvertising
Current
Proposed
5(a)—1 ............................
5 ( a ) - 2 ...........................
5(b)—1 ...........................
5(b)—2 ...........................
5(c)—1 ...........................
5 (c )-2 ............................
5(d)—1 ...........................
8(b)
8(a)—1.
8(a)-2.
8(c)—1.
8 (c) - 2 .
8(b)—1.
8(b )-2 new.
8(d)(1)—1.
8(d)(2)—1 new.
8(e)—1.
8 (e )-2 new.
8(f)—1 new.
8(f) ( 1 ) -2 new.
Clear and Conspicuous Standard
Proposed 8 (b) — 2 provides that lease
disclosures must appear on a television
screen for at least five seconds, which
parallels the “five second rule” adopted
by the Federal Trade Commission.
8(e) A ltern ative D isclosures —
M erchandise Tags
Proposed comment 8 (e) — 2 clarifies
that merchandise tags are generally
considered a multiple item lease.
8(f) A ltern ative D isclosures —
Television or Radio A dvertisem ents
8(f)( 1) Toll-Free N um ber or Print
A dvertisem en t
Proposed comment 8 (f)(1 ) — 1 clarifies
that a newspaper circulated nationally
qualifies as a publication in general
circulation.
Section 213.10
R elations to State Laws
Section 213.10 in the proposed
regulation combines and simplifies
current §§213.7 and 213.8. The
comments to these sections have been
deleted as unnecessary.
Appendix A
Model Forms
Under the proposed rule, the model
forms are moved to appendix A.
Comment app. A- 2 would be deleted.
Minor revisions would be made to other
comments in this appendix. For
example, comment app. A -l would be
revised to indicate that changes to the
headings, format, and the content of the
segregated disclosures should be
minimal. Also the definition of a
closed-end lease in comment app. A-3
would be deleted because a definition
would be added in the regulation.
IV. Form of Comment Letters
As discussed above, comment letters
should refer to Docket No. R-0893. The
Board requests that, when possible,
comments be prepared using a standard
courier type-face with a type-size of 1 0
or 1 2 characters per inch. This will
enable the Board to convert Jthe text into
machine-readable form through
electronic scanning, and will facilitate
automated retrieval of comments for
review. Comments may also be
submitted on 3 V2 inch or 5 V4 inch
computer diskettes in any IBMcompatible DOS-based format, but must
be accompanied by an original
document in paper form.
List o f Subjects in 12 CFR Part 213
Advertising, Federal Reserve System,
Reporting and recordkeeping
requirements, Truth in lending.
For the reasons set forth in the
preamble, 12 CFR part 213, as proposed
to be amended by a document published
elsewhere in today’s issue of the
F ed eral Register, is further proposed to
be amended as follows:
P A R T 2 1 3 — C O N S U M E R L E A S IN G
( R E G U L A T IO N M )
1 . The authority citation for part 213
continues to read as follows:
Authority: 15 U.S.C. 1604
2 . Supplement I-CL - 1 to Part 213—
Official Staff Commentary to Regulation
M would be revised to read as follows:
Supplem ent I-C L -1 to Part 213—
O fficial Staff Com m entary to
R egulation M
Introduction
1. Official status. This commentary is the
vehicle by which the staff of the Division of
Consumer and Community Affairs of the
Federal Reserve Board issues official staff
interpretations of Regulation M (12 CFR part
213). Good faith compliance with this
commentary affords protection from liability
under section 130(f) of the Truth in Lending
Act (15 U.S.C. 1640). Section 130(f) protects
lessors from civil liability for any act done or
omitted in good faith in conformity with any
interpretation issued by a duly authorized
official or employee of the Federal Reserve
System.
2. Procedures for requesting
interpretations. Under appendix C of
Regulation M, anyone may request an official
staff interpretation. Interpretations that are
adopted will be incorporated in this
commentary following publication in the
Federal Register. No official staff
interpretations are expected to be issued
other than by means of this commentary.
3. Comment designations. Each comment
in the commentary is identified by a number
and the regulatory section or paragraph that
it interprets. The comments are designated
with as much specificity as possible
according to the particular regulatory
provision addressed. For example, some of
the comments to § 213.4(a) are further
divided by subparagraph, such as comment
4(a“)(l)—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 introduction may be
cited as comments 1-1 through 1-3. An
appendix may be cited as comments app. A 1.
Section 2 1 3 . 1 —Authority, Scope, Purpose,
and Enforcement
1. Foreign applicability. Regulation M
applies to all persons (including branches of
foreign banks or leasing companies located in
the United States) that offer consumer leases
to residents (including resident aliens) of any
state as defined in § 213.2(a)(18). The
regulation does not apply to a foreign branch
of a U.S. bank or leasing company leasing to
a U.S. citizen residing or visiting abroad or
to a foreign national abroad.
Section 2 1 3 . 2 —Definitions
2(a)
Definitions
2(a)(2)
Advertisement
1.
Coverage. Only commercial messages
that promote consumer lease transactions
requiring disclosures are advertisements.
Messages inviting, offering, or otherwise
announcing generally to prospective
customers the availability of consumer
leases, whether in visual, oral, or print
media, are covered by the definition. The
term includes the following:
1. Print media.
ii.
Broadcast media, including radio and
television messages.
iii-. Catalogs and fliers.
iv. Direct mail literature.
v. Printed material on any interior or
exterior sign or display, in any window
display, in any point-of-transaction literature
or price tag which is delivered or made
available to a lessee or prospective lessee in
any manner whatsoever.
vi. Telephone solicitations.
2. E xceptions. The term does not include
the following:
i. Direct personal contacts, such as follow
up letters, cost estimates for individual
lessees, or oral or written communications
relating to the negotiation of a specific
transaction.
ii. Informational material distributed only
to businesses.
iii. Notices required by federal or state law,
if the law mandates that specific information
be displayed and only the information so
mandated is included in the notice.
iv. News articles, the use of which is
controlled by the news medium.
v. Market research or educational materials
that do not solicit business.
3. Persons covered. See the commentary to
§ 213.8(a).
2(a)(3)
Agricultural purpose
1. Agricultural products. Agricultural
products include horticultural, viticultural,
and dairy products, livestock, wildlife,
poultry, bees, forest products, fish and
shellfish, and any products thereof, including
processed and manufactured products, and
any and all products raised or produced on
farms and any processed or manufactured
products thereof.
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
2(a)(6)
1.
Consumer lease
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 primary purpose for a lease,
the lessor is, of course, free to make the
disclosures, and the fact that disclosures are
made in such circumstances is not
controlling on the question of whether the
transaction was exempt. The primary
purpose of a lease is generally determined
before or at consummation and a lessor need
not provide Regulation M disclosures where
there is a subsequent change in primary
usage.
2. Period of time. To be a consumer lease,
the initial term of the lease must be more
than four months. Thus, a lease of personal
property for four months, three months or on
a month-to-month or week-to-week basis
(even though the lease actually extends
beyond four months) is not a consumer lease
and is not subject to the disclosure
requirements of the regulation. A lease with
a penalty for cancelling during the first four
months is considered to have a term of more
than four months. A month-to-month or
week-to-week extension of a lease that was
originally for four months or less is not a
consumer lease, even if the extension
actually lasts for more than four months. See
the comments on § 213.6(b) for guidance on
extensions of covered leases. To illustrate:
i. A month-to-month lease with a penalty
for terminating before one year, such as the
forfeiture of a security deposit, is a consumer
lease covered by this definition.
ii. A three-month lease extended on a
month-to-month basis and terminated after
one year is not a consumer lease covered by
this definition.
3. Total contractual obligation. The term
total contractual obligation includes all
nonrefundable amounts a lessee is
contractually obligated to pay under a lease
for the purpose of determining whether the
lease is covered by this regulation. The total
contractual obligation is not necessarily the
same as the total lease obligation defined in
§213.2(a)(19).
4. Organization. A consumer lease does not
include a lease made to an organization, such
as a corporation or a government agency or
instrumentality. A lease to an organization is
outside the requirements of the regulation
even if the property is used (by an employee,
for example) primarily for personal, family or
household purposes. Likewise, a lease made
to an organization is not a consumer lease
even if it is guaranteed by or subsequently
assigned to a natural person.
5. Credit sale. A lease that meets the
definition of a credit sale in Regulation Z, 12
CFR 226.2(a)(16), is not a consumer lease.
Regulation Z defines a credit sale, in part, as
"a bailment or lease (unless terminable
without penalty at any time by the consumer)
under which the consumer:
i. Agrees to pay as compensation for use a
sum substantially equivalent to, or in excess
of, the total value of the property and
services involved; and
ii. Will become (or has the option to
become), for no additional consideration or
for nominal consideration, the owner of the
property upon compliance with the
agreement.”
6. Safe deposit boxes. A lease of a safe
deposit box is not a consumer lease for
purposes of this regulation.
7. Leases of personal property incidental to
a service. The following leases of personal
property are deemed incidental to a service
and are not consumer leases subject to the
requirements of the regulation:
i. Home entertainment systems requiring
the consumer to lease equipment that enables
a television to receive the transmitted
programming.
ii. Burglar alarm systems requiring the
installation of leased equipment that triggers
a telephone call when a home is burglarized.
iii. Propane gas service where the
consumer is required to lease a propane tank
to receive the service.
2(a)(7)
Estimated lease charge
Advance periodic payment and
refundable charges. A first monthly (or other
1.
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Ford Motor Credit Co. v. Cenance, 452 U.S.
155 (1981). In that case, the U.S. Supreme
Court held that an assignee was a creditor for
purposes of previous Regulation Z because of
its substantial involvement in the credit
transaction.
4. Multiple lessors. See the commentary to
§ 213.4(c).
2(a)(12)
Organization
Coverage. The term includes joint
1.
ventures and persons operating under a
business name.
2(a)(14)
Personal property
Coverage. Whether property is
1.
considered personal property depends on
state or other applicable law. For example, a
mobile home or houseboat may be
considered personal property in one state but
real property in another.
2(a)(l5)
1.
Realized value
General. Realized value is not a required
disclosure. It refers to the value of the
property at early termination or at the end of
the lease term. It may bo 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
2(a)(8) Gross cost
value of the property and its realized value.
1.
Fees and other charges paid at lease
2. Options. Subject to the contract and to
signing. This figure includes all
state or other applicable law, the lessor may
nonrefundable fees and charges required to
choose any of the three methods for
be paid before or at lease signing as well as
calculating the realized value in determining
those fees and charges which are capitalized
the lessee’s liability at the end of the lease
over the lease term.
term or at early termination. If the lessor sells
2(a)(9) Lessee
the property prior to making that
1.
Guarantors. Guarantors are not lessees determination, the price received for the
property is the realized value. If the lessor
for purposes of the regulation.
does not sell the property prior to making
2(a)(10) Lessor
that determination, the lessor may choose
1. Arranger of a lease. To “arrange” for the
either the highest offer or the fair market
lease of personal property means to provide
value as the realized value.
or offer to provide a lease which is or will
3. Exclusions. The realized value may
be extended by another person under a
exclude any amount attributable to taxes.
business or other relationship pursuant to
4. Disposition charges. Disposition charges
which the person arranging the lease (a)
may not be subtracted in determining the
receives or will receive a fee, compensation,
realized value. If the lessor charges the lessee
or other consideration for the service; or (b)
a fee to cover the disposition expenses, the
has knowledge of the lease terms and
fee must be disclosed at consummation
participates in the preparation of the contract under § 213.5(e). Disposition charges may be
documents required in connection with the
estimated in accordance with § 213.4(d), and
lease.
this does not prevent the lessor from
To illustrate:
collecting the actual disposition costs
1. An automobile dealer who, pursuant to
incurred.
a business relationship, completes the
5. Offers. In determining the highest offer
necessary lease agreement before forwarding
for disposition, the lessor need not consider
it to the leasing company (to whom the
offers that an offeror has withdrawn or is
obligation is payable on its face) for
unable or unwilling to perform.
execution is “arranging” for the lease.
6. Appraisals. The lessor may obtain an
ii.
An automobile dealer who, receiving no appraisal of the leased property to determine
fee for the service, refers a customer to a
its realized value. Such an appraisal,
leasing company that will prepare all
however, is not the one addressed in section
relevant contract documents is not
183(c) of the act and § 213.5(n); those
“arranging” for the lease.
provisions refer to the lessee’s right to an
2. Consideration. The term “other
independent professional appraisal.
consideration” used in the definition of
2(a)(17) Security interest and security
arranger in comment 2(a)(10)—1 refers to an
1.
Coverage. The terms include, but are not
actual payment corresponding to a fee or
similar compensation. It does not refer to
limited to, security interests under the
Uniform Commercial Code, real property
intangible benefits, such as the advantage of
mortgages, deeds of trust, and other
increased business, which may flow from the
consensual or confessed liens whether or not
relationship between the parties.
recorded, mechanic’s, materialman’s,
3. Assignees. An assignee may be a lessor
artisan’s, and other similar liens, vendor’s
for purposes of the regulation in
liens in both real and personal property, any
circumstances such as those described in
periodic payment) paid at or before
consummation which is included in the total
periodic payment disclosure and refundable
charges are not included in the calculation of
the estimated lease charge.
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lien on property arising by operation of law,
and any interest in a lease when used to
secure payment or performance of an
obligation.
2. S t a t e o r o t h e r a p p l i c a b l e la w . Other than
those listed, only interests that are security
interests under state or other applicable law
are encompassed by the definition. For
example, any interest the lessor may have in
the leased property falls within this
definition only if it is considered a security
interest under state or other applicable law.
3. D is c lo s a b l e i n t e r e s t s . For purposes of the
regulation, a security interest is an interest
taken by the lessor to secure performance of
the lessee’s obligation. For example, if a bank
that is not a lessor makes a loan to a leasing
company and takes assignments of consumer
leases generated by that company to secure
the loan, the bank’s security interest in the
lessor’s receivables is not a security interest
for purposes of this regulation.
4. I n s u r a n c e . The lessor’s right to
insurance proceeds or unearned insurance
premiums is not a security interest for
purposes of this regulation.
2(a)(19)
Total lease obligation
1. D is c lo s u r e . The total lease obligation is
disclosed under § 213.5(o)(l). It is relevant
only to open-end leases.
2. P e r i o d i c p a y m e n t s ; d i s c l o s u r e
d i s t in g u is h e d . Certain items that may be paid
periodically are not part of the lessee’s total
lease obligation. Therefore, the amount of the
scheduled periodic payments for purposes of
calculating the total lease obligation may be
less than the amount of the periodic
payments disclosed under § 213.5(c).
3. P e r io d ic p a y m e n t s ; i n c l u s i o n s . The total
of scheduled periodic payments under the
lease for purposes of calculating the total
lease obligation is composed of the following
items:
i. Any portion of the periodic payments
attributable to depreciation, cost of money,
and profit.
ii. Taxes in some cases. See the
commentary to § 213.5(o)(l).
iii. The cost of mechanical breakdown
protection contracts.
4. P e r i o d i c p a y m e n t s ; e x c l u s i o n s . The total
of scheduled periodic payments under the
lease for purposes of calculating the total
lease obligation does not include the
following:
i. Any amount not paid periodically.
ii. Any portion of periodic payments
attributable to official fees, registration,
certificate of title, or license fees.
iii. Taxes in some cases. See the
commentary to § 213.5(o)(l).
iv. At the lessor’s option, the capitalized
cost of service contracts and insurance
premiums may be either included or
excluded from this calculation.
5. I n it ia l p a y m e n t s . The following amounts
are not included among the payments at
consummation when calculating the total
lease obligation:
i. Refundable security deposits.
ii. Official fees and charges disclosable
under § 213.5(d).
iii. Other charges disclosable under
§ 213.5(e).
iv.
The cost of a mechanical breakdown
protection contract purchased at
consummation.
6. E s t i m a t e d v a l u e . See the commentary to
§ 213.4(d) regarding the use of estimates and
section 183(a) of the act regarding the criteria
for estimating the value of the leased
property at the end of the lease term.
2(a)(20)
Value at consummation
1. D i s c lo s u r e . The value at consummation
is relevant only to open-end leases and is
disclosed and subtracted from the total lease
obligation under § 213.5(o)(l).
2. T a x e s . The value at consummation
includes taxes paid by the lessor in
connection with the acquisition of leased
property and amortized over the lease term.
See the commentary to § 213.5(o)(l).
3. O t h e r a m o u n t s . The definition of the
value at consummation explicitly permits the
lessor to include a profit or markup (without
separate itemization). The lessor may include
costs of doing business, such as insurance
that the lessor purchases on its own behalf.
See the commentary to § 213.5(f). The lessor
may not include in this amount other items
(such as maintenance or extended warranty
insurance) that are purchased by the lessee.
S e c tio n 2 1 3 .4 — G e n e ra l D is c lo s u re
R e q u ire m e n ts
4(a)
General requirements
1. B a s is o f d i s c l o s u r e s . The disclosures
must reflect the terms of the legal obligation
between the parties. For example:
1. In a three-year lease with a one-year
minimum term after which there is no
penalty for termination, disclosures should
be based on the full three-year term of the
lease. The one-year minimum term is only
relevant to the early termination provisions
of §§ 213.5(1), (m) and (n).
2. C l e a r a n d c o n s p i c u o u s s t a n d a r d . The
clear and conspicuous standard requires that
disclosures be in a reasonably
understandable form. For example, while the
regulation requires no mathematical
progression, the disclosures must be
presented in a way that does not obscure the
relationship of the terms to each other.
Appendix A contains model forms that meet
this standard, although lessors are not
required to use the forms. In addition,
although no minimum typesize is mandated,
the disclosures must be legible, whether
typewritten, handwritten, or printed by
computer.
3. M u l t i p u r p o s e d i s c l o s u r e f o r m s . Lessors
are not precluded from using a multipurpose
disclosure form that enables a lessor to
designate the specific disclosures applicable
to a given transaction, consistent with the
requirement that disclosures be clearly and
conspicuously provided.
4. N u m b e r o f t r a n s a c t i o n s . Lessors have
flexibility in handling lease transactions that
may be viewed as multiple transactions. For
example:
i. When a lessor leases two items to the
same lessee on the same day, the lessor may
disclose the leases as either one or two lease
transactions.
ii. When a lessor sells insurance or other
incidental services in connection with a
lease, the lessor may disclose in one of two
ways: a single lease transaction or a lease and
a credit sale transaction.
4(a)(1)
Form of disclosures
1. F o r m o f d i s c l o s u r e s . In making
disclosures lessors may cross-reference rather
than repeat items that are disclosed among
the segregated disclosures. In addition, when
a required disclosure consists of a total
amount only, lessors need not separately
itemize each component part of the total
charge. Similarly, if a required disclosure
must be separately itemized, a total amount
is not required.
2. I d e n t i f i c a t i o n o f p a r t i e s . While
disclosures must always be made clearly and
conspicuously, lessors are not required to use
the word "lessor” and “ lessee” when
identifying those parties.
3. M u l t i p l e l e s s o r s a n d m u l t i p l e l e s s e e s . In
transactions involving multiple lessors and
lessees, the disclosure statement must
identify all the lessors and lessees; however,
§ 213.4(c) permits a single lessor to make all
the disclosures for a single lessee.
4. L e a s e d is c lo s u r e s in t e g ra te d in le a s e
c o n t r a c t . Contract terms or disclosures that
are not required by the regulation may be
added to the disclosure statement so long as
the required disclosures are made together
and the lessor adheres to the limits of
§ 213.4(b) governing the inclusion of
additional information.
5. L e s s e e ’s s i g n a t u r e . The regulation does
not require the lessee to sign the disclosure
statement, whether disclosures are separately
provided or are part of the lease contract.
Nevertheless, for contract or evidentiary
purposes, the lessor may want a lessee to sign
the disclosure statement or an
acknowledgement of receipt.
4(a)(2)
Segregation of certain disclosures
1.
P e rm is s ib le r e la t e d o r a d d itio n a l
in fo rm a tio n a m o n g s e g r e g a t e d d is c lo s u re s .
The disclosures required to be segregated
under this paragraph must contain only the
information required or permitted to be
included among the segregated disclosures
(see § 213.5 and its commentary for guidance
on information required or permitted in the
segregated disclosures.) The segregated
disclosures in § 213.4(a)(2) may be provided
on a separate document and other CLA
disclosures provided in the lease contract, so
long as all disclosures are given at the same
time.
4(b)
Additional information
1. S t a t e la w d i s c l o s u r e s . If state law
disclosures are not inconsistent with the act
and regulation under § 213.10, in accordance
with the standard set forth in § 213.4(b) for
providing additional information, the lessor
may make those disclosures along with the
nonsegregated disclosures required under the
regulation.
4(c)
Multiple lessors or lessees
1. M u l t i p l e l e s s o r s . If a lease transaction
involves more than one lessor, the lessors
may choose which of them will make the
disclosures. All disclosures for the
transaction must be given, even if the lessor
making the disclosures would not otherwise
have been obligated to make a particular
disclosure.
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
5.
Labelling estimates. Generally, only the
disclosure for which the exact information is
4(d)(1) Standard
unknown is labelled as an estimate.
1.
Time of estimated disclosure. The lessorNevertheless, when several disclosures are
may use estimates to make disclosures if
affected because of the unknown
necessary information is unknown or
information, the lessor has the option of
unavailable at the time the disclosures are
labelling as an estimate either every affected
made. For example:
disclosure or only the disclosure primarily
1. Section 213.5(d) requires the lessor to
affectpd.
disclose the total amount payable by the
4(d)(2) Open-end purchase option lease
lessee during the lease term for official and
1. Understating the estimated value. In
license fees, registration, certificate of title
non-purchase-option open-end leases, the
fees, or taxes. If these amounts are subject to
lessor must not use a value lower than that
indeterminable increases or decreases over
indicated by the best information available
the course of the lease, the lessor may
when disclosing the estimated value of
estimate its disclosures based on the rates or
leased property at the end of the lease term
charges in effect at the time of the disclosure.
under § 213.5(o).
2. Basis of estimates. Estimates must be
made on the basis of the best information
4(e) Effect of subsequent occurrence
reasonably available at the time disclosures
1. Subsequent occurrences. Examples of
are made. The “reasonably available”
subsequent occurrences include:
standard requires that the lessor, acting in
1. An agreement between the lessee and
good faith, exercise due diligence in
lessor to change from a monthly to a weekly
obtaining information. The lessor normally
payment schedule.
may rely on the representations of other
ii. The addition of insurance or a security
parties in obtaining information. For
interest by the lessor because the lessee has
example, the lessor might look to the
not performed obligations contracted for in
consumer to determine the purpose for
the lease.
which leased property will be used, to
iii. An increase in official fees or taxes.
insurance companies for the cost of
iv. An increase in insurance premiums or
insurance, or to an automobile manufacturer
coverage caused by a change in the law.
or dealer for the date of delivery.
v. Late delivery of an automobile caused by
3. Estimated value of leased property at
a strike.
termination. When the lessee’s liability at the
2. Redisclosure. When a disclosure
end of the lease term is based on the
becomes inaccurate because of a subsequent
estimated value of the leased property (see
occurrence, the lessor need not make new
§ 213.5(o)), the estimate must be reasonable
disclosures unless new disclosures are
and based on the best information reasonably
required under § 213.6.
available to the lessor. That standard permits
3. Lessee’s failure to perform. The act is not
a lessor to use a generally accepted trade
violated if a previously given disclosure
publication listing estimated current or
becomes inaccurate when a lessee fails to
future market prices for the leased property,
perform obligations under the contract and a
rather than investing in the most
lessor takes actions that are necessary and
sophisticated computer equipment to
proper in such circumstances to protect its
determine the estimated value at the end of
interest.
the lease term. The lessor should rely on
Section 213.5—Content of Disclosures
other information, its experience, or
reasonable belief, if those sources provide the
1. Other required disclosures. The
best information. For example:
disclosure statement must include the date
i. An automobile lessor offering a threeand identify the lessor and the lessee. See the
year open-end lease intends to assign a
commentary to § 213.4(a)(1). The lessor need
wholesale value to the vehicle at the end of
only be identified by name; an address may
the lease term. The lessor may disclose as an
be provided but is not required.
estimate a wholesale value derived from a
5(b) Total amount due at lease signing
generally accepted trade publication listing
1. Capitalized cost reduction. Capitalized
current wholesale values, if the trade
cost reduction is a payment in the nature of
publication is the best information available.
a downpayment which reduces the amount
ii. Same facts as above, except that the
of the leased property to be amortized over
lessor discloses an estimated value derived
by adjusting the value quoted in the trade
the term of the lease.
2. Consummation. When a contractual
publication because, in its experience, the
relationship is created between the lessor and
trade publication values either understate or
overstate the prices actually received in local
the lessee is a matter to be determined under
used-vehicle markets. The lessor may adjust
state or other applicable law; the regulation
estimated valCtes quoted in trade publications does not make that determination.
based on the lessor’s experience or
3. Fees payable upon delivery. This
reasonable belief that the values will be
provision does not apply to fees paid at
understated or overstated.
delivery, when delivery occurs after
consummation. For example, the lessee
4. Retail or wholesale value. The lessor
agrees to pay registration fees, sales taxes,
may choose either a retail or a wholesale
and a delivery charge in one lump sum on
value in estimating the value of leased
property at termination, provided that choice the date the automobile is delivered,
sometime after consummation. None of these
is consistent with the lessor’s general
practice or intention when determining the
charges is an initial payment under § 213.5(b)
value of the property at the end of the lease
because they are paid after consummation of
term.
the lease. The registration fees and sales taxes
4(d)
Use of estimates
48775
are disclosed under § 213.5(d), and the
delivery charge is disclosed as an “other
charge” under § 213.5(e).
5(c)
Payment schedule
1. Itemization not required. Although the
model forms in appendix A itemize the
components of the periodic payments, a
lessor may but is not required to do so. Some
of the components must be disclosed
separately if their disclosure is required by
other provisions of the regulation, such as
official fees and lessee’s insurance.
2. Periodic payments. The phrase “number,
amount, and due dates or periods of
payments” requires the disclosure of all
payments made periodically. The disclosed
payments must include all amounts, such as
maintenance and insurance charges, that are
paid periodically. In addition, the lessor
must disclose the total of the periodic
payments. In an open-end lease, however, the
lessor may disclose as the total of periodic
payments the sum of the scheduled periodic
payments referred to in § 213.2(a)(19). See
the commentary to § 213.2(a)(19).
5(d)
Fees and taxes
1.
Taxes. Taxes that are included in the
value at consummation are not disclosed
pursuant to this paragraph. See the
commentary to § 213.2(a)(20). Taxes payable
by the lessor that are separately imposed on
the consumer and thus noted in the lease
documentation must be disclosed under this
paragraph. However, taxes payable by the
lessor and absorbed as a cost of doing
business are not disclosed under this
paragraph.
5(e)
Other charges
1. Coverage. Section 213.5(e) requires the
disclosure of charges that are anticipated by
the parties as incident to the normal
operation of the lease agreement.
2. Excluded charges. This section does not
require disclosure of charges that are
imposed when the lessee terminates early or
fails to abide by the lease agreement, such as
charges for:
i. Late payment.
ii. Default.
iii. Early termination.
iv. Deferral of payments.
v. Extension of the lease.
3. Relationship to other provisions. The
other charges mentioned in § 213.5(e) are
charges that are not required to be disclosed
under another provision of § 213.5.
4. Other charges. Examples of charges not
disclosed under this section include:
i. A delivery charge that is paid after
consummation is disclosed as an “other
charge.” A delivery charge that is paid at
consummation, however, is disclosed as part
of the total initial charges under § 213.5(b),
not as an “other charge.”
ii.
XJccasionally, the price of a mechanical
breakdown protection (MBP) contract is
disclosed as an “other charge.” More often,
the price of MBP is reflected in the periodic
payment disclosure under § 213.5(c), in
which case it is not disclosed as an “other
charge.” In states where MBP is regarded as
insurance, however, the cost should be
disclosed in accordance with § 213.5(f), not
as an “other charge.” See the commentary to
§ 213.5(f).
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5.
Lessee’s liabilities at the end of the lease 3. S i m p l e - i n t e r e s t le a s e s . In a simpleterm. Liabilities that the lease imposes upon
interest accounting lease, the additional lease
the lessee at the end of the scheduled lease
term and that must be disclosed under this
section include, but are not limited to,
disposition and “pick-up” charges.
5(f)
Insurance
1. Lessor’s insurance. Insurance that is
purchased by the lessor primarily for its own
benefit, and that is absorbed as a business
expense and not separately charged to the
lessee, need not be disclosed under this
section even if it provides an incidental
benefit to the lessee.
2. 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 § 213.5(f) disclosures. The
lessor may, however, disclose the § 213.5(f)
information in such cases in accordance”with
the additional information provision in
§ 213.4(b).
3. Voluntary Insurance. Insurance not
required but provided by the lessor must be
disclosed under this section.
5(g)
Warranties or guarantees
1. Brief identification. The statement
identifying warranties may be brief and need
not describe or list all warranties applicable
to specific parts such as for air conditioning,
radio, or tires in an automobile. For example,
manufacturer’s warranties may be identified
simply by a reference to the standard
manufacturer’s warranty.
2. Warranty disclaimers. A disclaimer of
warranties is not required by the regulation,
but the lessor may give a disclaimer as
additional information in accordance with
§ 213.4(b).
3. State law. Whether an express warranty
or guaranty exists is determined by state or
other law.
5(h) Maintenance responsibilities
1.
Standards for wear and use. No
disclosure is required for lessors that do not
set standards for wear and use (such as
excess mileage.) See the commentary to
§ 213.5(o).
5(i)
Security interest
1.
Disclosable security interests. See
§ 213.2(a)(17) and accompanying
commentary to determine what security
interests must be disclosed.
5(j) Penalties and other charges for
delinquency
1. Collection costs. The automatic
imposition of collection costs or attorney fees
upon default must be disclosed under
§ 213.5(j). Collection costs or attorney fees
that are not imposed automatically, but are
contingent upon expenditure of amounts in
conjunction with a collection proceeding or
upon the employment of an attorney to effect
collection, need not be disclosed.
2. Charges for early termination. When
default is a condition for early termination of
a lease, default charges must also be
disclosed under § 213.5(1). The § 213.5 (j) and
(1) disclosures may be combined. Examples of
combined disclosures are provided in the
model lease disclosure forms in appendix A.
charge that accrues on the lease balance
when a periodic payment is made after the
due date does not constitute a penalty or
other charge for late payment. Similarly,
continued accrual of the lease 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
§ 213.5(j).
4. E x t e n s i o n c h a r g e s . Extension charges
that exceed the lease charge in a simpleinterest accounting lease or that are added
separately are disclosed under § 213.5(j).
5. R e a s o n a b l e n e s s o f c h a r g e s . Pursuant to
section 183(b) of the act, penalties or other
charges for delinquency, default, or early
termination may be specified in the lease but
only in an amount that is reasonable in light
of the anticipated or actual harm caused by
the delinquency, default, or early
termination, the difficulties of proof of loss,
and the inconvenience or nonfeasibility of
otherwise obtaining an adequate remedy.
5(k)
Purchase option
1.
M a n d a to ry d isc lo su re o f n o p u r c h a s e
o p t io n . Although generally the lessor need
only make the specific required disclosures
that apply to a transaction, it must disclose
affirmatively that the lessee has no option to
purchase the leased property when the
purchase option is inapplicable.
2. E x i s t e n c e o f p u r c h a s e o p t i o n . Whether a
purchase option exists is determined by state
or other applicable law. The lessee’s right to
submit a bid to purchase property at
termination of the lease is not an option to
purchase under § 213.5(k) if the lessor is not
required to accept the lessee’s bid and the
lessee does not receive preferential treatment.
3. P u r c h a s e o p tio n f e e s . A purchase option
fee must be disclosed under this paragraph
unless the lessor discloses the fee under
§ 213.5(e) as an “other charge.”
5(1) Early termination
1. D e fa u lt . When default is also a condition
for early termination of a lease, default
charges must be disclosed under this
paragraph. See the commentary to § 213.5(j).
2. L e s s e e ’s lia b ility a t e a r l y t e r m i n a t i o n .
When the lessee is liable for the difference
between the unamortized cost and the
realized value at early termination, the
amount or the method of determining the
amount of the difference must be disclosed
under this paragraph.
3. R e a s o n a b l e n e s s o f c h a r g e s . See the
commentary to § 213.5(j).
4. D e s c r i p t i o n o f t h e m e t h o d . A full
description of the method of determining any
early termination charge is required by the
act and this regulation. Lessors should
attempt to provide clear and understandable
descriptions to consumers of their early
termination charges. Descriptions that are
full, accurate, and not intended to be
misleading are in compliance with the act
and this regulation, even if complex. (And,
of course, the statute requires that the early
termination charges themselves be
reasonable.) In providing a full description of
an early termination method, a lessor may
use the name of a generally accepted method
of computing the unamortized cost (also
known as the “adjusted lease balance”)
portion of its early termination charges. For
example, a lessor may state that the “constant
yield” method would be utilized in obtaining
the adjusted lease balance, but the lessor
would have to specify how that figure, and
any other term or figure, is used in
computing the total early termination charge
imposed upon the consumer. Additionally, if
a lessor refers to a named method in this
manner, the lessor would have to provide a
written explanation of that method if
requested by the consumer.
5.
Example. The figure used to calculate
the early termination example must be
calculated in the same manner the residual
value is calculated for purposes of § 213.5(r).
Therefore, if a lessor uses the fair market
value to estimate the value of the property at
the end of the lease, the example must also
be calculated using the fair market value.
5(n)
Right of appraisal
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 property, the lessor need not disclose
the lessee’s right to an independent
appraisal. For example:
1. The automobile lessor may reasonably
expect a lessee to return an undented car
with four good tires at the end of the lease
term. Even though it holds the lessee liable
for the difference between a dented car with
bald tires and the value of a car in reasonably
good repair, the lessor is not required to
disclose the lessee’s appraisal right.
2. Lessor’s appraisal. The lessor may obtain
an appraisal of the leased property to
determine its realized value. Such an
appraisal, however, is not the one addressed
in section 183(c) of the act and in § 213.5(o)
of the regulation, and the lessor still must
disclose the lessee’s independent right to an
appraisal under § 213.5(n).
3. Time restriction on appraisal. Neither
the act nor the regulation specifies any time
period in which the lessee must exercise the
appraisal right. The lessor may require a
lessee to obtain the appraisal within a
reasonable time after termination of the lease.
The regulation does not define what is a
“reasonable time.”
1.
5(o) Liability at end of lease term based on
estimated value
1. Coverage. The disclosure under
§ 213.5(o) limiting the lessee’s liability for the
value of the leased property does not apply
at early termination.
2. Leases with a minimum term. If a lease
has an alternative minimum term, the
§ 213.5(o) disclosures governing the liability
limitation are not applicable for the
minimum term. See the commentary to
§ 213.4(a).
5(o)(l) Value at consummation and total
lease obligation
1.
Total lease obligation. The requirement
that the total lease obligation be itemized is
satisfied by disclosing the three components
Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
in the definition of total lease obligation in
§ 213.2(a)(19) with their corresponding
amounts. The lessor may cross-reference the
individual components disclosed in the
segregated disclosures, as done in the model
forms in appendix A -l.
2.
Taxes. Taxes included in the value at
consummation are included in the total lease
obligation. Taxes not included in the value
at consummation may, but need not, be
included in the total lease obligation at the
lessor’s option. See the commentary to
§ 213.2(a)(20).
5(o)(2)
Excess liability
1. Average payment allocable to a monthly
period. The phrase “average payment
allocable to a monthly period” is based on
the periodic payment used to compute the
total lease obligation. See the commentary to
§ 213.2(a)(19).
2. Charges not subject to rebuttable
presumption. The limitation on liability
applies only to liability that is based on the
estimated value of the property at the end of
the lease term. The lessor also may recover
additional charges from the lessee at the end
of the lease term. Examples of such
additional charges include:
i. Disposition charges.
ii. Excess mileage charges.
during that month, no disclosure of those
amounts is necessary.
ii. If a renegotiation involves no initial
charges, no disclosure of initial charges is
necessary.
6(b)
Extensions
1.
T r i g g e r i n g t e r m s . When .triggering terms
appear in lease advertisements, the
additional terms enumerated in § 213.8(d)(2)
(i) through (vi) must also appear. An example
of one or more typical leases with a statement
of all the terms applicable to each may be
used. The additional terms must be disclosed
even if the triggering term is not stated
explicitly, but is readily determinable from
the advertisement. For example, if an
advertisement states a five-year lease term
with monthly payments, the number of
required payments—a triggering term— is
readily apparent.
S e c tio n 2 1 3 .8 — A d v ertisin g
8(d)(2)
8(a)
1.
L e a s e t r a n s a c t io n . An advertisement
must clearly and conspicuously disclose that
the transaction is a lease.
General rule
1. P e r s o n s c o v e r e d . All “persons” must
comply with the advertising provisions in
this section, not just those that meet the
definition of lessor in § 213.2(a)(10). Thus,
automobile dealers, merchants, and others
who are not themselves lessors must comply
with the advertising provisions of the
regulation if they advertise consumer lease
transactions. Pursuant to section 184(c) of the
act, the owner and personnel of the medium
in which an advertisement appears or
through which it is disseminated, however,
5(p) Gross cost
are not subject to civil liability for violations
1.
Basis. The gross cost is the amount that under section 185(b) of the act.
2. " U s u a l l y a n d c u s t o m a r i l y .” This
the periodic and other payments and terms
paragraph does not prohibit the advertising
of the lease are based upon, and is intended
of a single item or the promotion of new
to be used by consumers to compare a lease
with similar lease and non-lease transactions. leasing programs, but prohibits the
advertising of terms that are not and will not
5(s) Statement referencing nonsegregated
be available. Thus, an advertisement may
disclosures
state terms that will be offered for only a
limited period or terms that will become
1.
C o n t e n t . A lessor may delete
available at a future date.
inapplicable items, for example, when the
contract documents contain no information
8(b) Clear and conspicuous standard
regarding a purchase option.
existing leases that are covered by the
requirements of the regulation. It therefore
does not apply to the renegotiation or
extension of leases with an initial term of
four months or less, because such leases are
not covered by the definition of consumer
lease in § 213.2(a)(6). Whether and when a
lease is satisfied and replaced by a new lease
is determined by state or other applicable
law.
2. Inapplicable disclosures. Disclosures
that are inapplicable to the terms of a
renegotiation or extension need not be given.
For example:
i.
If the term for which extension
disclosures are given is one month and the
lessee will pay no official fees and taxes
2.
C r o s s - r e f e r e n c e s . A multiple-page
advertisement is a single advertisement
(requiring only one set of lease disclosures)
if it contains a table, chart, or schedule
clearly stating sufficient information for the
reader to determine the disclosures required
under § 213.8(d)(2) (i) through (vi). If one of
the triggering terms listed in § 213.8(d)(1)
appears on another page of the catalog or
other multiple-page advertisement, that page
must clearly refer to the specific page where
the table, chart, or schedule begins.
1. T i m e o f e x t e n s i o n d i s c l o s u r e s . If a
consumer lease is extended for a specified
term greater than six months, at the time the
extension is agreed to, new disclosures are
required. If the lease is extended on a monthto-month basis and exceeds six months, new
disclosures are required at the
commencement of the seventh month, and at
the commencement of each seventh month
thereafter. If a consumer lease is extended for
several terms, one of which will exceed six
months beyond the originally scheduled
termination date of the lease, new disclosures
are required at the commencement of the
term that will exceed 6 months beyond the
originally scheduled termination date.
2. C o n t e n t o f d i s c l o s u r e s f o r m o n t h - t o m o n t h e x t e n s i o n s . The disclosures for a lease
extended on a month-to-month basis for more
than six months should reflect the month-tomonth nature of the transaction.
iii. Late payment and default charges.
iv. Amounts by which the unamortized
cost exceeds the estimated residual value that
have accrued in simple interest accounting
leases because the lessee has made late
payments.
3. Lessor’s payment of attorney’s fees.
Section 183(a) of the act requires that the
lessor pay the lessee’s attorney’s fees in all
actions brought by the lessor under this
paragraph, whether successful or not.
Section 213.6— Renegotiations, Extensions
and Assumptions
1. Coverage. Section 213.6 applies only to
48777
1. S t a n d a r d . Section 213.8 prescribes no
specific rules for the format of the necessary
disclosures. The terms need not be printed in
a certain type size and need not appear in
any particular place in the advertisement.
2. T e l e v i s i o n a d v e r t i s e m e n t s . In lease
television advertisements, the lease
disclosures required under paragraph 8(d) or
the alternate disclosures under paragraph
8(f)(1) must be visible for at least five seconds
to satisfy the requirements of this paragraph.
8(c)
Catalogs and multi-page advertisements
1.
G e n e r a l r u l e . The multiple-page
advertisements referred to in this paragraph
are advertisements consisting of a numbered
series of pages— for example, a supplement to
a newspaper. A mailing comprised of several
separate flyers or pieces of promotional
material in a single envelope is not a single
multiple-page advertisement.
8(d)(1)
8(e)
tags
Triggering terms
Additional terms
Alternative disclosures—merchandise
1. A l t e r n a t i v e d i s c l o s u r e r u l e . This section
provides a method for using merchandise
tags without including all the required
disclosures on the tags. As an alternative to
this disclosure method, a merchandise tag
may state all the necessary terms on one or
both sides of the tag. If the terms are on both
sides of the tag, both sides must be accessible
to the consumer.
2. M u l t i p l e i t e m le a s e s . Multiple item
leases which utilize merchandise tags
requiring additional disclosures may use the
alternate disclosure rule.
8(f) Alternative disclosures— television or
radio advertisements
8(f)(1) Toll-free number or print
advertisement
1. P u b l i c a t i o n in g e n e r a l c i r c u l a t i o n . A
referral to a written advertisement appearing
in a newspaper circulated nationally, for
example, The Wall Street Journal, meets the
general circulation requirement in
§ 213.8(f)(l)(ii).
2. T o l l - f r e e n u m b e r , l o c a l o r c o l l e c t c a ll s .
In complying with the disclosure
requirement of this paragraph, generally a
lessor must provide a toll-free number for
nonlocal calls made from an area code other
than the one used in the lessor’s dialing area.
Alternatively, a lessor may provide any
telephone number that allows a consumer to
call for information and reverse the phone
charges.
S e c t i o n 2 1 3 . 9 — R e c o r d R e t e n t io n
1.
M a n n e r o f r e t a i n i n g e v i d e n c e . A lessor
must retain evidence of having performed
required actions and of having made required
disclosures. Such records may be retained on
microfilm, microfiche, computer, or by any
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Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules
affect the substance and the clarity of the
forms.
2. Examples of acceptable changes.
i.
Using the first person, instead of the
second person, in referring to the lessee.
i: Using “lessee,” “ lessor,” or names
Appendix A — Model Forms
instead of pronouns.
1.
Permissible changes. Although use of the iii. Rearranging the sequence of the
nonsegregated disclosures.
model forms is not required, lessors using
iv. Incorporating certain state “plain
them properly will be deemed to be in
English” requirements.
compliance with the regulation. The content,
v. Deleting inapplicable disclosures by
format, and headings for the segregated
whiting out, blocking out, filling in “N/A”
disclosures must be substantially similar to
(not applicable) or " 0 ,” crossing out, leaving
those contained in the model forms,
blanks, checking a box for applicable items,
therefore, any changes in the segregated
or circling applicable items. (This should
disclosures should be minimal. Generally,
permit use of multi-purpose standard forms.)
lessors may make certain changes in the
vi. Adding language or symbols to indicate
format or content of the forms and may delete estimates.
any disclosures that are inapplicable to a
3. Model closed-end or net vehicle lease
transaction without losing the act’s
disclosure. Model A -2 is designed for a
closed-end or net lease of a vehicle. Item 9(c)
protection from liability. The changes to the
is included for those closed-end leases in
model forms may not be so extensive as to
other method designed to reproduce records
accurately, as well as paper form. The lessor
need retain only enough information to
reconstruct the required disclosures or other
records.
which the lessee’s liability at early
termination is based on the vehicle’s
estimated value. (See section 213.5(n))
4.
Model furniture lease disclosures. Model
A -3 is a closed-end lease disclosure
statement designed for a typical furniture
lease. It does not include a disclosure of the
appraisal right at early termination that is
required under § 213.5(n) because few
closed-end furniture leases base the lessee’s
liability at early termination on the estimated
value of the leased property. Of course, the
disclosure should be added, if it is
applicable.
By order of the Board of Governors of the
Federal Reserve System, acting through the
Secretary of the Board under delegated
authority.
W illiam W. Wiles,
Secretary of the Board.
(FR Doc. 9 5 -2 3 0 4 9 Filed 9 -1 9 -9 5 ; 8:45 am]
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