Full text of Federal Reserve Bank of New York Circulars : 9167. Regulation M - Consumer Leasing

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 9167
October 21, 1981

"1

REGULATION M — CONSUMER LEASING
Proposed Official Staff Commentary
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:

Following is the text of a statement issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board staff today (October 7,1981 ) made public a proposed official staff commentary intended
to apply and interpret the Board’s Regulation M — Consumer Leasing.
Comment was requested by December 11, 1981.
The Board adopted Regulation M last April to implement the consumer leasing provisions of the Truth in Lending Act
as revised by the Truth in Lending Simplification and Reform Act of 1980. The revision o f Truth in Lending under the
Simplification Act left provisions o f the Act dealing with leasing almost unchanged. When the Board revised its Truth in
Lending Regulation Z to conform to the Simplification Act it removed the leasing provisions of the regulation and
incorporated them in separate Regulation M. Regulation M conforms almost verbatim to the leasing provisions o f
Regulation Z. Lessors are required to conform to the Simplification Act, and regulations under it, by April 1, 1982, but
they may begin to comply at any time before that date.
The proposed commentary is intended to replace a large number of interpretive letters issued under the leasing
provisions of Regulation Z, and it is expected that the Regulation M commentary will be the sole future vehicle for staff
interpretations of the regulations. It will be updated at least annually. An official staff commentary on Regulation Z, as
revised under the Simplification Act, has just been published in final form. This does not touch on leasing.
Creditors conforming to the commentary in its final form will be protected from liability under the Truth in Lending
Act. In keeping with the Board’s desire to minimize regulatory burdens, the staff commentary on Regulation M has
departed as little as possible from the substance of outstanding interpretive letters. It concentrates on interpretations of
broad applicability. Changes have been made in the three following instances:
— When a statutory change has resulted in a new or different regulatory provision (for example, Comment 4 (c )-1 on
the treatment of multiple lessors).
— When Supreme Court decisions have interpreted provisions of the act or regulation (for example, Comment
2 (a)(8)-1 on the definition of “ lessor” ).
— When an area of concern to consumers or lessors can be profitably addressed, and the benefit o f adding a new
interpretation outweighs any burden (for example, Comments 4 (h )-1 and 4(h)-3 on renegotiations and extensions).
Interpretations have been dropped if they have been outmoded by circumstance or the passage o f time, if they repeat
information found elsewhere, or if they deal with issues of civil liability. The staff believes that civil liability is
inappropriate for regulatory handling.
The staff welcomes comment on any aspect of the proposed commentary, and commenters may focus only on issues
of particular interest to them without addressing the entire commentary. Comment on the staff’s decision to retain the
substance of existing interpretations is of particular interest. The staff will consider any proposed additional material for
the commentary, but will not consider proposals for change in Regulation M.
The attached notice summarizes the intent and formation of the proposed commentary, and lists its content. The full
text may be obtained from the Federal Reserve Bank or the Division of Consumer and Community Affairs o f the Board.

Printed on the following pages is a summary of the proposed official staff commentary. The complete text of the
proposed commentary has been published in the October 13, 1981 issue of the F e d e r a l R eg ister, and will be made
available upon request directed to the Circulars Division of this Bank.
Comments on the proposal should be submitted by December 11, 1981, and may be sent to our Consumer
Affairs and Bank Regulations Department.




A

nthony

M.

S o lom on,

President.

FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Reg. M; CL-1]
Proposed Official Staff Commentary
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Proposed official staff interpretation.

SUMMARY: In accordance with 12 CFR 213.1(d), the Board's staff is publishing
for comment a proposed official staff commentary to Regulation M. The com­
mentary applies and interprets the requirements of the regulation and is
intended to replace individual Board and staff interpretations. In final form,
it will be an official staff interpretation providing creditors with protection
under § 130(f) of the Truth in Lending Act.
DATE:

Comments must be received on or before December 11, 1981.

ADDRESS: Comments should include a reference to CL-1 and should be mailed to
the Secretary, Board of Governors of the Federal Reserve System, Washington,
D.C. 20551, or delivered to Room B-2223, 20th and Constitution Avenue, N.W.,
Washington, D.C. 20551, between 8:45 a.m. and 5:15 p.m. Comments regarding
each section should begin on a separate page. Comments may be inspected in
Room B-1122 between 8:45 a.m. and 5:15 p.m.
FOR FURTHER INFORMATION CONTACT: Barbara Ranagan or Steven Zeisel, Staff
Attorneys (202-452-3667), Division of Consumer and Community Affairs, Board
of Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: (1) Introduction. The Board adopted Regulation M
(46 FR 20949), effective April 1, 1981, to implement the consumer leasing provi­
sions of the Truth in Lending Act. The leasing rules were formerly contained
in Regulation Z, 12 CFR 226. Compliance with the new regulation becomes man­
datory on April 1, 1982. Until that time, lessors may comply with either
Regulation M or the previous version of Regulation Z.
The Truth in Lending Simplification and Reform Act (Title VI of the
Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L.
96-221) made revisions to Truth in Lending, but it affected consumer leasing
only slightly. When Regulation Z was revised earlier this year to implement
the amended act, the leasing rules were removed and consolidated as Regula­
tion M. Apart from a few minor changes necessitated by the amendments to
the act, Regulation M adopted almost verbatim the leasing rules of Regula­
tion Z.




-

- 2 -

The Board suggested that Congress simplify the Consumer Leasing
Act in the near future. At the present time, however, congressional amendments
to the act do not appear imminent. Because the Board and staff interpretations
of previous Regulation Z will expire when compliance with Regulation M becomes
mandatory (April 1, 1982), the Board's staff is publishing in proposed form a
commentary that incorporates the interpretations.
The commentary, in its final form, will replace the individual opinion
letters that were issued under previous Regulation Z as the vehicle for staff
interpretations. It will concentrate on material of general application for
use by the widest possible audience and will be updated annually or more often
as the need arises.
In keeping with the Board's desire to avoid unnecessary regulatory
changes, the proposed commentary is based largely on the existing staff opinion
letters to previous Regulation Z. The staff has added new interpretations or
altered existing interpretations as infrequently as possible. The categories
in which such changes have been made can be summarized as follows:
°

When a statutory change has resulted in a new or different regula­
tory provision (for example, Comment 4(c)-1 on the treatment of
multiple lessors).

o

When recent Supreme Court decisions have interpreted provisions
of the act or regulation (for example, Comment 2(a)(8)-l on the
definition of "lessor").

o

When an area of concern to consumers or lessors can be profitably
addressed, and the benefit of adding a new interpretation outweighs
any burden (for example, Comments 4(h)-l and 4(h)-3 on renegoti­
ations and extensions).

The proposed commentary adopts the substance of most of the individual
leasing interpretations issued under previous Regulation Z. However, interpre­
tations have not been incorporated if they repeat information found elsewhere,
if they have been rendered valueless by the passage of time, or if they deal
with facts that are unique or too particular to warrant treatment in the new
commentary. In a few instances, the previous interpretations dealt with issues
of civil liability, such as the applicability of the three-monthly payment limi­
tation of § 183 of the act. These interpretations have not been incorporated
in the proposed commentary because the staff believes that liability issues are
inappropriate for regulatory treatment.
Comment is welcome on both the substance of the material and the for­
mat in which it is presented. Commenters are encouraged to focus on material
of particular interest to them; they need not address every provision. The
staff will consider for inclusion in the commentary any material appropriate
for a staff interpretation of this scope. No comments that have the effect of
revising or eliminating any requirements of the regulation itself will be consi­
dered. The staff particularly solicits comments on its decision to retain the




- 3 -

substance of existing interpretations whenever feasible. To-expedite analysis
of the comments, commenters are requested to identify portions of the commentary
according to section and paragraph numbers and to begin discussion of each sec­
tion on a separate page. After consideration of comments and possible revision
of the commentary, the staff expects to issue official staff interpretation
CL-1 in final form in the Federal Register.

*

*

*

*

*

[NOTE: The complete text of the proposed commentary can be obtained from any
Federal Reserve Bank or from the Division of Consumer and Community Affairs,
Board of Governors of the Federal Reserve System, Washington, D.C. 20551.]







CONSUMER LEASING
PROPOSED OFFICIAL STAFF COMMENTARY
(Regulation M)

Reprinted from Federal Register
Vol. 46, No. 197
October 13, 1981

30380

Federal Register / Vol. 46. No. 197 / Tuesday, October 13, 1981 / Proposed Rules

FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Reg. M; CL-11
Consumer Leasing; Proposed Official
Staff Commentary
agency : Board of Governors of the
Federal Reserve System.
action : Proposed official staff
interpretation._____
summary : In accordance with 12 CFR
213.1(d), the Board’s staff is publishing
for comment a proposed official staff
commentary to Regulation M (Consumer
leasing). The commentary applies and
interprets the requirements of the
regulation and is intended to replace
individual Board and staff
interpretations. In final form, it will be
an official staff interpretation providing
creditors with protection under section
130(f) of the Truth in Lending A c t
date : Comments must be received on or
before December 11,1981.
address : Comments should include a
reference to CL-1 and should be mailed
to the Secretary, Board of Governors of
the Federal Reserve System,
Washington, D C. 20551, or delivered to
Room B-2223, 20th and Constitution
Avenue, N.W., Washington, D.C. 20551,
between 8:45 a.m. and 5:15 p.m.
Comments regarding each section
should begin on a separate page.
Comments may be inspected in Room B 1122 between 8:45 a.m. and 5:15 p.m.
for further information contact :

Barbara Ranagan or Steven Zeisel, Staff
Attorneys (202-452-3667), Division of
Consumer and Cummunity Affairs,
Board of Governors of the Federal
Reserve System, Washington, D.C.
20551.

SUPPLEMENTARY INFORMATION: (1)
Introduction. The Board adopted
Regulation M (46 FR 20949), effective
April 1,1981, to implement the consumer
leasing provisions of the Truth in
Lending Act. The leasing rules were
formerly contained in Regulation Z, 12
CFR Part 226. Compliance with the new
regulation becomes mandatory on April
1.1982. Until that time lessors may




comply with either Regulation M or the
previous version of Regulation Z.
The Truth in Lending Simplification
and Reform Act (Title VI of the
Depository Institutions Deregulation and
Monetary Control Act of 1980, Pub. L.
98-221) made revisions to Truth in
Lending, but it affected consumer
leasing only slightly. When Regulation Z
was revised earlier this year to
implement the amended a c t the leasing
rules were removed and consolidated as
Regulation M. Apart from a few minor
changes necessitated by the
amendments to the a c t Regulation M
adopted almost verbatim the leasing
rules of Regulation Z.
The Board suggested that Congress
simplify the Consumer Leasing Act in
the near future. At the present time,
however, congressional amendments to
the act do not appear imminent. Because
the Board and staff interpretations of
previous Regulation Z will expire when
compliance with Regulation M becomes
mandatory (April 1,1982), the Board’s
staff is publishing in proposed form a
commentary that incorporates the
interpretations.
The commentary, in its final form, will
replace the individual opinion letters
that were issued under previous
Regulation Z as the vehicle for staff
interpretations. It will concentrate on
material of general application for use
by the widest possible audience and will
be updated annually or more often as
the need arises.
In keeping with the Board’s desire to
avoid unnecessary regulatory changes,
the proposed commentary is based
largely on the existing staff opinion
letters to previous Regulation Z. The
staff has added new interpretations or
altered existing interpretations as
infrequently as possible. The categories
in which such changes have been made
can be summarized as follow:
• When a statutory change has
resulted in a new or different
regulatory provision (for example,
Comment 4(c)— on the treatment of
1
multiple lessors).
• When recent Supreme Court
decisions have interpreted
provisions of the act or regulation
(for example. Comment 2(a)(8)— on
1
the definition of “lessor”).
• When an area of concern to
consumers or lessors can be
profitably addressed, and the
benefit of adding a new
interpretation outweighs any
burden (for example, Comments
4(h)— and 4{h)-3 on renegotiations
1
and extensions).
The proposed commentary adopts the
substance of most of the individual

leasing interpretations issued under
previous Regulation Z. However,
interpretations have not been
incorporated if they repeat information
found e!sewhere, if they have been
rendered valueless by the passage of
time, or if they deal with facts that are
unique or too particular to warrant
treatment in the new commentary. In a
few instances, the previous
interpretations dealt with issues of civil
liability, such as the applicability of the
three-monthly payment limitation of
section 183 of the act. These
interpretations have not been
incorporated in the proposed
commentary because the staff believes
that liability issues are inappropriate for
regulatory treatment.
'
Comment is welcome on both the
substance of the material and the format
in which it is presented. Commenters
are encouraged to focus on material or
particular interest to them; they need
not address every provision. The staff
will consider for inclusion in the
commentary any material appropriate
for a staff interpretation of this scope.
No comments that have the effect of
revising or eliminating any requirements
of the regulation itself will be
considered. The staff particularly
solicits comments on its decision to
retain the substance of existing
interpretations whenever feasible. To
expedite analysis of the comments,
commenters are requested to identify
portions of the commentary according to
section and paragraph numbers and to
begin discussion of each section on a
separate page. After consideration of
comments and possible revision of the
commentary, the staff expects to issue
official staff interpretation CL-1 in final
form in the Federal Register.
(2) Authority. 15 U.S.C. 1640(f).
PROPOSED OFFICIAL STA FF
COMMENTARY— C L-1
Introduction
1.
O fficial 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, effective April 1,1981.
Good faith compliance with this
commentary affords protection from
liability under section 130(f) of the Truth
in Lending Act. Section 130(f) (15 U.S.C.
1640) 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.

Federal Register / Vol, 46. No. 197 / Tuesday. October 13. 1981 / Proposed Rules
Section 213.1—G eneral Provisions
2. P roced u res fo r requ estin g
in terp retation s. Pursuant to § 213.11 dl of
1. Foreign applicability. The
the regulation, anyone may request an
regulation applies to all persons
official staff interpretation.
(including branches of foreign banks or
Interpretations that are adopted will be
leasing companies located in the United
incorporated in this commentary
States) that extend consumer leases to
following publication in the Federal
residents (including resident aliens) of
Register. No official staff interpretations
any state as defined in § 213.2(a). Tlie
are expected to be issued other than by
regulation does not apply to a foreign
means of this commentary.
branch of a U.S. bank or leasing
3. Status o f previous interpretations.
company leasing to a U.S. citizen
Ail statements and opinions issued by
residing or visiting aboard or to a
the Federal Reserve Board and its staff
foreign national abroad.
interpreting previous Regulation Z
2. Issuance o f s ta ff interpretations.
remain effective until April 1,1982, only
This commentary is the method by
insofar as they interpret that regulation.
which the staff provides interpretations
When compliance with Regulation M
that afford formal protection under
becomes mandatory on April 1,1982, the
section 130(f) of the act. This
Board and staff interpretations of the
commentary may be amended
previous Regulation Z leasing provisions
periodically.
will be entirely superseded by
References
Regulation M and this commentary
except with regard to liability under the
Statute: Sections 102(b), 105, and
previous regulation.
130(f).
4. R ules o f construction. Lists that
Previous regulation: § 220.1^appear in the commentary may be
1981 changes: None.
exhaustive or illustrative; the
appropriate construction should be clear
Section 213.2—D efinitions an d R ules o f
from the context. In most cases,
Construction
illustrative lists are introduced by
2(a) D efinitions.
phrases such as “including, but not
2(a)(2) “A dvertisem ent”.
limited to,” “among other things,” “for
1. G eneral coverage. Only commercial
example," or “such as.”
messages that promote consumer lease
5. Comment designations. Each
transactions requiring disclosures are
comment in the commentary is
advertisements. Messages inviting,
identified by a number and the
offering, or otherwise announcing
regulatory section or paragraph that it
interprets. The comments are designated generally to prospective customers the
availability of consumer leases, whether
with as much specificity as possible
in visual, oral, or print media, are
according to the particular regulatory
covered by the definition. The list of
provision addressed. For example, the
examples in the definition is not
comments to § 213.8 are designated as
exhaustive; telephone solicitations and
Comments 8-1 through 8-3, while the
comments to § 213.4 are further broken , letters sent to customers as part of an
organized solicitation of business, for
down and designated according to the
example, are also advertisements. The
particular subsection addressed, such as
term does nof ^include the following:
Comment 4(a)(2)-l and Comment 4(h)-2.
This introduction may be cited as
• Direct personal contacts, such as
Comments 1-1 through 1-6. The
follow-up letters, cost estimates for
appendices may be cited as, for
individual lessees, or oral or written
example, Comments App. C -l and App.
communications relating to the
C-2.
negotiation of a special transaction.
_ 0. C ross-referen ces. The following
• Informational material distributed
cross-references to related material
only to business entities.
appear at the end of each section of the
• Notices required by federal or state
commentary: (1) “Statute”— those
law, if the law mandates that
sections of the Truth in Lending Act on
specific information be displayed
which the regulatory provision is based;
and only the information so
(2) “Previous regulation”—parallel
mandated is included in the notice.
provisions in previous Regulation Z; and
• News articles, the use of which is
(3) “1981 changes”—a brief description
controlled by the news medium.
of the major regulatory changes made
• Market research or educational
when the leasing rules were moved from
materials that do not solicit
previous Regulation Z to Regulation M.
business.
Where appropriate, a fourth category
2. Persons covered. See the
("Other sections”) provides crosscommentary to § 213.5(a).
references to other provisions in the
2(a)(4) “Arrange fo r lea se o f p erson al
regulation necessary to understand that
p roperty”. .
section.




50381

1. G eneral. The definition of lessor in
§ 213.2(a)(8) includes one who regularly,
in the ordinary course of business,
arranges for the leasing of personal
property. One example of an arranger is
an automobile dealer who completes the
necessary lease agreement before
forwarding it to the leasing company (to
whom the obligation is payable on its
face) for execution. When there are
multiple lessors, § 213.4(c) discusses
who must make disclosures.

2(a)(6) “C on su m erlease”.
1. Prim ary purposes. A lessor must
determine in each case if the leased
property will be used primarily for
personel, 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. The
fact that disclosures are made in such
circumstances is not controlling on the
question of whether the transaction was
exempt.
2. P eriod o f time. To be a consumer
lease, the initial term of the lease must
be more than 4 months. Thus, a lease of
personal property for 4 months, 3
months or on a month-to-month or
week-to-week basis (even though the
lease actually extends beyond 4 months)
is not a consumer lease and is not
subject to the disclosure requirements of
the regulation. A lease with a penalty
for canceling during the first 4 months ia
considered to have a term of more than
4 months. A month-to-month or week-toweek extension of a lease that was
originally for 4 months or less is not a
consumer lease, even if the extension
actually lasts for more than 4 months.
For example, a 3 month lease extended
on a month-to-month basis and
terminated after 1 year does not require
*consumer lease disclosures.
3. Organization. A consumer lease
does not include a lease made to an
organization, as defined in § 2113.2(a)(9).
A lease to an organization is outside the
requirements of the regulation even if
the property is used (by an employee,
for example) primarily for personal,
family or household purposes. Likewise,
a lease made to an organization is not a
consumer lease even if it is
subsequently assigned to a natural
person.
4. 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 (1) Agrees to pay as
compensation for use a sum
substantially equivalent to, or in excess
of, the total value of the property and

50382

Federal Register / Vol. 46, No. 197 / Tuesday, October 13, 1981 / Proposed Rules

services involved; and (2) Will become
(or ha3 the option to become), for no
additional consideration or for nominal
consideration, the owner of the property
upon compliance with the agreement.”

2(a)(8) "Lessor”.
1.
A ssignees. An assignee may be a
lessor in certain circumstances. For
example:
• An automobile dealer and a bank
have a business relationship in
which the bank supplies the dealer
with lease contracts that are
initially payable to the dealer and
provide for the immediate
assignment of the obligation to the
bank, The dealer and the lessee
execute the contract only after the
bank approves the
“creditworthiness" of the lessee.
Both the dealer and the bank are
lessors for purposes of the
regulation. Under § 213.4(a)(2), both
the dealer and the bank must be
identified on the disclosures.

2(a)(9) “Organization ”.
1.
Joint venture. The term
"organization” includes joint ventures.

2(a)(12) “P ersonal property”.
1.
Coverage. What is personal
property may differ depending on state
law. For example, a mobile home or
houseboat may be considered personal
property in one state but real property in
another.
2(aJ(14) "R ealized value”. ' 1. G eneral. Realized value is not a
required disclosure. It refers to the value
of the property at early termination of at
the end of the lease term. Realized value
is relevant only to leases in which the
lessee’s liability at early termination or
at the end of the lease term is the
difference between the estimated value
of the property and its realized value.
2. Options. At the end of the lease ^
term or at early termination the lessor
may choose any of the 3 methods for
determining realized value. If the lessor
sells the property, the price received for
the property is the ralized value. If the
lessor does not sell the property, the
lessor may choose either the highest
offer of the fair market value as the
ralized value.
3. Exclusions. The realized value may
exclude any amount attributable to
taxes.
. 4. D isposition charges. If the lessor
charges the lessee a fee to cover the
disposition expenses, the fee must be
disclosed at consummation under
§ 213.4(g)(5) and may not be subtracted
in determining the realized value.
5. Offers. In determining the highest
offer for disposition, the lessor need not
consider offers that have been
withdrawn or reneged upon.




6.
A ppraisal. The lessor may obtain
an apprasial 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 § 213.4(g)(14); those provisions refer
to the lessee’s right to an independent
professional appraisal.

2(a)(15) “Security in terest”.
1. Coverage. The list of security
interests in the definition is not
exhaustive. Beyond those mentioned,
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 the state or other
applicable law.
2. Insurance. The lessor’s right to
insurance proceeds of unearned
insurance premiums is not a security
interest for purposes of this regulation.

2(a)(17) ‘T otal lea se obligation ”.
1. D isclosure* The total lease

fees, registration, certificate of title,
or license fees.
• Any poriton of the periodic
payments attributable to
maintencance or insurance (except
the capitalized cost of a mechanical
breakdown protection contract).
5.
In itial paym ents. The following
amounts are not included among the
payments at consummation when
calculating the total lease obligation:
• Refundable security deposits.
• Official fees and charges
disclosabie under § 213.4(g)(4).
• "Other charges” disclosabie under
§ 213.4(g)(5).
• The cost of a mechanical
breakdown protecton contract
purchased at consummation.
0. E stim ated value. In calculating the
total lease obligation, the lessor must
estimate the value of the leased property
at the end of the lease term.

2ja)(18) “Value at consum m ation”.
1. D isclosure. Value at consummation,

as defined by this section, is required by
obligation is disclosed under
§ 213.4(g)(15)(i) to be disclosed and
§ 213.4(g)(15)(i). It is relevant only to sosubtracted from the total lease
called open-end leases, in which the
obligation.
lessee’s liability at the end of the lease
2. Taxes. If the lessor pays a tax at
term is based on the difference between
consummation, the amount of the tax is
the estimated value of the leased
included in the value at consummation.
property of its realized value.
If the lessor does not pay a tax at
2. P eriodic paym ents: D isclosure
consummation, the tax is not included in
distinguished. The amount of the
the value at comsummation. See the
scheduled periodic payments for
commentary to § 213.4(g)(15).
purposes of calculating the total lease
3. O ther amounts. The definition of
obligation may be less than the amount
the value at consummation explicitly
of the periodic payments disclosed
permits the lessor to include a profit or
under $ 213.4(g)(3) because certain items
markup (without separate itemization).
that may be paid periodically are not
part of the lessee’s total lease obligation. Aside from the inclusion of tax in
certain cases, the lessor may not include
3. P eriodic paym ents: Inclusions. The
in this amount other items (such as
toted of scheduled periodic payments
maintenace or extended warranty
under the lease for purposes of
insurance), even if they are provided or
calculating the total lease obligation is
paid for by the lessor.
composed of the following:
2(b) R ules o f construction.
• Any portion of the periodic
1. Footnotes. Material that appears in
payments attributable to
a footnote has the same legal weight as
depreciation, cost of money, and
material in the-body of the regulation.
profit.
2. Consummation. Whether a
• The capitalized cost of a
contractual relationship is created
mechanical breakdown protection
between the lessor and the lessee is
contract
determined under state or other
• Taxes, if paid by the lessor initially
applicable law.
and capitalized over the lease term.
(Taxes that are not capitalized but .
References
paid periodically by the lessee may
Statute: Sections 103(g) and 181.
be included at the lessor’s option.
Previous regulation: § 226.2
See commentary to § 213.4(g)(15).)
1981 changes: “Agricultural purpose”
4. P eriodic paym ents: Exclusions. The
has been slightly revised to conform to
total of scheduled periodic payments
the amended act.
under the lease for purposes of
calculating the total lease obligation
Section 213.3—Exem pted Transactions
does not include the following:
References
• Any amount not paid periodically.
• Any portion of the periodic
Statute: Section 105(a).
payments attributable to official
Previous regulation: § 226.3(f).

Federal Register / Vol. 46, No. 197 / Tuesday. October 13, 1981 / Proposed Rules
1981 ch an g es: None.

Section 213.4—D isclosures
4(a) G eneral requirem ents.
Paragraph 4(a)(1).
1. Clearly, conspicuously and in
m eaningful sequ en ce. This standard
requires that disclosures be in a
reasonably understandable form. For
example, while that regulation requires
no particular mathematical progression
or format, the disclosures must be
presented in a way that does not
obscure the relationship of the terms to
each other. Appendix C contains model
forms that meet this standard, although
lessors are not required to use these
forms. The requirement that disclosures
be made “clearly and conspicuously”
does not mean that they must be more
conspicuous than other terms in a
combined contract-disclosure statement,
nor does it preclude the use of a multi­
purpose disclosure form that enables the
lessor to designate the specific
disclosures applicable to a given
transaction. See the commentary to
Appendix C.
. „. .
2. Type size. The term “point m the
phrase “10-point type” is a printing term
that refers to the size of the body of the
type, as distinguished from the size of
the type face, which may vary among
different print manufacturers.

Paragraph 4(a)(2).
1. Consummation. The time of
consummation is determined by state or
other applicable law. See commentary
to § 213.2(b)(2).
2. Identity o f m ultiple lessors and
m ultiple lessees. Although § 213.4(c)
permits a single lessor to make
disclosures to a single lessee, in
transactions involving multiple lessors
and lessees, the disclosure statement
must identify all the lessors and lessees.
3. Integrated lea se/d isclo su re form s.
Contract terms that are not required
disclosures may be added to the
disclosure statement so long as the
required disclosures are made together
on a single page (which may include
both sides) and above the place for the
lessee’s signature. Generally, contract
terms may precede, follow, or be
intermingled with the disclosures within
the limits of § 213.4(b) governing the use
of additional information and the clear,
conspicuous, and meaningful sequence
disclosure standard in § 213.4(a)(1).
4. L essee's signature. The regulation
does not require the lessee to sign the
disclosures but, if disclosures are
combined with contract terms, the lessor
may require the lessee’s signature for
contract or evidentiary purposes. In such a case, the disclosures must be
made above the place for the lessee’s
signature. When disclosures and



i

contract terms appear on 2 sides of a
page, the consumer’s signature usually
appears on the bottom of the second
side. The consumer’s signature may
appear, however, on the bottom of the
first side if all the disclosures appear on
that side.

Paragraph 4(a)(4).
1. P erm issible uses. If the lessor
chooses to provide foreign-language
translations of the disclosures or is
required to do so by state, federal, or
iocal law, the translations are not
inconsistent per se with disclosures
under this regulation and may be
provided as additional information
under § 213.4(b).
2. A dvertisem ents in Puerto R ico. The
requirement for providing English
disclosures upon request shall not apply
to advertisements subject to § 213.5 of
this regulation.

4(c) M ultiple lessors; m ultiple lessees.
1. M ultiple lessors. If a lease transaction involves more than one
lessor
• The lessors must choose one among
_ them to make the required
disclosures.
• If multiple lessors do not select
among themselves, then each lessor
is required to make consumer lease
disclosures.
• All disclosures for the transaction
must be given, even if the disclosing
lessor would not otherwise have
been obligated to make a particular
disclosure.
2. M ultiple lessees. If one lessee is
merely a surety or guarantor, the
disclosures must be given to the
principal lessee.

4(d) U nknown-inform ation estim ate.
1. Time o f estim ated disclosure. The
lessor may use estimates to make
disclosures if necessary information is
unknown or unavailable at the time the
disclosures are made.
2. B asis o f estim ates: G eneral. The
estimates must be made on the basis of
the best information reasonably
available at the time disclosures are
made. The “reasonably available”
standard requires that the lessor, acting
in good faith, exercise due diligence in
obtaining information. For example:
• Section 213.4(g)(4) requires the
lessor to disclose the total amount
payable by the lessee during the
lease term for official fees,
registration, certificate of title,
license fees, or taxes. When these
amounts are subject to
indeterminable increases over the
course of the lease, the lessor may
base its estimated disclosures on
those rates or charges in effect at
the time of disclosure.

50383

3. B asis o f estim ates: th e estim a ted
v alu e o f le a s e d p rop erty at term ination.
When the lessee's liability at the end of
the lease term is based on the estimated
value of the leased property (see
§ 213.4(g)(15)), the lessor may choose
either a retail or a wholesale value in
making the estimate, provided that
choice is consistent with the lessor’s
actual practice in determining the value
of the property at the end of the lease
term. Regardless of which value is
assigned, the estimate must be
reasonable and based on the best
information available to the lessor. For
example:
<
■
• An automobile lessor offering an
open-end lease must disclose the
estimated value of the vehicle at the
end of a 3-year lease. The lessor
relies on the K elly Blue B ook as the
best source of information on
wholesale used vehicle prices. Use
of a wholesale price is permissible,
if the lessor intends to assign a
wholesale value to the vehicle at
the end of the lease term.
• Same facts as above, except that
the lessor discloses an estimated
wholesale value that is lower than
the value derived from the K elly
Blue B ook because, in its
experience, the K elly Blue B ook
values are higher than the values
actually received in local usedvehicle markets. The use of a value
for a vehicle lower than that
;rr
derived from the K elly Blue B ook ar •
similar publication is permissible sn ;
long as it actually approximate?
objectives experience in the used
motor vehicle market.
4. Labelling estim ates. Generally, only:
the particular disclosure for which the
exact information is unknown is
labelled as an estimate. However, when several disclosures are affected because :
of the unknown information, the lessor
has the option of labelling either every
affected disclosure or only the
0 'i
disclosure primarily affected.
5. Understating the estim ated value. 3
In non-purchase option leases, the lessor
may not use a lower value than that
indicated by the best information
available when disclosing the estimated
value of lease property at the end of the
lease term under § 213.4(g)(l5),

4(e) E ffect o f subsequent occurrence.
1. Subsequent occurrences. Examples
of subsequent occurrences include:
• A change from a monthly to a
weekly payment schedule.
• The addition of insurance or a
security interest by the lessor
because the lessee has not
performed obligations contracted

50384

Federal Register / Vol. 46, No. 197 / Tuesday, October 13, 1981 / Proposed Rules

for in the lease.
• An increase in official fees or taxes.
See the commentary to § 213.4(d).
• An increase in insurance premium
or coverage caused by a change in
law.
• Late delivery of an automobile
caused by a longshoremen’s strike.
2.
R edisclosure. When a disclosure
becomes inaccurate because of a
subsequent occurrence, the lessor need
not make new disclosures unless new
disclosures are required under
§ 213.4(h).

4(g) S p ecific disclosure requirem ents.
1. In applicable disclosures. The

disclosures required by this section need
be made only as applicable. Any
disclosure not relevant to a particular
transaction may be eliminated entirely.
For example, if the lessor does not take
a security interest, no disclosure is
required under § 213.4(g)(9). See the
commentary to Appendix C.
2. O ther requ ired disclosures. The
disclosure statement must include the
date and identify the lessor antf the
lessee. See § 213.4(a)(2).

Paragraph 4(g)(1).
1. M ultiple-item lease. In a multipleitem lease, the property may be
described in separate statements as
provided in § 213.4(a)(3).

Paragraph 4(g)(2).
1. Item ization not required. The lessor
must disclose one total initial payment
amount and identify the components of
this one amount (for example,
capitalized cost reduction, mechanical
breakdown protection, registration fees).
The lessor may, but need not itemize
the individual amount of each
component.
2. Consummation. The time of
consummation is determined by state or
other applicable law. See commentary
to § 213.2(b)(2).
3. F ees p ay able upon delivery. This
provision does not apply to fees paid at
delivery, when delivery occurs after
consummation. For example:

• The lessee agrees to pay
tt
registration fees, sales taxes, and a
delivery charge in one lump sum on
l the date the automobile is
t. <
delivered, some time after
consummation. None of these
charges is an initial payment under
§ 213.4(g)(2) because it is paid after
consummation of the lease. The
registration fees and sales taxes are
disclosed under § 212.4(g)(4), and
the delivery charge is disclosed as
an “other charge" under
§ 213.4(g)(5).

Paragraph 4(g)(3).
1. Item ization not required. Section
213.4(g)(3) does not require the lessor to




itemize the components of the periodic
payments. Some of the components must
be disclosed separately, however, if
their disclosure is required by other
provisions of the regulation. Examples
of periodic payment components that
must be disclosed separately include:
• Taxes. See § 213.4(g)(4).
• Insurance costs. See § 213.4(g)(6).
2. P eriodic paym ents. The phrase
"periodic payments," as used in
§ 213.4(g)(3) requires the disclosure of
all payments made periodically and
could include maintenance and
insurance charges. It is distinguished
from the same term as used in the
definition of total lease obligation
§ 213.2(a)(17). See the commentary to
§ 213.2(a)(17) and Appendix C.

Paragraph 4(g)(5).
1. Coverage. Section 213.4(g)(5)
requires the disclosure of charges that
are anticipated by the parties as
incident to the normal operation of the
lease agreement It does not require
disclosure of charges that are imposed
when the lessee fails to abide by the
lease agreement such as charges for.
• Late payment
• Default
• Deferral of payments.
• Extension of the lease.
2. R elationship to oth er provisions.
The other charges mentioned in
§ 213.4(g)(5) are charges that are not
specifically covered by another
provision of § 213.4(g). For example:
• 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
8 213.4(g)(2), not as an “other
charge."
• The price of a mechanical
breakdown protection contract
ordinarily is disclosed as an “other
charge." In states where mechanical
breakdown protection contracts are
regarded as insurance, however, the
cost is disclosed in accordance with
§ 213.4(g)(6), not as an "other
charge”. See the commentary to
§ 214.4(g)(6).
3. L essee lia b ilities at the en d o f the
lea se term. Liabilities that the lease
imposes upon the lessee at the end of
the lease term and that must be
disclosed include, but are not limited to,
disposition and “pick-up" charges.

Paragraph 4(g)(6).
1. M echanical breakdow n protection.
Whether mechanical breakdown
protection purchased in conjunction
with a lease should be treated as
insurance is determined by state or
other applicable law.

Paragraph 4(g)(7).
1. B rief identification. The statement
identifying warranties may be brief. For
example, manufacturer’s warranties
may be identified simply by a reference
to the standard manufacturer’s
warranty.
2. Warranty disclaim ers. Although a
disclaimer of warranties is not required
by the regulation, the lessor may give a
disclaimer as additional information in
accordance with § 213.4(b).
3. S tate law . Whether an express
warranty or guaranty exists is
determined by state or other applicable
law.

Paragraph 4(g)(8).
1. Standards fo r w ear and use. The
lessor is permitted but not required to
set standards for wear and use (such as
excess mileage). The disclosure may be
omitted by lessors that do not set such
standards. See the commentary to
§ 213.4(g) (15).

Paragraph 4(g)(9).
1. Third-party secu rity interests. The
regulation does not require disclosure of
security interests taken by someone
other than the lessor. For example, when
a bank that is not a lessor makes loans
to leasing companies and takes
assignments of consumer leases
generated by those companies, neither
the leasing company nor the bank must
disclose the commercial security interest
in the lessor’s receivables.

Paragraph 4(g)(10).
1. C ollection costs. The automatic
imposition of collection costs or
attorney fees upon default must be
disclosed under § 213.4(g)(l0). Collection
costs or attorney fees that are not
imposed automatically, but are
contingent upon expenditure of amounts
in conjunction with a collection
proceeding or upon the employment of
an attorney to effect collection, need not
be disclosed.
2. Charges fo r early term ination.
When default is a condition for early
termination of a lease, default charges
must also be disclosed under
§ 213.4(g)(12). The § 213.4(g)(10) and (12)
disclosures may be combined. Examples
of combined disclosure are provided in
the model lease disclosure forms in
Appendix C.
interest accounting lease, the additional
lease 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
accural 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

Federal Register / Vol. 46, No. 197 / Tuesday, October 13, 1981 / Proposed Rules
either case, if the additional charge
accures 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
§213.4(g)(10).
4.
Extension charges. Extension
charges that exceed the lease charge in
a simple-interest accounting lease or.
that are added separately are disclosed
under §213.4(g}(10).

3.
Tim e restriction on ap p raisal.
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
“reasonable time.”

Paragraph 4(g)(11).
1. M andatory disclosu re o f no
p u rch ase option. Although generally the

lessee’s liability for the value of the
leased property under § 213.4(g)(15) do
not apply at early termination.
2. T otal lea se obligation. The
requirement that the total lease
obligation be itemized is satisfied by
disclosing the 3 components in the
definition of total lease obligation in
§ 213.2(a)(7) with their corresponding
amounts.
3. Taxes. Taxes that are in the value
at consummation and capitalized over
the lease term are included in the
scheduled periodic payments for
purposes of computing the total lease
obligation. Taxes that are not
capitalized but are paid monthly to the
lessor (which pays it to the appropriate
governmental agency) are not included
in the value at consummation and may
be included in or excluded from the total
lease obligation at the lessor’s option.
When the tax is paid by the lessee at
consummation, it may, but need not, be
included in the total lease obligation
and excluded from the value at
consummation. It may never be included
in the value at consummation and
excluded from the total lease obligation.
4. L eases with a minimum term. If a
lease has an alternative minimum term,
the § 213.4(g)(15) disclosures governing
the liability limitation need not be
repeated for the minimum term. The
lessee’s option to terminate the lease at
the end of the minimum term should be
treated as an early termination
provision and disclosed under § 213.4(g)
(12), (13), and (14).
5. A verage paym ent a llo ca b le to a
m onthly period. The phrase "average
payment allocable to a monthly period”
corresponds to the periodic payment
used to compute the total lease
obligation. See the commentary to
§ 213.2(a)(17).
6. Charges not su bject to rebu ttable
presum ption. The limitation on liability
applies only to liability that is based on
the estimated value of the property at
the end of the lease term. The lessor
also may recover additional charges
from the lessee at the end of the lease
term. Examples of such additional
charges include:
• Disposition charges.
• Excess mileage charges.

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. L essee's right to bid. The lessee’s
right to submit a bid to purchase
property at termination of the lease is
not an option to purchase under
§ 213.4(g)(ll), if the lessor is not
required to accept the lessee’s bid and
the lessee does not receive preferential
treatm ent

P aragraph 4(g)(12).
1. D efault. When default is also a

condition for early termination of a
lease, default charges must be disclosed
under this section. See the commentary
to § 213.4(g)(10).
2. L e s s e e ’s liab ility at early
term ination. When the lessee is liable
for the difference between the estimated
and realized values at early termination,
the amount or the method of
determining the amount of the difference
must be disclosed under this section.

P aragraph 4(g)(14).
1. D isclosure in ap p licable. 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,
• The automobile lessor may
reasonably expect a lessee to return
an undented car with four tires at
the end of the lease term. Even
though it holds the lessee liable for
the difference between a dented
tireless car and the value of a car in
reasonably good repair, the lessor is
not required to disclose the lessee’s
appraisal right.
2. L esso r’ appraisal. The lessor may
s
obtain an appraisal of the leased
property to determine its realized value.
Such an appraisal, however, is not the
one addressed in § 183(c) of the act, and
the lesssor still must disclose the
lessee’s independent right to an
appraisal under § 213.4(g)(14).




Paragraph 4(g)(15).
1. Coverage. The limitations of the

53535

• Late payment and default charges.
• Amounts that have accrued in
simple interest accounting leases
because the lessee has made late
payments.

4(h) R enegotiations or extensions.
1. R enegotiation. A renegotiation
occurs when an existing lease that was
subject to this regulation (or its
predecessor) is satisfied and replaced
by a new lease undertaken by the same
lessee. A renegotiation is a new lease
requiring new disclosures. Whether and
when a lease is satisfied and replaced
by a new lease is determined by state or
other applicable law. The following
events shall not be treated as
renegotiations:
• A substitution of leased property in
a multiple-item lease, provided the
average payment is not changed by
more than 25 percent.
• A reduction in the lease charge.
• An agreement involving a court
proceeding.
• A substitution of leased property
with property that has a
substantially equivalent or greater
economic value, provided no other
lease terms are changed.
2. Assumptions. No new disclosures
are required when a consumer lease it r
assumed by another person.
3. Extension. An extension is any
continuation of a consumer lease
beyond the date of early termination of s
the lease or the scheduled termination
date of the lease. The continuation is an
extension only if it has been agreed to
by both the lessor and the lessee. An
extension that exceeds 6 months is a
new lease requiring new disclosures.
4. M onth-to-month extensions.
Section 213.4(h) applies only to existing -■
leases that were covered by the
requirements of this regulation or the
previous Regulation Z, 12 CFR Part 220,
It therefore does not apply to leases
with an initial term of 4 months or less
because such leases are not covered by J
the definition of consumer lease in
§ 213.2(a)(6). If a lease that is not
covered by the regulation is extended on
a month-to-month basis, new
disclosures are not required even if the
extension in fact exceeds 6 months. New
disclosures are required, however, in the ’
following instances:
• A lease that was subject to the
regulation is extended beyond 6
months.
• A lease that was not subject to the
regulation is extended or
renegotiated for a specified term
that exceeds 4 months.
5.
Timing o f extension disclosures. If
a consumer lease is extended for a

l

30333

Federal Register / Vol. 46, No. 197 / Tuesday, October 13, 1981 / Proposed Rules

specified term greater than 6 months,
new disclosures based on the specified
term are required at the time the
extension is agreed to. If the lease is
extended on a month-to-month basis
and exceeds 6 months, new disclosures
are required at the commencement of
the seventh month. Because the
extension is month-to-month, the
disclosures are based on a 1-month
term. Subsequent disclosures are
required only at 6-month intervals.
References
Statute: Sections 102(b), 1 2 1 ,1 2 2 ,1 2 4 ,.
182, and 183.
O ther section s: § § 213.2.213.5 and
.
213.7 and Appendix C.
Previous regulation: § § 226.6 and
226.15.
1981 changes: Although reorganized,
the disclosure requirements are
substantially the same as the previous
requirements. The sole amendment
implements section 121 of the Truth in
Lending Act pertaining to multiple
lessors and lessees disclosure
requirements.

Section 213.5—Advertising
5(a) G eneral rule.
1. Persons covered. An advertisement
includes any commercial message in any
communication medium that promotes,
directly or indirectly, a consumer lease.
Responsibility for complying with the
advertising rules is not limited to lessors
but includes any person advertising a '
consumer lease that requires
transactional disclosures. Under section
184(b) of the a c t however, the owner
and personnel of the medium in which
an advertisement appears, or through
which it is disseminated, are not subject
to civil liability.
2. "Usually an d custom arily . " Section
213.5(a) is not intended to inhibit the
promotion of new leasing programs but
to bar the advertising of terms that are
not and will not be available. Thus, an
advertisement may state terms that will
be offered for only a limited period or
terms that will become available at a
future date.

5(b) Catalogs and m ultipage
advertisem ents.
1. G eneral rule. The multiple-page

advertisements to which § 213.5(b)
refers 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 multiplepage advertisement
2. C ross-references. 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 § 213.5(c)
(1) through (5). If one of the triggering
terms listed in § 213.5(c) appears on
another page of the catalog or multiplepage advertisement, that page must
clearly refer to the specific page where
the table, chart or schedule begins.

5(c) Terms that requ ire addition al
inform ation.
1. C lear an d conspicuous standard.
Section 213.5(c) prescribes no specific
rules for the format of the necessary
disclosures. The terms need not be
printed in a certain type size and need
not appear in any particular place in the
advertisement
2. Triggering terms. Whenever certain
triggering terms appear in lease
advertisements, the additional terms
enumerated in $ 213.5(c) (1) through (5)
must also appear. 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 5-year lease term
with monthly payments, the number of
required payments— a triggering term—
is readily apparent

5(d) M ultiple-item lea ses;
m erchandise tags.
1. M erchandise tags. Section 213.5(d)
provides a. method for using
merchandise tags without including all
the required disclosures on the tags. As
an alternative to thi« 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.
References

Statute: Sections 105(a) and 184.
Previous regulation: § 228.10 (a), (b),

and (h).

O ther section s: § 213.2(a) (2) and (6).
1981 changes: None.
Section 213.8—Preservation and
Inspection o f E vidence o f C om pliance
1. Preservation m ethods. Lessors
must retain evidence that they
performed required actions as well as
made the required disclosures.
Adequate evidence of compliance does
not require actual paper copies of
disclosure statements or other business
records. The evidence may be retained
on microfilm, microfiche, or by any other
method designed to reproduce records
accurately (including computer
programs). The lessor need retain only
enough information to reconstruct the
required disclosures or other records.

References

Statute: Section 105(a).
Previous regulation: § 226.6(i).
1981 changes: A uniform 2-year
record-retention rule replaces the
previous requirement that records be
retained through at least one compliance
examination.

Section 213.7—Inconsistent S tate
Requirem ents
1. P rocedures. Only states (through
their authorized officials) may request
and receive determinations on
inconsistency. The procedures for
requesting a Board determination on
inconsistency are contained in
Appendix B.
2. O ptional state disclosu res. A lessor
that chooses to make inconsistent state
disclosures must do so in the manner
prescribed by § 213.4(b).
References

Statute: Sections 111(a)(1) and 186(a).
Previous regulation: 5 228.6(b)(3).
O ther section s: §§ 213.2(a) (16) and
213.4(b) and Appendix B.
1981 changes: None.

Section 213S—Exem ption o f C ertain
State-R egulated T ransactions
1. C lasses elig ible. The state
determines the classes of transactions
for its exemption and makes its
application for those classes. Classes
might be, for example, all automobile
leases or all leases in which the lessor is
a bank.
2. Substantial sim ilarity. The
“substantially similar” standard
requires that state statutory or
regulatory provisions and state
interpretations of those provisions must
be generally the same as the federal act
and Regulation M. A state will be
eligible for an exemption even if its law
covers classes of transactions not
covered by the federal law. For
example, if a state’s law covers leases
for agricultural purposes, this will not
prevent the Boaid from granting an
exemption for consumer leases, even
though leases for agricultural purposes
are not covered by the federal law.
3. A dequate enforcem ent. The
standard requiring adequate provision
for enforcement generally means that
appropriate state officials are
authorized to enforce the state law
through procedures and sanctions
comparable to those available to federal
enforcement agencies.
References

Statute: Sections 111(a)(2) and 186(b).
Previous regulation: § 228.6(b)(3).

Federal Register / Vol. 46, No. 197 / Tuesday, October 13, 1981 / Proposed Rules
O ther section s: §§ 213.2(a)(18) and
213.4(b) and Appendix A.
1981 changes: None.
Appendix A— Procedures and Criteria
for State Exemptions
References

Statute: Section 186(b).
P revious regulation: § 226.80
(supplement VI, Section I).
O ther section s: § 213.8
1981 changes: None.
Appendix B— Procedures and Criteria
for Board Determination Regarding
Preemption
References

s

Statute: Section 186(a)
P revious regulation: § 226.80
(Supplement VI, Section II).
O ther section s: I 213.7
1981 changes: None.
Appendix G—Model Forms
1. P erm issible changes. Although use
of the model forms is not required,
lessors using them properly will be
deemed to be in compliance with the
regulation. Lessors may make certain
changes in the format or content of the
forms and may delete any disclosures
that are inapplicable to a transaction
without losing the act’s protection from
liability. The changes to the model forms
may not be so extensive as to affect the
substance, clarity, or meaningful
sequence of the forms. Examples of
acceptable changes include:
• Using the first person, instead of the
second person, in referring to the
' S S 6 6.
6

• Using “lessee,” “lessor,” or names
instead of pronouns.
• Rearranging the sequences of the
disclosures.
• Incorporating certain state “plain
English” requirements.
• Deleting inapplicable disclosures by
whiting out blocking out, filling in
“N /A ” (not applicable) or “O,"
Crossing out leaving blanks,
checking a box for applicable items^
or circling applicable items. (This
should permit use of multi-purpose
standard forms.)
• Adding language or symbols to
indicate estimates.
2. M odel open-end o r fin an ce v eh icle
lea se disclosures. Model C -l is designed
for an open-end or finance lease of a
vehicle. An open-end or finance lease is
one in which the lessee’s liability at the
end of the lease term is based on the
difference between the estimated value
of the leased property and its realized
value. Section 213.4(g)(15)(i) requires
disclosure of an itemized total lease
obligation for such leases. To facilitate




this disclosure, Model C -l divides the
initial charges (item 3) into two
categories: those that are included in the
total lease obligation and those that are
not. The amount of the monthly payment
(item 4) is similarly divided. This format
permits the components of the total
lease obligation (item 11) to be disclosed
simply by cross-reference to the
previous items. See the commentary to
§ 213.2(a)(17). The inclusion of taxes in
the basic monthly payment disclosure
(mentioned in the instructions to item
4(a) is not mandatory in all cases. See
the commentary to § 213.4(g)(15).
3. M odel closed -en d o r n et v eh icle
le a s e disclosures. Model C-2 is designed
for a closed-end or net lease of a
vehicle. A closed-end or net lease is one
in which the lessee’s liability at the end
of the lease term is not based on the
difference between the estimated value
of the leased property and its realized
value. Item 13(c) is included for those
closed-end vehicle leases in which the
lessee’s liability at early termination is
based on the vehicle’s estimated value.
See § 213.4(g) (14).
4. M odel furniture le a s e disclosures.
Model C-3 is a closed-end lease
disclosure statement designed for a
typical furniture lease. It does not
include a disclosure of the appraisal
right at early termination that is
required under § 213.4(g)(14) because
few closed-end furniture leases*base the
lessee's liability at early termination on
the estimated value of the leased
property. The disclosure may be added,
if it is applicable, without loss of the
form's protection from civil liability.
References

Statute: Sections 105,130, and 185.
Previous regulation: § 226.1501,1502,
and 1503.

1981 changes: References in the
instructions to the previous regulation
have been deleted.
Appendix D— Federal Enforcement
Agencies
References

Statute: Section 108.
Previous regulation: Appendix E.
1981 changes: None.
Board of Governors of the Federal Reserve
System, October 5 ,1981.
<
William W. Wiles,
Secretary o f the Board.
[FR Doc. 81-29377 Hied 10-9-81: 8:45 am)

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