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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 9298 ~|
May 25, 1982
OFFICIAL STAFF COMMENTARIES
ON TRUTH IN LENDING AND CONSUMER LEASING
— Proposed Revision of Regulation Z Commentary
— Adoption of Regulation M Commentary
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The Board of Governors of the Federal Reserve System has proposed a revision of its Official
Staff Commentary on Regulation Z, “ Truth in Lending,” and has adopted an Official Staff
Commentary on its Regulation M, “ Consumer Leasing.”
Proposed Regulation Z Commentary
Following is the text of a statement issued by the Board announcing its proposal regarding the
Regulation Z staff commentary:
The Federal Reserve Board staff has placed on the record for comment a proposed updating of its
Commentary on the Board’s Regulation Z.
The staff asked for comment by June 28, 1982.
The Commentary, published last October, interprets Regulation Z, as revised to conform to the
Truth in Lending Simplification Act of 1980. Creditors may comply at present with revised Regulation Z
and Commentary, but compliance does not become mandatory until October 1, 1982, when the revised
statute becomes mandatory. The effective date of the Commentary revisions will be not earlier than April
1, 1983, in order to give creditors time for adjustment of forms and procedures.
The proposed updating of the Commentary generally gives creditors more flexibility in making
disclosures, while preserving basic consumer protections. As with the Commentary itself, the proposed
revisions of it are designed to provide general guidance in applying Regulation Z to specific types of
transactions. Compliance with the Commentary is regarded as compliance with Regulation Z on matters
covered by the Commentary.
The Commentary addresses, among other things, what base rate may be used in disclosures
required for variable-rate open end credit plans and proposes a change that would facilitate the use of a
creditor’s prime rate as the base rate in such credit arrangements.
Enclosed is a summary of the proposed changes in the staff commentary. The full text is
published in the Federal Register of May 13, 1982; copies will also be furnished upon request
directed to our Circulars Division. Comments on the proposal should be submitted by June 28, 1982
and may be sent to our Consumer Affairs and Bank Regulations Department.
(
OVER)
Regulation M Commentary
Following is the text of a statement issued by the Board announcing the adoption of its
Regulation M staff commentary:
The Federal Reserve Board staff has made public in final form a Commentary on the Board’s
Regulation M (Consumer Leasing).
The Commentary takes the place of outstanding individual staff and Board interpretations of the
regulation (which formerly was part of Regulation Z — Truth in Lending) and applies and interprets the
requirements of Regulation M. Good faith compliance with the Commentary affords protection from
civil liability under the Truth in Lending Act.
Compliance with the Commentary becomes mandatory October 1, 1982. Until then, lessors may
comply with Regulation M or with the previous version of the Board’s rules on consumer leasing that was
contained in Regulation Z.
The Commentary attempts to make more general interpretations and applications than has been the
case with previous interpretations, and in that way to provide adequate guidance for compliance with the
regulation while avoiding unnecessary detail. It adopts the substance of most previous individual leasing
interpretations. The Commentary will be updated periodically.
The Commentary in final form differs in numerous instances from proposals for it published in
October 1981. A number of these differences may be found in the introductory material to the
Commentary that is attached.
The complete text of the Commentary may be obtained from the Federal Reserve Board and the
Federal Reserve Banks.
Enclosed is a summary of the staff commentary. The full text is published in the Federal
Register of May 13, 1982 and will be furnished upon request directed to our Circulars Division.
Copies in printed form will ">e sent to depository institutions in this District as soon as they become
available. Questions on the commentary may be directed to our Consumer Affairs and Bank
Regulations Department (Tel. No. 212-791-5914).
A nthony
M.
S olom on,
President.
FEDERAL RESERVE SYSTEM
12CFR Part 226
[Reg. Z; TIL-1]
Truth in Lending; Proposed Official
Staff Commentary Update
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed official staff
interpretation.
SUMMARY: In accordance with Appendix
C to 12 CFR Part 226, the staff of the
Federal Reserve Board is publishing for
comment a proposed update to the
official staff commentary to Regulation
Z (Truth in Lending), as revised effective
April 1,1981. The commentary applies
and interprets the requirements of the
revised Regulaton Z to open-end and
closed-end consumer credit and is
intended to substitute for individual
Board and staff interpretations of the
regulations.
DATE: Comments must be received on or
before June 28,1982.
ADDRESS: Comments 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, NW, Washington, D.C. between
8:45 a.m. and 5:15 p.m. To aid in their
consideration, comments should include
a reference to TIL-1, and discussion of
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:
The following attorneys in the Division
of Consumer and Community Affairs,
Board of Governors of the Federal
Reserve System, Washington, D.C.
20551, at (202) 452-3667 or (202) 4523867:
Subpart A—Gerald Hurst, Rugenia
Silver.
Subpart B and Appendices—Ruth
Amberg, Jesse Filkins, Lynn Goldfaden,
Gerald Hurst, John Wood.
Subpart C and Appendices—Clarence
Cain, Rugenia Silver, Susan Werthan,
Claudia Yams, Steven Zeisel.
SUPPLEMENTARY INFORMATION: (1)
General. Effective October 13,1981, an
official staff commentary was published
(46 FR 50288, Oct. 9, 1981) to interpret
Regulation Z, as revised effective April
1,1981. Creditors now have the option of
complying with revised Regulation Z
and the commentary, but compliance
does not become mandatory until
October 1,1982 (Pub. L. 97-110,
December 26,1981). The commentary is
[F.nc. Cir. No. 92981
designed to provide general guidance to
creditors in applying the regulation to
specific transactions. Although each
unique credit plan cannot be
individually addressed in the
commentary, periodic updates will
provide the vehicle for additional staff
interpretations that may be necessary as
new questions arise.
In revising the commentary, an
attempt is being made to avoid revisions
that would require modifications to
forms that have been prepared based on
the existing regulation and commentary.
The types of changes being proposed
generally give creditors more flexibility
in making disclosures, while preserving
basic consumer protections. Changes
generally will be made only when
necessary to respond to significant
questions that have arisen since the
commentary’s issuance or to clarify
ambiguous language. Purely editorial
changes are being avoided. However,
because this is the first update to the
commentary, some technical and
editorial changes have been necessary
in order to expedite adjustment to the
commentary’s new material and format.
Although in most cases the location of
comments has not been affected, some
have been renumbered as a result of the
deletion or addition of material.
Certain con ven tion s have b een used
to highlight the revised language in the
com m entary. N ew language is
highlighted by b<jld-faced arrow s, w h ile
language that has b een d eleted is set off
w ith brackets. A lthough the inclusion o f
existin g com m entary language adds to
t ly length of this docum ent, this format
seem s to be the m ost helpful w a y of
pointing out proposed changes.
C om m ents m ust be receiv ed by June
28,1982. In order to exp ed ite a n a ly sis of
the com m ents, com m enters are
requested to identify com m ents by
section and paragraph num bers and to
begin d iscu ssio n of each sectio n on a
separate page. If com m ents are received
on issu es not raised by the proposed
revisions, th ese com m ents w ou ld m ost
lik ely be consid ered for p o ssib le
inclusion in the n ext com m entary
update.
Final revisions will be published in
the Federal Register; it is anticipated
that final publication will be no later
than the beginning of September.
Although creditors will be able to rely
on the revisions at that time, the
applicability of the revisions will be
optional until April 1,1983, which will
be specified in the final rule document.
The later date will be provided to
minimize any difficulties that creditors
may experience in adjusting to the
revisions.
Summary
(2) Proposed Revisions. F ollow ing is a
brief description o f the revision s
con tain ed in the com m entary update.
Introduction
Comment 1-3 would be amended to
reference the regulation’s effective date
of October 1,1982, in accordance with
Pub. L. 97-110 (December 26,1981).
Subpart A — G eneral
Section 226.2—Definitions and Rules of
Construction
2(a)(3) "Arranger o f Credit”
Comment 2(a)(3)-6 would be added to
explain the Board’s recent amendment
to § 226.2(a)(3) of the regulation (47 FR
7391, Feb. 19,1982) dealing with real
estate brokers.
2(a)(13) "Consummation”
Comment 2(a)(13)-l would be revised
to show that consummation may occur
when the parties enter a commitment
agreement that binds them to specific
credit terms if under state law a
contractual relationship is created. This
revision should also ensure that
consummation will occur no later than
the time a note or contract is signed.
2(a)(23) "PrepaidFinance Charge"
Comment 2(a)(23)-2 would be revised
to make clear that any portion of the
finance charge paid at closing or
settlement is considered a prepaid
finance charge.
2(a)(24) "Residential Mortgage
Transaction ”
Comment 2(a)(24)—1 would be revised
to add § 226.20(b) to the list of
provisions using the term “residential
mortgage transaction.” Its omission was
inadvertent.
2(a)(25) "Security Interest”
Comment 2(a)(25) would be revised to
permit creditors at their option to
disclose certain interests as security
interests when uncertainty exists as to
whether a particular interest is one of
the excluded interests.
Section 226.4—Finance Charge
4(b) Examples of Finance Charge
Comment 4(b)(9)-3 would be added to
explain the “regular price” definition in
amended section 103(x) of the act and
its relationship to cash discounts offered
under section 167(b) of the act. The
comment specifically discusses the
displaying of prices for motor vehicle
fuel.
4(c) Charges Excluded from the Finance
Charge
Comment 4(c)(7)-l would be revised
to state that a charge for a lawyer’s
attendance at the closing is not a
finance charge if the attorney attends to
complete the documents.
4(d) Insurance
Comment 4(d)—11 would be added to
clarify the concept of initial term of
insurance coverage and to permit the
initial term to be considered one year if
the creditor is uncertain of the term.
Subpart B—Open-End Credit
Section 226.5—General Disclosure
Requirements
5(a) Form o f Disclosures
Comment 5(a)(2)—1 would be revised
to include additional examples of the
application of the "more conspicuous”
rule. These examples would clarify the
rule; no substantive changes are
intended.
the general requirement to give notices
when the rate increases according to the
disclosed plan. The current commentary
provides that creditors may avoid these
notices after giving appropriate
disclosures in plans in which the rates
follow an index that is “readily
verifiable by the borrower and beyond
the control of the lender.”
A number of questions have arisen as
to the interpretation and purpose of the
current commentary language. In
particular, some creditors have raised
concerns about programs that would use
certain internal rates as the index and
therefore not meet the criterion that the
index be beyond the lender’s control.
These creditors have noted that tying
the rate to their commercial lending rate
or to rates paid on savings instruments
is a customary practice. The proposal
reflects these concerns, while qt the
same time continuing to provide
guidance on the types of rate increases
for which additional disclosures may be
needed.
5(b) Time o f disclosures
6(b) O ther Charges
Comment 5(b)(1)—1 would be revised
to explain more clearly when initial
disclosures are timely if the plan
involves an initial fee that is paid before
the initial disclosures are given, or if the
plan involves an advance made at the
time that the consumer is given the
initial disclosures.
Language would be added to comment
6(b)—2 to provide that a charge for
submitting as payment a check that is
later returned unpaid would not be an
other charge.
5(c) Legal Obligation
Comment 5(c)—1 would be revised to
clarify the meaning of the term “legal
obligation.” Comment 17(c)(1)—1, which
contains a discussion of legal obligation
for closed-end credit transactions,
would add a sentence to show the effect
of certain previous court decisions on
disclosures. This issue arises in part
because of the requirement that closedend disclosures be segregated from
other information, a requirement that
does not exist for open-end credit. The
staff solicits comment on whether a
companion provision for open-end credit
should be added.
5(d) hjultiple Creditors; Multiple
Consumers
Material that was inappropriate for
commentary treatment would be deleted
from comment 5(d)-l.
Section 226.6—Initial Disclosure
Statement
6(a) Finance Charge
Comment 6(a](2)-2 would be revised
in its description of the types of openend credit programs for which the
creditor’s initial disclosure of planned
rate changes excuses the creditor from
Section 226.7—Periodic Statements
7(b) Identification of Transactions
Comment 7(b)—
1 would be revised to
clarify that the listed ways for a creditor
to identify transactions for multifeatured
plans are merely examples of acceptable
arrangements.
7(c) Credits
Comment 7(c)-3 would be revised to
clarify when additional identification of
dates is needed, and also that no
specific terminology would be required
for these date identifications.
7(e) Balance on Which Finance Charge
Computed
Comment 7(e)-2 would be revised by
indicating that the exception permitting
the creditor to disclose one combined
balance when split rates (or “break
rates”) are applied does not extend to
the case in which split rates are applied
to each day’s balance. This change
would return to the position under
previous Regulation Z, and correct the
inadvertent reference in current
comment 7(e)-4. That reference
permitted a combined balance, which
would not allow verification of the
finance charge attributable to periodic
rates.
The last sentence of current comment
7(e)-4 would be deleted, and
incorporated in comment 7(e)—2.
Comments 7(e)-4, 5, 6, and 7 of the
current commentary would be
redesignated as comments 7(e)—5, 6, 7,
and 8, and current comment 7(e)-8,
which deals with the disclosure of the
periodic rate balance amount in
multifeatured plans, would be
redesignated as comment 7(e)-4.
Comment 7(e)-4 (current comment
7(e)—8) would be revised to give more
complete guidance on when separate
balances must be disclosed when a plan
involves different features.
Comment 7(e)-9 would be added to
clarify that the creditor could explain its
balance computation method only once,
even if it chooses to disclose more than
one balance computed by that same
method.
7(g) Annual Percentage Rate
Comment 7(g)—2 would be expanded
to clarify that, in multifeatured plans,
the creditor may give separate annual
percentage rate disclosures for each
feature or may give a composite actual
annual percentage rate for the entire
plan.
Section 226.3—Identification of
Transactions
8(a) Sale Credit
In the last sentence of comment
8(a)(3)—2, the inadvertent reference to
“creditor’s stores would be changed to
“seller’s" stores.
Comment 8(a)(3)-4 would be added to
reflect the position under previous
Regulation Z that the debiting date may
be considered the transaction date for
foreign transactions.
Section 226.9—Subsequent Disclosure
Requirements
9(c) Change in Terms
Comment 9(c)-l would be revised to
correspond to the revisions to comment
6(a)(2)—2.
Section 226.13—Billing-error Resolution
13(d) Rules Pending Resolution
Comment 13(d)(l)—2 would be revised
to clarify that, for purposes of
§ 226.13(d)(1), the creditor need only
disclose that payment of "any disputed
amount” is not required pending
resolution.'as was the case under the
previous Regulation Z.
Section 226.14—Determination of
Annual Percentage Rate
14(c) Annual Percentage Rate for
Periodic Statements
An editorial change would be made to
comment 14(c)-8 to correct the
inadvertent use of the term “fees”
instead of “finance charges.” The
change would indicate that the optional
annual percentage rate formula in
§ 226.14(c)(4) may be used when small
finance charges, not fees, of 50 cents or
less are involved.
Comment 14(c)—
9 would be added
merely to cross-reference comment
l'4(d)-2. The latter comment discusses
the annual percentage rate calculation
methods for plans involving both daily
periodic rates and specific transaction
charges.
14(d) Calculations Where Daily
Periodic Rate A pplied
Comment 14(d)-2 would be revised to
provide alternative annual percentage
rate calculation methods when the
finance charge results from the
application of both daily periodic rates
and specific transaction charges. The
comment would allow creditors to use
either the method in § 226.14(c)(3) or the
method in §226.14(d)(2); comment is
specifically solicited on whether the
option to use the method in
§ 226.14(d)(2) is needed.
The §226.14(c)(3) method includes the
rules in Appendix F; the appendix gives
examples for determining the
denominator of the fraction in this
formula. Footnote 1 to the appendix
instructs creditors that apply both a
daily periodic rate and a specific
transaction charge to use the average of
daily balances instead of the sum of the
balances.
If the §226.14(d)(2) method is used, the
creditor should apply the rule that
balances not be duplicated (set forth in
§226.14(c)(3) and explained in comment
14(c)—5), as well as the rule that the
annual prcentage rate must not be less
than the largest corresponding annual
percentage rate for that cycle (set forth
in §226.14(c)(3)).
Section 226.15—Right of Rescission
15(a) Consumer’s Right to Rescind
Two changes are proposed for
comment 15(a)-2. First, the dates in the
comment, which refer to the three-year
trial period in section 125(e) of the act,
would be changed from March 31,1985
to September 30,1985 to reflect the
change in the mandatory effective date
of the act from April 1,1982 to October
1,1982. Second, a sentence would be
added to clarify that the limited
rescission option is available for
programs whether or not they existed on
the effective date of the act.
Section 226.16—A dvertising
16(h) Advertisement of Terms that
Require Additional Disclosures
Comment 16(b)(1)—
6 would be added
to make clear that charges excluded
from the Finance charge under §226.4 are
not required disclosures when a
triggering term is used in an
advertisement.
Subpart C—Closed-End Credit
Section 226.17—General Disclosure
Requirements
17(a) Form of Disclosures
Comment 17(a)(1)—5 would add four
examples of “directly related”
information. The first example relating
to § 226.18(k)(l) would clarify the
applicability of the § 226.18(k)(l)
disclosure. For purposes of this
disclosure, a minimum Finance charge is
considered a penalty. Some state laws
prohibit creditors from charging to a
penalty in the event of prepayment
while permitting the creditor to charge a
minimum charge. In this instance the
creditor may state that a minimum
Finance charge will be imposed. The
second example relating to § 226.18(k)
would enable creditors to identify which
Finance charge triggered the
§ 226.18(k)(2) prepayment disclosure.
The example relating to § 226.18(f)
responds to inquiries about disclosing
the fact that a variable rate feature may
produce negative amortization. It
permits rate creditors to disclose this
fact when making the other required
variable rate disclosures. The last
example would permit the inclusion of a
title for the disclosure statement.
17(c) Basis of Disclosures and Use of
Estimates
Comment 17(c)(1)—1 would be revised
to clarify the meaning of the term “legal
obligations." A sentence would be
added to show the effect of certain
previous court decisions on disclosure of
the legal obligation, and the sentence
discussing contracts later deemed
unenforceable by a court would be
modified to include situations in which
an individual term, rather than an entire
contract, is deemed unenforceable.
Portions of comments 17(c)(1)—1 and 2
would be restructured for added clarity.
Comment 17(c)(1)—4 would be revised
to clarify the treatment of certain
buydown plans, including the Federal
National Mortgage Association’s
Buydown Program, as revised for
commitments issued on or after
February 16,1982.
A new comment 17(c)(1)—8 would be
added to clarify the treatment of
adjustable rate mortgages that contain a
m
graduated payment feature or an initial
payment amount resulting in negative
amortization. This comment applies to
mortgages such as the graduated
payment adjustable mortgage loan
authorized by the Federal Home Loan
Bank Board (12 CFR 545.6-4b).
New comments 17(c)(3)—2 and
17(c)(4)-2 would be added to clarify that
a creditor may ignore minor variations
in calculating some disclosures without
being required to ignore those variations
in computing all of the disclosures.
17(d) Multiple Creditors; Multiple
Consumers
Material that was inapprpriate for
commentary treatment would be deleted
from comment 17(d)-l.
17(h) Series of Sales—Delay in
Disclosures
Comment 17(h)—2 would be added to
address the content of disclosures for
transactions under § 226.17(h).
17(i) Interim Student Credit Extensions
Comment 17(i)-l would be amended
to clarify the applicability of this
provision. No substantive change woulcl
be made.
Comment 17(i)-2 would be revised to
provide further guidance on the basis for
interim student credit disclosures.
Comment 17(i)-5 would be added as a
cross-reference to Appendix H,
regarding approved disclosure forms.
Section 226.16—Content of Disclosures
18(f) Variable Rate
Comment 18(f)—2 would be amended
to clarify that the disclosures in a
variable-rate transaction are not
considered estimates and should not be
labelled as such.
Comment 18(f)—2 would be added to
discuss the treatment of growth equity
mortgages.
Comment 18(f)(3)—
1 would be revised
to include a cross-reference to comment
17(a)(l)-5, which permits the inclusion
of a brief reference to negative
amortization in the variable-rate
disclosures.
A sentence would be added to
comment 18(f)(4)—1 to clarify that the
example may reflect an immediate
increase only when the contract terms
permit an immediate increase in the
rate.
Comment 18(f)(4)—2 would contain
additional examples of transactions that
need not make the hypothetical
disclosure required in most transactions
by § 226.18(f)(4).
18(g) Payment Schedule
Comment 18(g)-l would be revised to
clarify that prepaid finance charges are
not reflected in the payment schedule.
Comment 18(g)(2)—1 would be revised
to clarify that the abbreviated
disclosures may be employed when
mortgage insurance premium payments
gradually increase over a portion of the
loan term. This will occur if the accrual
rate exceeds the payment rate for a
period and negative amortization causes
the unpaid principal balance to increase.
During this period, the amount of each
premium payment will increase to insure
the increasing principal balance. When
negative amortization ends, the
premiums will decrease in a traditional
manner. The proposed language would
permit the creditor to disclose the
lowest and highest payments in the
increasing series (with a reference to the
variation in payments) followed by the
highest and lowest payments in the
decreasing series (with a reference to
the variation in payments).
18(i) Demand Feature
Comment 18(i)—2 would be revised to
clarify that a due-on-sale clause is not
considered a demand feature requiring
disclosure.
18(k) Prepayment
Comment 18(k)(l)-l would be
changed by the addition of the word
“scheduled” to the first sentence. The
change is to clarify that this disclosure
applies not only to interest calculations
made daily, but to calculations that are
made other than daily while taking into
account reductions in principal. A crossreference to comment 17(a)(1)—5 would
be added to point out the permitted
reference to a minimum finance charge
in the penalty disclosure.
Comment 18(k)(2)-l would be revised
to include a cross-reference to comment
17(a)(1)—5, which permits creditors to
describe in the disclosure statement the
type of finance charge subject to a
rebate.
18(r) Required Deposit
A new comment 18(r)-2 would be
added to address pledged account or
FLIP mortgages, allowing creditors two
options in disclosing those types of
transactions.
Section 226.19— Certain Residential
Mortgage Transactions
19(a) Time of Disclosure
Comment 19(a}-2 would be revised to
conform with comment 17(a)(1)—5,
regarding explanation of the basis for
estimates.
Section 226.20—Subsequent Disclosure
Requirements
20(a) R efinancings
The amendment to comment 20(a)-3
would clarify the current commentary
position that the addition of a variablerate feature to a previously fixed rate
transaction requires new disclosures
regardless of the manner in which the
change is made. The remainder of
comment 20(a)—3 discusses a variablerate transaction for which no variablerate disclosures were ever provided.
New comment 20(a)—5 would clarify
the coverage of § 226.20(a).
“Refinancing,” as the term is used here,
refers only to a new transaction
undertaken with the original creditor (or
a holder or service of the original
obligation) to replace the original
obligation. The term "refinancing” is
sometimes used to refer to a loan, the
proceeds of which are used in whole or
in part to satisfy an obligation to a
different creditor. Under the regulation,
that is not a refinancing but a new
transaction subject to the general
coverage rules and disclosure
requirements of the regulation.
20(b) Assumptions
The revisions to comments 20(b)—1
and 6 would clarify the coverage of
§ 226.20(b). The following elements must
all be present before an assumption
under this section requires new
disclosures:
• The original obligation must have
been a consumer credit obligation that
was not originally exempt.
• The assumption must be accompanied
by no significant change in terms (as
described in comment 20(b)-6).
• The creditor must expressly agree to
the new consumer as a primary
obligor.
• The agreement must be in writing.
• The transaction must be a “residential
mortgage transaction” as to the new
consumer.
All of the above elements must be
present in order to require assumption
disclosures under § 226.20(b). An
apparent assumption that has the first
two elements but does not have all the
remaining three requires no disclosures
at all. However, an apparent assumption
that fails to have one or both of the first
two elements listed above is not subject
to § 226.20(b). To determine if
disclosures are required in that case, the
creditor must analyze the transaction
under §§ 226.2 and 226.3.
Section 226.22—D eterm ination o f the
A n n u a l Percentage R ate
22(a) A ccu ra cy o f the A n n u a l
Percentage R ate
A sentence would be added to
comment 22(a)(l)—4 to provide an
example of a composite annual
percentage rate for a step-rate
transaction.
Section 226.24—A d vertising
24(b) Advertisement of Rate of Finance
Charge
Comment 24(b)—
2 would be added to
clarify that stating the effective simple
annual payment rate for any portion of
the repayment period constitutes a
statement of a rate of finance charge
under that section, requiring that the
annual percentage rate also be stated.
A p p en d ix D —M ultiple-A dvance
Construction Loans
Comment D-2 would be added to
clarify that disclosure of a variable-rate
hypothetical is not required for multipleadvance construction loans disclosed
pursi ant to Appendix D, part I. (See
comi.iment 18(f)(4)—2).
Comment D-3 would be added to
clarify that the total of payments
disclosure under Appendix D may be
calculated as either the sum of the
payments or as the amount financed
plus the finance charge.
Comment D-4 would be added to
make it clear that under Appendix D
creditors may disclose an estimated
APR computed under either the
actuarial method or the Volume I
method.
A p p en d ix F— A n n u a l Percentage R ate
C om putations fo r Certain O pen-End
Credit Plans
Comment F -l would be added to
cross-reference comment 14(d)—2. The
latter comment discusses the annual
percentage rate calculation methods for
plans involving both daily periodic rates
and specific transaction charges.
A p p en d ix H —C losed-End M o d el Forms
a n d C lauses
Comments H-17 and 18 would be
added to reflect the approval under
section 113 of the act of two student
loan disclosure forms issued by the
Department of Education in conjunction
with the PLUS program.
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Reg. Z; TIL-1]
TRUTH IN LENDING
Proposed Official Staff Commentary Update
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed official staff interpretation.
SUMMARY: In accordance with Appendix C to 12 CFR 226, the staff of the Federal
Reserve Board is publishing for comment a proposed update to the official staff
commentary to Regulation Z (Truth in Lending), as revised effective April 1,
1981. The commentary was published in the Federal Register on October 9,
1981 (46 FR 50288) and became effective October 13, 1981.
DATE:
Comments must be received on or before June 28, 1982.
ADDRESS: Comments 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. between 8:45 a.m.
and 5:15 p.m. To aid in their consideration, comments should include a refer
ence to TIL-1, and discussion of 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 the following attorneys in the Division of
Consumer and Community Affairs, Board of Governors of the Federal Reserve
System, Washington, D.C. 20551, at (202)452-3667 or (202)452-3867:
Subpart A - Gerald Hurst, Rugenia Silver
Subpart B and Appendices - Ruth Amberg, Jesse Filkins, Lynn Goldfaden,
Gerald Hurst, John Wood
Subpart C and Appendices - Clarence Cain, Rugenia Silver, Susan Werthan,
Claudia Yarus, Steven Zeisel
SUPPLEMENTARY INFORMATION: (1) General. Effective October 13, 1981, an official
staff commentary was published to interpret Regulation Z, as revised effective
April 1, 1981. Creditors now have the option of complying with revised Regula
tion Z and the commentary, but compliance does not become mandatory until
October 1, 1982 (Pub.L. 97-110, December 26, 1981). The commentary is designed
to provide general guidance to creditors in applying the regulation to specific
transactions. Although each unique credit plan cannot be individually addressed
in the commentary, periodic updates will provide the vehicle for additional
staff interpretations that may be necessary as new questions arise.
Complete Text
[Ref. Cir. No. 9298]
- 2 In revising the commentary, an attempt is being made to avoid revi
sions that would require modifications to forms that have been prepared based
on the existing regulation and commentary. The types of changes being proposed
generally give creditors more flexibility in making disclosures, while preserving
basic consumer protections. Changes generally will be made only when necessary
to respond to significant questions that have arisen since the commentary's
issuance or to clarify ambiguous language. Purely editorial changes are being
avoided. However, because this is the first update to the commentary, some
technical and editorial changes have been necessary in order to expedite adjust
ment to the commentary's new material and format. Although in most cases the
location of comments has not been affected, some have been renumbered as a
result of the deletion or addition of material.
Certain .conventions have been used to highlight the revised language
in the commentary. New language is highlighted by bold-faced arrows, while
language that has been deleted is set off with brackets. Although the inclusion
of existing commentary language adds to the length of this document, this format
seems to be the most helpful way of pointing out proposed changes.
Comments must be received by June 28, 1982. In order to expedite
analysis of the comments, commenters are requested to identify comments by
section and paragraph numbers and to begin discussion of each section on a
separate page. If comments are received on issues not raised by the proposed
revisions, these comments would most likely be considered for possible inclu
sion in the next commentary update.
Final revisions will be published in the Federal Register; it is
anticipated that final publication will be no later than the beginning of
September. Although creditors will be able to rely on the revisions at that
time, the applicability of the revisions will be optional until April 1, 1983,
which will be specified in‘ the final rule document. The later date will be
provided to minimize any difficulties that creditors may experieince in adjusting
to the revisions.
(2)
Proposed Revisions. Following is a brief description of the
revisions contained in the commentary update.
INTRODUCTION
Comment 1-3 would be amended to reference the regulation's effective
date of October 1, 1982, in accordance with Pub. L. 97-110 (December 26, 1981).
SUBPART A - GENERAL
SECTION 226.2 -- Definitions and Rules of Construction
2(a)(3) "Arranger of Credit"
Comment 2(a)(3)-6 would be added to explain the Board's recent amend
ment to § 226.2(a)(3) of the regulation (47 FR 7391, Feb. 19, 1982) dealing with
real estate brokers.
- 3 2(a) (13) "Consummation"
Comment 2(a)(13)-1 would be revised to show that consummation may
occur when the parties enter a commitment agreement that binds them to specific
credit terms if under state law a contractual relationship is created. This
revision should also ensure that consummation will occur no later than the
time a note or contract is signed.
2(a)(23) "Prepaid Finance Charge"
Comment 2(a)(23)-2 would be revised to make clear that any portion
of the finance charge paid at closing or settlement is considered a prepaid
finance charge.
2(a)(24) "Residential Mortgage Transaction"
Comment 2(a)(24)-l would be revised to add § 226.20(b) to the list
of provisions using the term "residential mortgage transaction." Its omission
was inadvertent.
2(a)(25) "Security Interest"
Comment 2(a)(25) would be revised to permit creditors at their option
to disclose certain interests as security interests when uncertainty exists as
to whether a particular interest is one of the excluded interests.
SECTION 226.4 -- Finance Charge
4(b) Examples of Finance Charge
Comment 4(b)(9)-3 would be added to explain the "regular price" defi
nition in amended § 103(x) of the act and its relationship to cash discounts
offered under § 167(b) of the act. The comment specifically discusses the
displaying of prices for motor vehicle fuel.
4(c) Charges Excluded from the Finance Charge
Comment 4(c)(7)-l would be revised to state that a charge for a
lawyer's attendance at the closing is not a finance charge if the attorney
attends to complete the documents.
4(d) Insurance
Comment 4(d )-11 would be added to clarify the concept of initial term
of insurance coverage and to permit the initial term to be considered one year
if the creditor is uncertain of the term.
- 4 -
SUBPART B - OPEN-END CREDIT
SECTION 226.5 -- General Disclosure Requirements
5(a) Form of Disclosures
Comment 5(a)(2)-l would be revised to include additional examples of
the application of the "more conspicuous" rule. These examples would clarify
the rule; no substantive changes are intended.
5(b) Time of Disclosures
Comment 5(b)(1)-1 would be revised to explain more clearly when
initial disclosures are timely if the plan involves an initial fee that is
paid before the initial disclosures are given, or if the plan involves an
advance made at the time that the consumer is given the initial disclosures.
5(c) Legal Obligation
Comment 5(c)-l would be revised to clarify the meaning of the term
"legal obligaiton." Comment 17(c) (1)-1, which contains a discussion of legal
obligation for closed-end credit transactions, would add a sentence to show
the effect of certain previous court decisions on disclosures. This issue
arises in part because of the requirement that closed-end disclosures be
segregated from other information, a requirement that does not exist for openend credit. The staff solicits comment on whether a companion provision for
open-end credit should be added.
5(d) Multiple Creditors; Multiple Consumers
Material that was inappropriate for commentary treatment would be
deleted from comment 5(d )-1.
SECTION 226.6 - Initial Disclosure Statement
6(a) Finance Charge
Comment 6(a)(2)-2 would be revised in its description of the types of
open-end credit programs for which the creditor's initial disclosure of planned
rate changes excuses the creditor from the general requirement to give notices
when the rate increases according to the disclosed plan. The current commentary
provides that creditors may avoid these notices after giving appropriate dis
closures in plans in which the rates follow an index that is "readily verifiable
by the borrower and beyond the control of the lender."
v
- 5 A number of questions have arisen as to the interpretation and
purpose of the current commentary language. In particular, some creditors have
raised concerns about programs that would use certain internal rates as the
index and therefore not meet the criterion that the index be beyond the lender's
control. These creditors have noted that tying the rate to their commercial
lending rate or to rates paid on savings instruments are customary practices.
The proposal reflects these concerns, while at the same time continuing to
provide guidance on the types of rate increases for which additional disclosures
may be needed.
6(b) Other Charges
Language would be added to comment 6(b)-2 to provide that a charge for
submitting as payment a check that is later returned unpaid would not be an
other charge.
SECTION 226.7 —
Periodic Statements
7(b) Identification of Transactions
Comment 7(b )-1 would be revised to clarify that the listed ways for
a creditor to identify transactions for multifeatured plans are merely examples
of acceptable arrangements.
7(c) Credits
Comment 7(c)-3 would be revised to clarify when additional identi
fication of dates is needed, and also that no specific terminology would be
required for these date identifications.
7(e) Balance on Which Finance Charge Computed
Comment 7(e)-2 would be revised by indicating that the exception
permitting the creditor to disclose one combined balance when split rates (or
"break rates") are applied does not extend to the case in which split rates
are applied to each day's balance. This change would return to the position
under previous Regulation Z, and correct the inadvertent reference in current
comment 7(e)-4). That reference permitted a combined balance, which would not
allow verification of the finance charge attributable to periodic rates.
The last sentence of current comment 7(e)-4 would be deleted, and
incorporated in comment 7(e)-2.
Comments 7(e)-4, 5, 6, and 7 of the current commentary would be
redesignated as comments 7(e)-5, 6, 7, and 8, and current comment 7(e)-8,
which deals with the disclosure of the periodic rate balance amount in multifeatured plans, would be redesignated as comment 7(e)-4.
Comment 7(e)-4 (current comment 7(e )-8) would be revised to give
more complete guidance on when separate balances must be disclosed when a plan
involves different features.
Comment 7(e)-9 would be added to clarify that the creditor could
explain its balance computation method only once, even if it chooses to disclose
more than one balance computed by that same method.
7(g) Annual Percentage Rate
Comment 7(g)-2 would be expanded to clarify that, in multifeatured
plans, the creditor may give separate annual percentage rate disclosures for
each feature or may give a composite actual annual percentage rate for the
entire plan.
SECTION 226.8 -- Identification of Transactions
8(a) Sale Credit
In the last sentence of comment 8(a)(3)-2, the inadvertent reference
to "creditor's" stores would be changed to "seller's" stores.
Comment 8(a)(3)-4 would be added to reflect the position under previous
Regulation Z that the debiting date may be considered the transaction date for
foreign transactions.
SECTION 226.9 -- Subsequent Disclosure Requirements
9(c) Change in Terms
Comment 9(c )-1 would be revised to correspond to the revisions to
comment 6(a) (2)-2.
SECTION 226.13 —
Billing Error Resolution
13(d) Rules Pending Resolution
Comment 13(d)(1)-2 would be revised to clarify that, for purposes of
§ 226.13(d)(1), the creditor need only disclose that payment of "any disputed
amount" is not required pending resolution, as was the case under the previous
Regulation Z.
SECTION 226.14 —
Determination of Annual Percentage Rate
14(c) Annual Percentage Rate for Periodic Statements
An editorial change would be made to comment 14(c)-8 to correct the
inadvertent use of the term "fees" instead of "finance charges." The change
would indicate that the optional annual percentage rate formula in § 226.14(c)(4)
may be used when small finance charges, not fees, of 50 cents or less are
involved.
Comment 14(c)-9 would be added merely to cross-reference comment
14(d)-2. The latter comment discusses the annual percentage rate calculation
methods for plans involving both daily periodic rates and specific transac
tion charges.
14(d) Calculations Where Daily Periodic Rate Applied
Comment 14(d)-2 would be revised to provide alternative annual per
centage rate calculation methods when the finance charge results from the
application of both daily periodic rates and specific transaction charges.
The comment would allow creditors to use either the method in § 226.14(c)(3)
or the method in § 226.14(d)(2); comment is specifically solicited on whether
the option to use the method in § 226.14(d)(2) is needed.
The § 226.14(c)(3) method includes the rules in Appendix F; the
appendix gives examples for determining the denominator of the fraction in
this formula. Footnote 1 to the appendix instructs creditors that apply both
a daily periodic rate and a specific transaction charge to use the average of
daily balances instead of the sum of the balances.
If the § 226.14(d)(2) method is used, the creditor should apply the
rule that balances not be duplicated (set forth in § 226.14(c)(3) and explained
in comment 14(c)-5), as well as the rule that the annual percentage rate must
not be less than the largest corresponding annual percentage rate for that
cycle (set forth in § 226.14(c)(3)).
SECTION 226.15 —
Right of Rescission
15(a) Consumer's Right to Rescind
Two changes are proposed for comment 15(a)-2. First, the dates in
the comment, which refer to the three-year trial period in § 125(e) of the
act, would be changed from March 31, 1985 to September 30, 1985 to reflect the
change in the mandatory effective date of the act from April 1, 1982 to October
1, 1982. Second, a sentence would be added to clarify that the limited rescis
sion option is available for programs whether or not they existed on the effec
tive date of the act.
SECTION 226.16 -- Advertising
16(b) Advertisement of Terms that Require Additional Disclosures
Comment 16(b)(l)-6 would be added to make clear that charges excluded
from the finance charge under § 226.4 are not required disclosures when a trig
gering term is used in an advertisement.
- 8 SUBPART C - CLOSED-END CREDIT
SECTION 226.17 —
General Disclosure Requirements
17(a) Form of Disclosures
Comment 17(a)-5 would add four examples of "directly related"
information. The first example relating to § 226.18(k) would clarify the
applicability of the § 226.18(k)(1) disclosure. For purposes of this dis
closure, a minimum finance charge is considered a penalty. Some state
laws prohibit creditors from charging a penalty in the event of prepayment
while permitting the creditor to charge a minimum charge. In this instance
the creditor may state that a minimum finance charge will be imposed. The
second example relating to § 226.18(k) would enable creditors to identify
which finance charge triggered the § 226.18(k)(2) prepayment disclosure.
The example relating to § 226.18(f) responds to inquiries about
disclosing the fact that a variable rate feature may produce negative arnorti
zation. It permits creditors to disclose this fact when making the other
required variable rate disclosures. The last example would permit the
inclusion of a title for the disclosure statement.
17(c)
Basis of Disclosures and Use of Estimates
Comment 17(c) (1)-1 would be revised to clarify the meaning of the
term "legal obligation." A sentence would be added to show the effect of
certain previous court decisions on disclosure of the legal obligation, and
the sentence discussing contracts later deemed unenforceable by a court would
be modified to include situations in which an individual term, rather than an
entire contract, is deemed unenforceable. Portions of comments 17(c)(1)-1 and
2 would be restructured for added clarity.
Comment 17(c)(1)-4 would be revised to clarify the treatment of
certain buydown plans, including the Federal National Mortgage Association's
Buydown Program, as revised for commitments issued on or after February 16,
1982.
A new comment 17(c)(1)-8 would be added to clarify the treatment of
adjustable rate mortgages that contain a graduated payment feature or an ini
tial payment amount resulting in negative amortization. This comment applies
to mortgages such as the graduated payment adjustable mortgage loan authorized
by the Federal Home Loan Bank Board (12 CFR 545.6-4b).
New comments 17(c)(3)-2 and 17(c)(4)-2 would be added to clarify
that a creditor may ignore minor variations in calculating some disclosures
without being required to ignore those variations in computing all of the
disclosures.
- 9 17(d) Multiple Creditors; Multiple Consumers
Material that was inappropriate for commentary treatment would be
deleted from comment 17(d)-l.
17(h) Series of Sales— Delay in Disclosures
Comment 17(h)-2 would be added to address the content of disclosures
for transactions under § 226.17(h).
17(i)
Interim Student Credit Extensions
provision.
Comment 17(i)-1 would be amended to clarify the applicability of this
No substantive change would be made.
Comment 17(i)-2 would be revised to provide further guidance on the
basis for interim student credit disclosures.
Comment 17(i)-5 would be added as a cross-reference to Appendix H,
regarding approved disclosure forms.
SECTION 226.18 —
Content of Disclosures
18(f) Variable Rate
Comment 18(f)-2 would be amended to clarify that the disclosures in
a variable-rate transaction are not considered estimates and should not be
labelled as such.
^
Comment 18(f)-6 would be added to discuss the treatment of growth
equity mortgages.
Comment 18(f)(3)-l would be revised to include a cross-reference to
comment 17(a)(l)-5, which permits the inclusion of a brief reference to nega
tive amortization in the variable-rate disclosures.
A sentence would be added to comment 18(f)(4)-l to clarify that the
example may reflect an immediate increase only when the contract terms permit
an immediate increase in the rate.
Comment 18(f)(4)-2 would contain additional examples of transactions
that need not make the hypothetical disclosure required in most transactions
by § 226.18(f)(4).
18(g)
Payment Schedule
Comment 18(g)-1 would be revised to clarify that prepaid finance
charges are not reflected in the payment schedule.
10 Comment 18(g)(2)-l would be revised to clarify that the abbreviated
disclosures may be employed when mortgage insurance premium payments gradually
increase over a portion of the loan term. This will occur if the accrual rate
exceeds the payment rate for a period and negative amortization causes the
unpaid principal balance to increase. During this period, the amount of each
premium payment will increase to insure the increasing principal balance.
When negative amortization ends, the premiums will decrease in a traditional
manner. The proposed language would permit the creditor to disclose the lowest
and highest payments in the increasing series (with a reference to the varia
tion in payments) followed by the highest and lowest payments in the decreasing
series (with a reference to the variation in payments).
18(i) Demand Feature
Comment 18(i)-2 would be revised to clarify that a due-on-sale clause
is not considered a demand feature requiring disclosure.
18(k)
Prepayment
Comment 18(k)(l)-l would be changed by the addition of the word
"scheduled" to the first sentence. The change is to clarify that this disclo
sure applies not only to interest calculations made daily, but to calculations
that are made other than daily while taking into account reductions in princi
pal. A cross-reference to comment 17(a)(1)-5 would be added to point out the
permitted reference to a minimum finance charge in the penalty disclosure.
Comment 18(k)(2)-l would be revised to include a cross-reference to
comment 17(a)(l)-5, which permits creditors to describe in the disclosure state
ment the type of finance charge subject to a rebate.
18(r)
Required Deposit
A new comment 18(r)-2 would be added to address pledged account or
FLIP mortgages, allowing creditors two options in disclosing those types of
transactions.
SECTION 226.19 -- Certain Residential Mortgage Transactions
19(a)
Time of Disclosure
Comment 19(a)-2 would be revised to conform with comment 17(a) (1)-5,
regarding explanation of the basis for estimates.
SECTION 226.20 —
Subsequent Disclosure Requirements
20(a) Refinancings
The amendment to comment 20(a)-3 would clarify the current commentary
position that the addition of a variable-rate feature to a previously fixed
rate transaction requires new disclosures regardless of the manner in which
11
the change is made. The remainder of comment 20(a)-3 discusses a variablerate transaction for which no variable-rate disclosures were ever provided.
New comment 20(a)-5 would clarify the coverage of § 226.20(a).
"Refinancing," as the term is used here, refers only to a new transaction
undertaken with the original creditor (or a holder or servicer of the original
obligation) to replace the original obligation. The term "refinancing" is
sometimes used to refer to a loan, the proceeds of which are used in whole or
in part to satisfy an obligation to a different creditor. Under the regulation,
that is not a refinancing but a new transaction subject to the general coverage
rules and disclosure requirements of the regulation.
20(b) Assumptions
The revisions to comments 20(b)-1 and 6 would clarify the coverage of
§ 226.20(b). The following elements must all be present before an assumption
under this section requires new disclosures:
°
The original obligation must have been a consumer credit obligation
that was not originally exempt.
°
The assumption must be accompanied by no significant change in
terms (as described in comment 20(b)-6).
°
The creditor must expressly agree to the new consumer as a primary
obligor.
©
The agreement must be in writing.
o
The transaction must be a "residential mortgage transaction"
as to the new consumer.
All the above elements must be present in order to require assumption
disclosures under § 226.20(b). An apparent assumption that has the first two
elements but does not have all the remaining three requires no disclosures at
all. However, an apparent assumption that fails to have one or both of the
first two elements listed above is not subject to § 226.20(b). To determine
if disclosures are required in that case, the creditor must analyze the trans
action under § 226.2 and § 226.3.
SECTION 226.22 —
Determination of the Annual Percentage Rate
22(a) Accuracy of the Annual Percentage Rate
A sentence would be added to comment 22(a) (1)-4 to provide an example
of a composite annual percentage rate for a step-rate transaction.
- 12 SECTION 226.24 -- Advertising
24(b) Advertisement of Rate of Finance Charge
Comment 24(b)-2 would be added to clarify that stating the effective
simple annual payment rate for any portion of the repayment period constitutes
a statement of a rate of finance charge under that section, requiring that the
annual percentage rate also be stated.
APPENDIX D —
Multiple-Advance Construction Loans
Comment D-2 would be added to clarify that disclosure of a variablerate hypothetical is not required for multiple-advance construction loans
disclosed pursuant to Appendix D, Part I. (See comment 18(f)(4)-2).
Comment D-3 would be added to clarify that the total of payments
disclosure under Appendix D may be calculated as either the sum of the payments
or as the amount financed plus the finance charge.
Comment D-4 would be added to make it clear that under Appendix D
creditors may disclose an estimated APR computed under either the actuarial
method or the Volume I method.
APPENDIX F -- Annual Percentage Rate Computations for Certain Open-End Credit
Plans
Comment F-l would be added to cross-reference comment 14(d)-2. The
latter comment discusses the annual percentage rate calculation methods for
plans involving both daily periodic rates and specific transaction charges.
APPENDIX H -- Closed-End Model Forms and Clauses
Comments H-17 and 18 would be added to reflect the approval under
section 113 of the act of two student loan disclosure forms issued by the
Department of Education in conjunction with the PLUS program.
(3)
read as follows:
Text of Proposal.
The proposed revisions to the commentary
OFFICIAL STAFF COMMENTARY —
TIL-1
INTRODUCTION ***
3. Status of previous interpretations. All statements and opinions issued by
the Federal Reserve Board and its staff interpreting previous Regulation Z
remain effective until [April 1.1 ► October 1. 4 1982 only insofar as they
interpret that regulation. When compliance with revised Regulation Z becomes
mandatory on [April 1,3 ► October 1. 4 1982, the Board and staff interpreta
tions of the previous regulation will be entirely superseded by the revised
regulation and this commentary except with regard to liability under the
previous regulation. ***
- A1
§ 226.2
§ 226.2
SUBPART A - GENERAL ***
SECTION 226.2 —
Definitions and Rules of Construction
2(a) Definitions ***
2(a)(3) "Arranger of Credit" ***
► 6. Real estate brokers. The general definition does not include a person
(such as a real estate broker or salesperson) when arranging for the seller of
real property or a dwelling to finance its purchase in whole or in part, even
if the obligation by its terms is simultaneously assigned by the seller to
another person. However, a broker or salesperson is not exempt from coverage
in all transactions. For example, a real estate broker mav he a creditor in
the following situations:
o
The broker acts as a loan broker to arrange for someone other
than the seller to extend credit, provided that the extender of
credit (the person to whom the obligation is initially payable)
does not meet the "creditor^ definition.
o
The broker extends credit itself, provided that the broker other
wise meets the "creditor11 definition. 4 ***
2(a) (13) "Consummation11
1. State law governs. When a contractual obligation on the consumer's part is
created is a matter to be determined under applicable law; Regulation Z does
not make this determination. ► Consummation occurs when, under state law, the
consumer becomes contractual 1y obligated to accept specific credit terms. A
contractual commitment agreement, for example, that binds the parties to specific
credit terms would be consummation. 4 Consummation > . however, 4 does not occur
merely because the consumer has made some financial investment in the transaction
(for example, by paying a nonrefundable fee) unless, of course, applicable law
holds otherwise. ***
2(a)(23) "Prepaid Finance Charge" ***
2.
Examples.
Common examples of prepaid finance charges include:
o
Buyer's points.
°
Service fees.
°
Loan fees,
o
Finder's fees,
o
Loan guarantee insurance,
o
Credit investigation fees.
§ 226.4
- A2 -
§ 226.4
However, in order for these or any other finance charges to be considered pre
paid, they must be either paid separately in cash or check or withheld from
the proceeds. ► Prepaid finance charges include any portion of the finance
charge paid at closing or settlement. « ***
2(a)(24) "Residential Mortgage Transaction1*
1. Relation to other sections.
sions in the regulation:
This term is important in [five] ► six 4 provi
o
Section 226.4(c)(7) —
°
Section 226.15(f) -- exemption from the right of rescission,
o
Section 226.18(q) —
o
Section 226.19 -- special timing rules,
t o
o
Section 226.20(b) —
exclusions from the finance charge.
whether or not the obligation is assumable,
disclosure requirements for assumptions. 4
Section 226.23(f) -- exemption from the right of rescission. ***
2(a) (25) "Security Interest*' ***
2. Exclusions. The general definition of security interest excludes three
groups of interests: incidental interests, interests in after-acquired property,
and interests that arise solely by operation of law. These interests may not be
disclosed with the disclosures required under section 226.18, but the creditor is
not precluded from preserving these rights elsewhere in the contract documents,
or invoking and enforcing such rights, if it is otherwise lawful to do so. ► If
the creditor is unsure whether a particular interest is one of the excluded
interests, the creditor may, at its option, consider such interests as security
interests for Truth in Lending purposes. 4 ***
SECTION 226.4 —
Finance Charge ***
4(b) Examples of Finance Charges ***
Paragraph 4(b)(9) ***
> 3. Determination of the regular price. The "regular price” is critical in
determining whether the difference between the price charged to cash customers
and credit customers is a "discount1* or a "surcharge.11 as these terms are de
fined in amended 5 103 of the act. The "regular price1' is generally the price
displayed on the merchandise being sold. In the sale of motor vehicle fuel,
for example, the regular price is the price displayed at the pump. As a result,
the higher price (the open-end credit or credit card price) must be displayed "at
the pump, either alone or along with the cash price. A service station operator
may display the cash price of fuel by itself on a curb sign, as long as the sign
clearly indicates that the price is limited to cash purchases, i ***
§ 226.4
- A3 -
§ 226.4
4(c) Charges Excluded from the Finance Charge ***
Paragraph 4(c)(7)
1. Real estate or residential mortgage transaction charges. The list of
charges in section 226.4(c)(7) applies both to residential mortgage transactions
(which may include, for example, the purchase of a mobile home) and to other
transactions secured by real estate. The fees are excluded from the finance
charge even if the services for which the fees are imposed are performed by the
creditor's employees rather than by a third party. In addition, credit report
fees include not only the cost of the report itself, but also the cost of
verifying information in the report. In all cases, the charges must be bona
fide and reasonable. If a lump sum is charged for several services and includes
a charge that is not excludable C(for example, a charge for a lawyer's attending
the closin s)X a portion of the total should be allocated to that service and
included in the finance charge. ► A charge for a lawyer's attendance at the
closing to insure that documents are completed and executed properly is excluded
from the finance charge. 4
4(d) Insurance ***
V 11. Initial term. The initial term of insurance coverage determines the period
for which a premium amount must be disclosed. In some cases the initial term
is clear, for example, a property insurance policy on an automobile written for
one year (even though the term of the credit transaction is four years) or a
credit life insurance policy for the term of the credit transaction purchased
by paving or financing a single premium. In other cases, however, it mav not
be clear what the initial term of the insurance is. If the creditor is unsure
of the initial term of insurance coverage, the premium disclosed may be the
premium for one year of insurance coverage. The premium must be clearly la
beled as being for one year. 4
§ 226.5
- B1
SECTION 226.5 —
5(a)
§ 226.5
General Disclosure Requirements
Form of Disclosures ***
Paragraph 5(a)(2)
1. When disclosures must be '•more conspicuous." The terms "finance charge" and
"annual percentage rate11 ► , when required to be used with a number, 4 must be
disclosed more conspicuously ► than other required disclosures, 4 [when required
to be used with a number.] E except in two cases as provided in footnote 9.
First, the corresponding annual percentage rate under section 226.7(d) may“ be
less conspicuous than disclosure of the actual annual percentage rate under
section 226.7(g). Second, neither term need be more conspicuous than other
required disclosures under section 226.16 in advert isements7"4 [For example,
on the initial disclosure statement, the annual percentage rate disclosure
under section 226.6(a)(2) must be "more conspicuous." The following apply to
the "more conspicuous" rule:] ► At the creditor's option, "finance charge" and
"annual percentage rate" may also^ be disclosed more conspicuously than th e "
other required disclosures even when the regulation does not so require. The
following examples illustrate these rules:
o On the initial disclosure statement, the disclosure for
the annual percentage rate that corresponds to each peri
odic rate, required by section 226.6(a)(2), must be ''inore*
conspicuous" than other required disclosures.
o If the plan involves a minimum finance charge, it must
be disclosed on the initial disclosure statement more
conspicuously than other required disclosures when "
accompanied by the amount of the finance charge.
o On the periodic statement, the disclosure of the amount
of the finance charge, required by section 226 .7[t), must
be "more conspicuous" than other required disclosures.
o Although neither 4 [Neither ternQ ► "finance charge" nor
"annual percentage rate" 4 need be emphasized when used
as part of general informational material or in textual
descriptions of other terms, [although] emphasis is per
missible in such cases. For example, when the terms
appear as part of the explanations required under section
226.6(a)(3) and (4), they may be [as] ► equally 4 conspicuous
as the disclosures required under sections 226.6(a)(2) and
226.7(g).
[ o The corresponding annual percentage rate under section
226.7(d) may be less conspicuous than the disclosure of
the actual annual percentage rate (historical rate) under
section 226.7(g) when the two rates differ. This is per
mitted by footnote 9 to section 226.5(a)(2), which excepts
section 226.7(d) disclosures from the "more conspicuous"
requirement.] ***
§ 226.5
5(b)
- B2
§ 226.5
Time of Disclosures
5(b)(1) Initial Disclosures
1. Disclosure before the first transaction. The rule that the initial disclosure statement must be furnished "before the first transaction" requires delivery
of the initial disclosure statement before the consumer becomes obligated on
the plan (for example, before the consumer makes the first purchase, receives
the first advance, or pays a fee under the plan). [Delivery of the initial
disclosure statement is timely even if a membership fee, advance, or purchase
already has been posted to the consumer's account, so long as the consumer
may, after receiving the disclosures, reject the plan and have no further
obligation beyond returning a credit card or any money or goods.J
► ° If the consumer pays a membership fee before receiving the
Truth in Lending disclosures, or the consumer agrees to the
imposition of a membership fee at the time of application and
the Truth in Lending disclosure statement is not given at
that time, disclosures are timely as long as the consumer,
after receiving the disclosures, can reject the plan. The
creditor must refund the membership fee, if it has been paid,,
or if it has been debited to the consumer's account, the.
*
creditor must clear the account.
*
o If the consumer receives a cash advance check at the same
time the Truth in Lending disclosures are provided, disclo
sures are still timely if the consumer can, after receiving
the disclosures, return the cash advance check to the credi
tor without obligation (for example, without paying finance
charges).
o Initial disclosures need not be given before the imposition of an application fee under section 226.4(c)(1).
o If the consumer uses the account, pays a fee, or negotiates
a cash advance check after receiving the disclosures, the
creditor may consider the account not rejected for purposes
of this section. 4 ***
5(c) Basis of Disclosures and Use of Estimates
1. Legal obligation. The disclosures should reflect the credit terms to which
the parties are legally bound at the time of giving the disclosures.
° The legal obligation is [normally] determined by applicable
state or other law.
§ 226.6
- B3 -
§ 226.6
o The fact that a ► term or 4 contract may later be deemed
unenforceable by a court on the basis of equity or other
grounds does not, by itself, mean that disclosures based on
that ► term or 4 contract did not reflect the legal obliga
tion.
° The legal obligation normally is presumed to be contained in
the contract that evidences the agreement. But this may be
rebutted if another agreement between the parties legally
modifies that contract. ***
5(d) Multiple Creditors; Multiple Consumers
1.
Multiple creditors.
Under section 226.5(d):
© Creditors must choose which of them will make the disclo
sures.
o A single, complete set of disclosures must be provided,
rather than partial disclosures from several creditors.
£ o Each creditor in the plan is legally responsible for seeing
that the disclosures are provided.}
o All disclosures for the open-end credit plan must be given,
even if the disclosing creditor would not otherwise have
been obligated to make a particular disclosure.
o In some open-end credit programs involving multiple credi
tors, the consumer has the option (for example, at the end
of a billing cycle) to pay creditor A directly or to transfer
to creditor B all or part of the amount owing. If the consumer
elects the latter option, the consumer no longer is obligated
to creditor A for the specific amount(s) transferred. In such
a case, creditor A and creditor B may send separate periodic
statements that reflect the separate obligations owed to each. ***
SECTION 226.6 —
Initial Disclosure Statement ***
Paragraph 6(a)(2) ***
[2. Variable-rate plan defined. A variable-rate plan contemplates a series
of rate changes in accordance with an index that is readily verifiable by the
borrower and beyond the control of the lender (for example, the Treasury bill
rate). A contract right to increase the rate upon any other contingency, or
at the creditor's discretion, would not be a variable-rate plan. For example,
an open-end credit plan in which the employee receives a lower rate contingent
upon employment, with the rate to be increased upon termination of employment,
would not be a variable-rate plan. Similarly, an open-end credit plan that
provides for rate increases voted by the board of directors of a financial
institution would not be a variable-rate plan.}
- B4
§ 226.6
§ 226.6
► 2. Variable-rate disclosures - coverage. This section covers open-end
credit plans under which rate changes are part of the plan and are tied to an
index or formula. A creditor would use variable-rate disclosures (and thus
be excused from the requirement of giving a change-in-terms notice when rate
increases occur as disclosed) for plans involving rate changes such as
the fol1owing:
o Rate changes that are tied to the rate the creditor
pays on its 6-month money market certificates.
o Rate changes that are tied to treasury bill rates.
° Rate changes that are tied to changes in the
creditor's commercial lending rate.
In contrast, the creditor's contract reservation to increase the rate without
reference to such an index or formula (for example, a plan that simply provides
that the creditor reserves the right to raise its rates) would not be considered
a variable-rate plan for Truth in Lending disclosure purposes. Moreover, an
open-end credit plan in which the employee receives a lower rate contingent
upon employment (that is, with the rate to be increased upon termination of
employment) is not a variable-rate plan. « ***
6(b)
Other Charges ***
2. Exclusions.
charges":
The following are examples of charges that are not "other
° Fees charged for documentary evidence of transactions
for income tax purposes.
° Amounts payable by a consumer for collection activity
after default; attorney's fees, whether or not auto
matically imposed; foreclosure costs; post-judgment
interest rates imposed by law; and reinstatement or
reissuance fees.
° Premiums for voluntary credit life or disability
insurance, or for property insurance, that are not
part of the finance charge.
o Application fees under section 226.4(c)(1).
° A monthly service charge for a checking account
with overdraft protection that is applied to all
checking accounts, whether or not a credit feature
is attached.
► o Charges for submitting as payment a check that is
later returned unpaid. (See comment 4(c)(2)-2. ) 4 ***
§ 226.7
- B5
§ 226.7
SECTION 226.7 -- Periodic Statement ***
7(b) Identification of Transactions
1. Multi featured plans. In identifying transactions under section 226.7(b)
C, transactions may be grouped by feature (such as by disclosing sale trans
actions separately from cash advance transactions) or may be arranged by date.]
b for multifeatured plans, creditors may, for example, choose to arrange trans
actions by feature (such as disclosing sale transactions separately trom cash
advance transactions) or in some other clear manner, such as by arranging the
transactions in general chronological order. 4 ***
— —
7(c) Credits ***
3. Date. [The crediting date need not be identified as "crediting date,"
unless two or more dates are disclosed for a single entry (for example, the
posting date and the crediting date).] b If only one date is disclosed (that isT
the crediting date as required by the regulation), no further identification
of that date is necessary. More than one date may be disclosed for a single
entry, as long as it is clear which date represents the date on which credit
was given. 4 ***
7(e) Balance on which Finance Charge Computed ***
2. Split rates applied to balance ranges. If split rates were applied to a
balance because different portions of the balance fall within two or more
balance ranges, the creditor need not separately disclose the portions of the
balance subject to such different rates since the range of balances to which
the rates apply has been separately disclosed. For example, a creditor could
disclose a balance of $700 for purchases even though a monthly periodic rate
of 1.5 percent applied to the first $500, and a monthly periodic rate of 1
percent to the remainder. ► This does not apply when the finance charge is com
puted by applying the split rates to each day's balance. In that case, the
balances m u s t be disclosed using any of the options that are available if two
or more daily rates are imposed. (See comment 7(e)-5). 4
Comment 7(e)-8 is redesignated as 7(e)-4.
[8. Multifeatured plans. In a multifeatured plan, the balance on which the
finance charge was computed must be disclosed for each feature to which a
periodic rate was applied. A total balance for the entire plan is optional.]
► 4. Multifeatured plans. In a multifeatured plan, the creditor must disclose
a separate balance (or balances, as applicable) to which a periodic rate was
applied for each feature or group of features subject to different periodic
rates or different balance computation methods. Separate balances are not
§ 226.7
- B6
§ 226.7
required, however, merely because a "free-ride" period is available for some
features but not others. A total balance for the entire plan is optional.
this does not affect how many balances the creditor must disclose -- or may
disclose -- within each feature. (See, for example, comment 7(e)-5.) ^ ***
Comment 7 (e)-4 is redesignated as 7(e)-5.
5. Daily rate on daily balance. If the finance charge is computed on the
balance each day by application of one or more daily periodic rates, the balance
on which the finance charge was computed may be disclosed in any of the following
ways for each feature:
o If a single daily periodic rate is imposed, the
balance to which it is applicable may be stated as:
-a balance for each day in the billing cycle
-a balance for each day in the billing cycle on which
the balance in the account changes
-the sum of the daily balances during the billing
cycle
-the average daily balance during the billing cycle,
in which case the creditor shall explain that the
average daily balance is or can be multiplied by
the number of days in the billing cycle and the
periodic rate applied to the product to determine
the amount of the finance charge.
o If two or more daily periodic rates may be imposed,
the balances to which the rates are applicable may
be stated as:
-a balance for each day in the billing cycle
-a balance for each day in the billing cycle on
which the balance in the account changes
-as two or more average daily balances, each appli
cable to the daily periodic rates imposed for the
time that those rates were in effect, as long as
the creditor explains that the finance charge is
or may be determined by (1) multiplying each of
the average balances by the number of days in the
billing cycle, (or if the daily rate varied during
the cycle, by multiplying by the number of days the
applicable rate was in effect), (2) multiplying each
of the results by the applicable daily periodic rate,
and (3) adding these products together, [if the dif
ferent rates are due to disclosed ranges of balances
§ 226.8
- B7
§ 226.8
(see comment 7(e)-2), the creditor need give only one
average daily balance together with the additional
information required by this paragraph.]
Comments 7(e)-5, 6, and 7 are redesignated as 7(e)-6, 7, and 8 respectively.
Comment 7(e)-8 is redesignated as 7(e )-4.
► 9. Use of one balance computation method explanation when multiple balances
disclosed. Sometimes the creditor will disclose more than one balance to wnich
a periodic rate was applied even though each balance was computed using the
same balance computation method. In these cases, one explanation of the
balance computation method is sufficient. 4 ***
7(g) Annual Percentage Rate ***
2. Multi featured plans. In a multifeatured plan, the actual annual percentage
rate that reflects the finance charge imposed during the cycle may be separately
stated for each feature [.] ► , or may be described as a composite for the whole
plan. 4 If separate rates are given, a composite annual percentage rate for
the entire plan is optional. ***
SECTION 226.8 -- Identification of Transactions. ***
8(a) Sale Credit ***
8(a)(3) Copy of Credit Document Not Provided -- Creditor and Seller Not Same or
Related Person(s) ***
2. Location of transaction. The disclosure of the location where the trans
act iorTTooinpTaci^eneriTT^ requires an indication of both the city, and the
state or foreign country. If the [creditor] frsel1er4 has multiple stores or
branches within that city, the creditor need not identify the specific branch
at which the sale occurred. ***
» 4. Date of transaction -- foreign transactions. In a foreign transaction,
the d e b i t i n g d a t e mav be considered the transaction date. 4 ***
SECTION 226.9 -- Subsequent Disclosure Requirements ***
9(c) Change in Terms
1. "Changes" initially disclosed. No notice of a change in terms need be given
if the specific change is set forth initially, such as: rate increases under a
properly disclosed variable-rate plan, a rate increase that occurs when an
§ 226.13
- B8 -
§ 226.13
employee has been under a preferential rate agreement and terminates employment,
or an increase that occurs when the consumer has been under an agreement to
maintain a certain balance in a savings account in order to keep a particular
rate and the account balance falls below the specified minimum. In contrast,
notice must be given if the contract allows the creditor to increase the rate
at its discretion but does not include specific terms for an increase (for example,
when an increase may occur [by vote of the board of directors).} ► under the
creditor's contract reservation right to increase the periodic rates.) 4 ***
SECTION 226.13 -- Billing Error Resolution ***
13(d) Rules Pending Resolution ***
13(d)(1) Consumer's Right to Withhold Disputed Amount; Collection Action
Prohibited ***
2. Right to withhold payment. > If the creditor is required to make the dis
closure under footnote 30. the creditor may comply with that disclosure require
ment by indicating that payment of any disputed amount is not required pending
resolution. Making a disclosure that only refers to disputed amount would, of
course, in no way affect the consumer's right under section 226.13(d)(l) to
withhold related finance and other charges. 4 The disclosure [that payment of
any disputed amount is not required pending error-resolution}
under footnote
30 4 need not appear in any specific place on the periodic statement
[and
TtJ need not state the specific amount that the consumer may withhold [. The
creditor}
and 4 may ► be preprinted 4 [preprint} on [its} ► the 4 periodic
statement ►
[forms a statement that payment of any disputed amount is not
required pending resolution.} ***
SECTION 226.14 -- Determination of Annual Percentage Rate ***
14(c) Annual Percentage Rate for Periodic Statements ***
8. Small finance charges. Section 226.14(c)(4) gives the creditor an
alternative to section 226.14(c)(2) and (c)(3) if small [(50 cents or less)
minimum or fixed fees are involved.} ► finance charges (50 cents or less) are
involved; that is, if the finance charge includes minimum or fixed tees not
due to tne application of a periodic rate and the total finance charge tor the
cycle does not exceed 50 cents.4 For example, while a monthly activity tee of
50 cents on a balance of $20 would produce an annual percentage rate of 30
percent under the rule in section 226.14(c)(2), the creditor may disclose an
annual percentage rate of 18 percent if the periodic rate generally applicable
to all balances is 1 1/2 percent per month. This option is consistent with
the provision in footnote 11 to sections 226.6 and 226.7 permitting the creditor
to disregard the effect of minimum charges in disclosing the ranges of balances
to which periodic rates apply.
► 9. Daily rate with specific transaction charge. If the finance charge results
from a charge relating to a specific transaction and the application of a daily
periodic rate, see comment 14(d)-2 for guidance on the appropriate calculation
methods. 4 ***
§ 226.15
- B9 -
§ 226.15
14(d) Calculations Where Daily Periodic Rate Applied ***
2. Daily rate with specific transaction charge. If the finance charge results
from a charge relating to a specific transaction and the application of a daily
periodic rate, the calculation method in > section 226.14(c)(3) 4 [section
226.14(d)(2)J should be used. ► This requires a creditor to follow the rules
in Appendix F in calculating the annual percentage rate, especially footnote 1
to Appendix F which addresses the daily rate/transaction charge situation by
providing that the Maverage of daily balances11 shall be used instead of the
“sum of the balances."
A1 ternatively, the calculation method in section 226.14(d)(2) may be
used. If this method is used, the creditor must also
o Apply the "without duplication1* rule.
(See comment 14(c)-5.)
o Disclose an annual percentage rate not less than the largest
rate determined by multiplying each periodic rate imposed
during the cycle by the number of periods in a year. 4 ***
SECTION 226.15 —
Right of Rescission ***
15(a) Consumer's Right to Rescind
Paragraph 15(a)(1) ***
2. Exceptions. Although the consumer generally has the right to rescind with
each transaction on the account, section 125(e) of the act provides an excep
tion: until [March 31, 1985,] ► September 30, 1985 4 the creditor need not
provide the right to rescind at the time of each credit extension made under
an open-end credit plan secured by the consumer's principal dwelling to the
extent that the credit extended is in accordance with a previously established
credit limit for the plan. ► This limited rescission option is available whether
or not the plan existed prior to the effective date of the act. 4 The consumer
will have the right to rescind each extension made after [March 31, 1985]
t September 30, 1985 4 under such a secured open-end credit plan, whether that
plan was established before or after that date. ***
SECTION 226.16 —
Advertising ***
16(b) Advertisement of Terms That Require Additional Disclosures ***
> 6. Minimum, fixed, transaction, activity or similar charge. The charges to
be disclosed under $ 226.16(b)(1) are those that are considered finance charges
under $ 226.4. 4 ***
§ 226.17
- Cl -
§ 226.17
SUBPART C -- CLOSED-END CREDIT
SECTION 226.17 —
General Disclosure Requirements
17(a) Form of Disclosures
Paragraph 17(a)(1) ***
5. Directly related. The segregated disclosures may, at the creditor's
option, include any information that is directly related to those disclosures.
Directly related information includes, for example, the following:
°
A description of a grace period after which a late payment charge
will be imposed. For example, the disclosure given under section
226.18(1) may state that a late charge will apply to "any payment
received more than 15 days after the due date."
°
A statement that the transaction is not secured. For example, the
creditor may add a category labelled "unsecured" or "not secured"
to the security interest disclosures given under section 226.18(m).
°
The basis for any estimates used in making disclosures. For
example, if the maturity date of a loan depends solely on the
occurrence of a future event, the creditor may indicate that the
disclosures assume that event will occur at a certain time.
o
The conditions under which a demand feature may be exercised. For
example, in a loan subject to demand after five years, the disclo
sures may state that the loan will become payable on demand in five
years.
o
When a variable rate feature is disclosed on other documents under
footnote 43 to section 226.18(f), a reference to the variable rate
feature and/or to other documents on which the variable rate disclo
sures are made.
°
An explanation of the use of pronouns or other references to the
parties to the transaction. For example, the disclosures may state,
"'You' refers to the customer and 'we' refers to the creditor."
°
Instructions to the creditor or its employees on the use of a
multiple-purpose form. For example, the disclosures may state,
"Check box if applicable."
► °
A statement that the borrower will pay a minimum finance charge
"upon prepayment. For example, when state law prohibits penalties
for prepayment, the creditor may make the section 226.18(k)(l)
disclosure by stating "You will be charged a minimum finance
charge."
°
Identification of the finance charge that is subject to a rebate.
For example, the disclosure given under section 226.18(kH2) may
state that the borrower "will not be entitled to a refund of the
prepaid finance charge."
§ 226.17
17(c)
- C2 -
§ 226.17
©
A brief reference to negative amortization in variable-rate trans
actions. For example, in the variable-rate disclosure, the creditor
may include a short statement such as "Unpaid interest will be
added to principal,a
°
A brief caption identifying the disclosures. For example, the
disclosures may bear a general title such as “Federal Truth in
Lending Disclosures" or a descriptive title such as "Real Estate
Loan Pi sclosures. 4 ***
Basis of Disclosures and Use of Estimates
Paragraph 17(c)(1)
1. Legal obligation. The disclosures should reflect the credit terms to
which the parties are legally bound at the outset of the transaction. ► The
legal obligation is determined by applicable state law or other law. (Certain
transactions are specifically addressed in this commentary. See, for example,
the discussion of buydown transactions elsewhere in the commentary to section
226.17(c).) 4
[ o
The legal obligation is normally determined by applicable state
or other law, but certain transactions are specifically addressed
in this commentary. (See, for example, the discussion of buydown
transactions elsewhere in the commentary to section 226.17(c).)]
> o
It is not a violation of the regulation for a creditor, in disclos
ing the legal obligation, to omit the disclosure of a term that
a court with jurisdiction over the creditor has previously deemed
unenforceable on the basis of equity or other grounds. 4
o
£ o
The fact that a [credit^ k term or 4 contract may later be deemed
unenforceable by a court on the basis of equity or other grounds
does not, by itself, mean that disclosures based on that ► term
or 4 contract did not reflect the legal obligation.
The legal obligation normally is presumed to be contained in
the note or contract that evidences the agreement. But this
presumption is rebutted if another agreement between the parties
legally modifies that note or contract.]
2. Modification of obligation, k The legal obligation normally is presumed to
be contained in the note or contract that evidences the agreement. But this
presumption is rebutted if another agreement between the parties legally modifies
that note or contract.4 If the parties informally agree to a modification of
the legal obligation, the modification should not be reflected in the disclosures
unless it rises to the level of a change in the terms of the legal obligation.
For example:
§ 226.17
- C3 -
§ 226.17
°
If the creditor-employer offers a preferential employee rate,
the disclosures should reflect the terms of the legal obligation.
(See the commentary to section 226.18(f) for ► an example of a
preferred-rate employee transaction that is a variable-rate
transaction.) 4 [a discussion of whether employee transactions
are variable-rate transactions.)]
o
If the contract provides for a certain monthly payment schedule
but payments are made on a voluntary payroll deduction plan or
an informal principal-reduction agreement, the disclosures should
reflect the schedule in the contract.
°
If the contract provides for regular monthly payments but the
creditor informally permits the consumer to defer payments from
time to time, for instance, to take account of holiday seasons or
seasonal employment, the disclosures should reflect the regular
monthly payments. ***
4. Consumer buydowns. In certain transactions, the consumer may pay an amount
to the creditor to reduce the payments or [buy down the] k obtain a lower 1
interest rate on the transaction. Consumer buydowns must be reflected in the
disclosures given for that transaction. To illustrate, in a mortgage trans
action, the creditor and consumer agree to a note specifying a 14 percent
interest rate. However, in a separate document, the consumer agrees to pay
[four points] k an amount f to the creditor at consummation in return for a
reduction in the interest rate to 12 percent for a portion of the mortgage
term, k The amount paid by the consumer may be deposited in an escrow account
or may be retained by the creditor. Depending upon the buydown plan, the
consumer's prepayment of the obiigation may or may not result in a portion
of the amount being credited or refunded to the consumer. 4 In the disclosures
given for the mortgage, the creditor must reflect the terms of the buydown
agreement. For example:
^
°
The [four points are] ► amount paid by the consumer is a 4 prepaid
finance charge[s] (even if deposited in an escrow account).
°
A composite annual percentage rate must be calculated, taking into
account both interest rates, as well as the effect of the prepaid
finance charges.
°
The payment schedule must reflect the multiple payment levels
resulting from the buydown. ***
► 8. Graduated payment adjustable rate mortgages. These mortgages involve both a
variable interest rate and scheduled variations in payment amounts during the
loan term. Under these plans, a series of graduated payments mav be scheduled
before rate adjustments affect payment amounts, or the initial scheduled payment
may remain constant for a set period before rate adjustments affect the payment
amount. In either case, however, the initial payment amount is insufficient to
cover the scheduled interest, causing negative amortization from the outset of,
the transaction. In these transactions, the disclosures are as follows:
§ 226.17
- C4
§ 226.17
o
The finance charge includes the amount of negative amortization
based on the assumption that the rate in effect at consummation
remains unchanged.
°
The amount financed does not include the amount of negative amor
tization. but includes only the amount of funds advanced to the
consumer at the beginning of the loan term.
°
As in any variable-rate transaction, the annual percentage rate
is based on the terms in effect at consummation.
©
The schedule of payments discloses the amount of any scheduled
initial payments followed by an adjusted level of payments based
on the initial interest rate. Since some mortgage plans contain
limits on the amount of the payment adjustment, the payment sche
dule may need to contain several different levels of payments,
even with the assumption that the original interest rate does
not increase. 4 ***
Comments 17(c)(l)-8 and 9 are redesignated 17(c)(l)-9 and 10, respectively.
Paragraph 17(c)(3) ***
► 2. Use of special rules. A creditor may utilize the special rules in section
226.17(c)(3) for purposes of calculating and making all disclosures for a trans
action or may, at its option, use the special rules for some disclosures and not
others. 4
Paragraph 17(c)(4) ***
I 2. Use of special rule. A creditor may take advantage of this special rule
for purposes of calculating and making some disclosures but may elect not to
do so for all of the disclosures. For example, the variations may be ignored
in calculating and disclosing the annual percentage rate but taken into account
jn calculating and disclosing the finance charge and payment schedule. 4 ***
17(d) Multiple Creditors; Multiple Consumers
1.
Multiple creditors.
If a credit transaction involves more than one creditor
o
The creditors must choose which of them will make the disclosures.
o
A single, complete set of disclosures must be provided, rather than
partial disclosures from several creditors.
Each creditor in the transaction is legally responsible for seeing
that the disclosures are provided.J
o
All disclosures for the transaction must be given, even if the
disclosing creditor would not otherwise have been obligated to
make a particular disclosure. For example, if one of the creditors
v.
§ 226.17
- C5 -
§ 226.17
is the seller, the total sale price disclosure under section
226.18(j) must be made, even though the disclosing creditor is
not the seller. ***
17(h)
Series of Sales--Delay in Disclosures ***
► 2. Basis of disclosures. Creditors have flexibility in structuring disclosures
for a series of sales under section 226.17(h). For example, the total s a l e ^
price may be computed as the cash price for the sale plus that portion of the
finance charge and other charges applicable to that sale. 4
17(i)
Interim Student Credit Extensions
1.. Definition. Student credit plans involve extensions of credit for education
purposes where the repayment amount and schedule are not known at the time credit
is advanced, t These plans include, for example, loans made under the Guaranteed
Student Loan program, the PLUS program or any other student credit plan where
, the repayment period does not begin immediately. < Creditors in interim student
. credit extensions need not disclose the terms set forth in this paragraph at
the time the credit is actually extended but must make complete disclosures at
the time the creditor and consumer agree upon the repayment schedule for the
total obligation. At that time, a new set of disclosures must be made of all
applicable items under section 226.18.
2. Basis of disclosures. The disclosures given at the time of execution of
the interim note should reflect two annual percentage rates, one for the interim
period and one for the repayment period. ^ The disclosures should not be labelled
as estimates. Any portion of the finance charge, such as statutory interest,
that is attributable to the interim period and is paid by the student (either
as a prepaid finance charge, periodically during tire interim period, in one
payment at the end of the interim period, or capitalized at the beginning of
the repayment period) must be reflected in the interim annual percentage rate. 4
Interest subsidies, such as payments made by either a state or the federal
government on an interim loan, must be excluded in computing the annual percent
age rate on the interim obligation, when the consumer has no contingent liability
for payment of those amounts. [A loan guarantee fee that is paid separately by
the student at the outset or withheld from the proceeds of the loan is a prepaid
finance charge.J ► Any finance charges that are paid separately by the student
at the outset or withheld from the proceeds of the loan are prepaid finance
charges. An example of this type of charge is the loan guarantee fee, 4
fThat sum] > The sum of the prepaid finance charges 4 is deducted from the
loan proceeds to determine the amount financed and included in the calculation
of the finance charge. ***
► 5. Approved student credit forms. See the commentary to Appendix H regarding
disclosure forms approved for use in certain student credit programs. 4 ***
§ 226.18
- C6
§ 226.18
SECTION 226.18 -- Content of Disclosures ***
18(f) Variable Rate ***
2. Basis for disclosures. For transactions subject to the requirements of
section 226.18(f), the disclosures must be given for the full term of the
transaction and must be based on the terms in effect at the time of consumma
tion. ► The disclosures, although subject to change, are not estimates and
should not be labelled as such. 4 However, in a variable-rate transaction
with either a seller buydown that is reflected in the credit contract or a
consumer buydown, disclosures should not be based solely on the initial terms.
In those transactions, the disclosed annual percentage rate should be a com
posite rate based on the lower rate for the buydown period and the rate that
is the basis of the variable rate feature for the remainder of the term. (See
the commentary to section 226.17(c) for a discussion of buydown transactions.) ***
k 6. Growth equity mortgages. Also referred to as payment escalated mortages,
these mortgage plans involve scheduled payment increases, rather than interest
rate increases. The initial payment amount is determined for a long-term loan
with a fixed interest rate. The rate remains constant, but payment increases
are scheduled annually, based on a percentage of a given index. Because the
interest rate remains constant and additional amounts are not required to pay
off increased interest, the larger payments result in accelerated amortization
of the loan. In disclosing these mortgage plans, creditors may either estimate
the amount of payment increases, based on the best information reasonably avaiTable, or may disclose by analogy to the variable rate disclosures. Using the
latter option, creditors would indicate that the payments are subject to increase,
describe the circumstances under which the payments would increase, together
with limitations on the increase, and provide an example of the increase.
Ilk is discussion does not apply to growth equity mortgages in which the amount
of payment increases can be accurately determined at the time of disclosure.
For these mortgages, as for graduated payment mortgages, disclosures should
reflect the scheduled increases in payments.) i ***
Paragraph 18(f)(3)
1. Effects. Disclosure of the effect of an increase refers to an increase
in the number or amount of payments or an increase in the final payment. ► In
addition, the creditor may make a brief reference to negative amortization that
may result from a rate increase. (See comment 17(a)(l)-5 regarding directlT
related information.) j If the effect cannot be determined, the creditor must
provide a statement of the possible effects. For example, if the exercise of
the variable-rate feature may result in either more or larger payments, both
possibilities must be noted.
Paragraph 18(f)(4)
1. Hypothetical example. The example may, at the creditor's option, appear
apart from the other disclosures. The creditor may provide either a standard
example that represents the general type of credit offered by that creditor
§ 226.18
- C7
§ 226.18
or an example that directly reflects the terms and conditions of the particular
transaction. ► (The example, whether general or specific, should not reflect
an immediate increase if the contract does not permit an immediate
increase.) 4
£2. Demand obii gati ons . In demand obligations with no alternate maturity
date, the creditor need not provide a hypothetical example.]
> 2. Hypothetical example not required. The creditor need not provide a hypo
thetical example in the following transactions with a variable rate featured
°
Demand obligations with no alternate maturity date.
°
Interim student credit extensions.
o
Multiple advance construction loans disclosed pursuant
to Appendix D, Part I. 4
18(g) Payment Schedule
1. Amounts included in repayment schedule. The repayment schedule should
reflect all components of the finance charge, not merely the portion attribu
table to interest, k Prepaid finance charges, however, should not be shown
in the repayment schedule. 4 The payments may include amounts beyond the
amount financed and finance charge. For example, the disclosed payments
may, at the creditor's option, reflect certain insurance premiums where the
premiums are not part of either the amount financed or the finance charge,
as well as real estate escrow amounts such as taxes added to the payment in
mortgage transactions. ***
Paragraph 18(g)(2)
y
1. Abbreviated disclosure. The creditor may disclose an abbreviated payment
schedule when the amount of each regularly scheduled payment (other than the
first or last payment) includes an equal amount to be applied on principal
and a finance charge computed by application of a rate to the decreasing
unpaid balance. This option is also available when mortgage-guarantee insur
ance premiums, paid either monthly or annually, cause variations in the amount
of the scheduled payments, reflecting the continual decrease E or increase 4
in the premium due. The creditor using this alternative must disclose the
dollar amount of the highest and lowest payments and make reference to the
variation in payments. ***
18(i) Demand Feature ***
2. Covered demand features. The type of demand feature triggering the disclosures required by section 226.18(1) includes only those demand features con
templated by the parties as part of the legal obligation. For example, this
provision does not apply to transactions that convert to a demand status as
a result of the consumer's default, k A due-on-sale clause is not considered
a demand feature. 4 ***
§ 226.18
- C8 -
§ 226.18
18(k) Prepayment ***
Paragraph 18(k)(l)
1. Penalty. This applies only to those transactions in which the interest
calculation takes account of each ► scheduled 4 reduction in principal. The
term "penalty" as used here encompasses only those charges that are assessed
strictly because of the prepayment in full of a simple-interest obligation,
as an addition to all other amounts. Items which are not penalties include,
for example:
o
Prepaid finance charges collected at the outset of the transaction,
such as points in a mortgage loan.
o
Loan guarantee fees.
o
Interim interest on a student loan.
However, a minimum finance charge is a penalty in a simple-interest transaction.
► (See comment 17(a)(l)-5 regarding the disclosure of a minimum finance charge
as directly related information.) 4
Paragraph 18(k)(2)
t
1. Rebate of finance charge. This applies to any finance charges that do not
take account of each reduction in the principal balance of an obligation. This
category includes, for example:
°
Precomputed finance charges such as add-on charges.
o
Charges that take account of some but not all reductions in
principal, such as mortgage guarantee insurance assessed on the
basis of an annual declining balance, when the principal is
reduced on a monthly basis.
o
Prepaid finance charges, such as points or loan fees collected
at the outset of the transaction.
t The creditor may identify the finance charge that is subject to a rebate.
(See comment 17(a)(l)-5 regarding directly related information.) 4 No description of the method of computing earned or unearned finance charges ► , however, 4
is required or permitted as part of the segregated disclosures under this
section, although such information may be provided elsewhere in the contract. ***
18(r)
Required Deposit ***
^ 2. Pledged account mortgages. In these transactions, a consumer pledges as
collateral funds that the consumer deposits in an account held by the creditor.
The creditor withdraws sums from this account to supplement the consumer's
§ 226.19
- C9 -
§ 226.19
monthly payments. Creditors may treat these pledged accounts as required
deposits (unless the accounts are excepted under footnote 45) or they may
treat them as consumer buydowns in accordance with comment 17(c) (l)-4. 4 ***
Comments 18(r)-2, 3, 4, and 5 are redesignated 18(r)-3, 4, 5, and 6, respec
tively.
SECTION 226.19 -- Certain Residential Mortgage Transactions
19(a)
Time of Disclosure ***
2. Timing and use of estimates. Truth in Lending disclosures must be given
(a) before consummation or (b) within three business days after the creditor
receives the consumer's written application, whichever is earlier. The threeday period for disclosing credit terms coincides with the time period within
which creditors subject to RESPA must provide good faith estimates of settle
ment costs. If the creditor does not know the precise credit terms, the credi
tor must base the disclosures on the best information reasonably available and
indicate that the disclosures are estimates under section 226.17(c)(2). If
many of the disclosures are estimates, the creditor may include a statement to
that effect (such as "all numerical disclosures except the late-payment disclo
sure are estimates") instead of separately labelling each estimate. In the
alternative, the creditor may label as an estimate only the items primarily
affected by unknown information. (See the commentary to section 226.17(c)(2).)
The creditor may provide explanatory material concerning the estimates and the
contingencies that may affect the actual terms f,either on a separate document
or on the same document (but separate from the required disclosures).^ » in
accordance with comment 17(a)(l)-5. 4 ***
SECTION 226.20 —
Subsequent Disclosure Requirements
20(a) Refinancings ***
3. Variable rate, } Even if it is not accomplished by the cancellation of the
old obligation and substitution of a new one, the addition of a variable-rate
feature to an obligation is a new transaction requiring new disclosures. 4 If
a variable-rate feature was properly disclosed under the regulation, a rate
change in accord with those disclosures is not a refinancing. For example, a
renegotiate rate mortgage that was disclosed as a variabl e-rate transaction
is not subject to new disclosure requirements when the variable-rate feature
is invoked. However, if the variable-rate feature was not previously disclosed,
a later change in the rate results in a new transaction subject to new disclo
sures. ***
► 5. Coverage. Section 226.20(a) applies only to refinancings undertaken by
the original creditor or a holder or servicer of the original obligation, A
"refinancing" by any other person is a new transaction under the regulation,
not a refinancing under this section. 4 ***
-
§ 226.22
- CIO -
§ 226.22
20(b) Assumptions
1. General definition. An assumption as defined in section 226.20(b) is a
new transaction and new disclosures must be made to the subsequent consumer.
An assumption under the regulation requires the following three elements:
o
A residential mortgage transaction.
o
An express acceptance of the subsequent consumer by the creditor,
o
A written agreement.
► The assumption of a non-exempt consumer credit obligation with no change in
terms requires no disclosures unless all three elements are present. 4 ***
6. Change in terms. CA change in terms destroys the existing obligation and
the transaction is treated as a new transaction under the regulation, not as an
assumption. A change in terms includes, for example:] ► In order to be covered
or excluded by section 226.20(b). the assumption must involve no significant
change in the terms of the existing obligation. If the adoption of the obliga
tion by a new obligor is accompanied by a significant change in terms, whether
and when disclosures must be given are governed by the general reguirements
for a new transaction, not by section 226.20(b). Significant changes in terms
include, for example: 4 ~
o
A change in the contract interest rate unless the change is in
accordance with a variable-rate feature that was properly disclosed
in the existing obligation.
o
A change in the length of the term.
o
The addition of points.
► Insignificant changes in terms 4 fMinor changes that do not destroy the existing obligation] include, for example:
o
Assumption fees for processing loan documents.
o
Insurance fees.
©
Credit report fees. ***
SECTION 226.22 —
Determination of the Annual Percentage Rate
22(a) Accuracy of the Annual Percentage Rate
Paragraph 22(a)(1) ***
4. Basis for calculations. When a transaction involves "step rates" or "split
rates" -- that is, different rates applied at different times or to different
portions of the principal balance -- a single composite annual percentage rate
§ 226.24
§ 226.24
- Cll
must be calculated and disclosed for the entire transaction. ► Assume, for
example, a $10.000 loan repayable in 5 years at 10 percent interest for the
first 2 years, 12 percent for years 3 and 4. and 14 percent for year 5. The
monthly payments are $210.71 during the first 2 years of the term. $220.25 for
years 3 and 4. and $222.59 for year 5. The composite annual percentage rate.
using a calculator with a "discounted cash flow analysis" or "internal rate of
return" function, is 10.75 percent, j ***
SECTION 226.24 —
24(b)
Advertising ***
Advertisement of Rate of Finance Charge ***
,
► 2. Rate of finance charge. An advertisement may not state an effective rate
or payment rate applicable to only a portion of the term of the transaction
unless the annual percentage rate is also stated. For example, an advertisement
that states "Qualify at 10 l/2%" or "an effective first year interest rate of
10 l/2%" generally shows only a portion of the rate of finance charge that
actually accrues during the early years of the term; the advertised annual per
centage rate that must accompany this rate must take into account the interest
that will accrue but not be paid during this period. On the other hand, since
an advertisement that states "financing available at 3 1/2% below prime" does
not state a specific rate or portion of the finance charge, section 226.24(b)
does not apply and the annual percentage rate is not a required disclosure. A ***
Comments 24(b)-2 and 3 are redesignated 24(b)-3 and 4, respectively.
Appendi x
- Appl -
Appendix
APPENDIX D -- Multiple-Advance Construction Loans ***
► 2. Variable-rate construction loans. The hypothetical disclosure required in
most variabl e-rate transactions by section 226.18(fH4) is not required for
multiple-advance construction loans disclosed pursuant to Appendix D, Part I.
3. Calculation of the total of payments. When disclosures are made pursuant
to Appendix D, the total of payments may reflect either the sum of the payments
or the sum of the amount financed and the finance charge.
4. Annual percentage rate. Appendix D does not require the use of Volume I^1of
the Board 's Annua 1 Percentage Rate Tables for calculation of the annual percentage
rate. Creditors utilizing Appendix, D in making calculations and disclosures
may use other computation tools to determine the estimated annual percentage
rate, based on the finance charge and payment schedule obtained by use of the
appendix. 4 ***
APPENDIX F -- Annual Percentage Rate Computations for Certain Open-End Credit
PI ans
► 1. Daily rate with specific transaction charge. If the finance charge results
from a charge relating to a specific transaction and the application of a daily
periodic rate, see comment 14(d)-2 for guidance on the appropriate calculation
methods. 4 ***
APPENDIX H —
Closed-End Model Forms and Clauses ***
► 17. ED-876 1/82. Pursuant to section 113(a) of the amended Truth in Lending
Act, Form ED-^/6 1/82, issued by the U.S. Department of Education for certain
student loans, has been approved. The form may be used for all PLUS loans when
there is no deferment before the borrower begins repayment of both principal
and interest. The form may also be used for PLUS loans when the borrower
qualifies for.a deferment of principal payments and the annual percentage rate
to be disclosed is calculated taking account of the irregular payment schedule.
The form may also be used for consolidation of previous PLUS loans, whether or
not the borrower had a deferment of principal payments under the earlier loans.
The following changes may be made to the form:
°
Reducing the size of the form.
°
Adding lines to the payment schedule disclosure.
°
Deleting inapplicable disclosures by whiting out, blocking out,
filling in "N/A" (not applicable) or "O,11 crossing out, leaving
blanks, or circling applicable items.
18. ED-876A 4/82. Pursuant to section 113(a) of the amended Truth in Lending
Act, Form ED-876A 4/82, issued by the U.S. Department of Education for certain
student loans, has been approved. This form may be used for all PLUS loans
where the borrower qualifies for an immediate deferment of principal payments
under the terms of the note. (See the commentary to section 226,17(i) for the
basis of disclosures.) The following changes may be made to the form:
Appendix
- App2 -
Appendix
°
Reducing the size of the form.
°
Deleting inapplicable disclosures by whiting out, blocking out,
filling in “N/A“ (not applicable) or "0." crossing out, leaving
blanks, or circling applicable items. 4 ***
★
★
★
★
★
Board of Governors of the Federal Reserve System, May 6, 1982.
(signed) William W. Wiles
William W. Wi1es
Secretary of the Board
[SEAL]
FEDERAL RESERVE SYSTEM
r e g u la tio n , in d iv id u a l s t a f f o p in io n s
12CFR Part 213
[Reg. M; CL-1]
C o n s u m e r L e a s in g ; O f fic ia l S t a f f
C o m m en ta ry
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Official staff interpretation.
In accordance with 12 CFR
213.1(d), the Board's staff is publishing a
final 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. Good faith
compliance affords lessors protection
from civil liability under section 130(f) of
the Truth in Lending Act.
EFFECTIVE DATE: May 12, 1982.
summary:
FOR FURTHER INFORMATION CONTACT:
Claudia J. Yarus or Steve Zeisel, Staff
Attorneys (202-^152-3667), 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, April 7,
1981), 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 October 1,1982
(Pub. L. 97-110. Dec. 26,1981). 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 extensive revisions to the
credit provisions of Truth in Lending,
but it affected consumer leasing only
slightly. When Regulation Z was revised
in 1981, the leasing rules were removed
and consolidated as Regulation M.
Apart from a few minor changes
warranted by the amendments to the
act, Regulation M adopted almost
verbatim the leasing rules of Regulation
Z.
The commentary modifies the staffs
approach to providing interpretations of
the leasing provisions formerly in
Regulation Z. Under the previous
|Enc Cir. No 929&J
were issued in response to inquiries
a b o u t specific fact situations and were
normally limited to those facts. While
this commentary provides specific
guidance and examples, it employs
language that is of more general
application for use by the widest
possible audience. The commentary
attempts to provide sufficient guidance
without overburdening the industry with
excessive detail and multiple research
sources. As the vehicle for additional
staff interpretations, it will be revised
periodically to address new questions.
The final 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 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 commentary. Previous
staff opinion letters, whether official or
unofficial, can provide no certain
guidance in complying with Regulation
M. They were issued as interpretations
of previous Regulation Z only and are
entirely superseded by this commentary
for purposes of interpreting Regulation
M. Of course, they may still be utilized
by courts and administrative agencies in
determining liability for violations of the
previous Regulation Z leasing
provisions.
A proposed version of the
commentary was published in Federal
Register on October 13,1981 (46 FR
50380) and elicited 22 responses from
lessors, trade associations and one
Reserve Bank. Numerous changes to the
substance of the proposal were
requested; many have been adopted in
the final commentary. Several comments
reflected confusion about the meaning of
certain provisions. Those provisions
have been revised and clarified. In
addition, many minor editorial and
structural changes suggested by
commenters have been incorporated.
To accommodate substantive and
editorial changes, some sections of the
commentary were restructured, and
comments were added or deleted as
necessary. As a result, the location of a
comment may differ from its original
location in the proposal. In general, the
staff has attempted to place comments
in the single most appropriate and useful
place, providing cross-references where
necessary.
SUMMARY______
(Complete Text published
in Fed. Reg. May 13, 1982)
S o m e o f th e p r o v is io n s in th e
c o m m e n ta r y th a t w e r e c h a n g e d
s u b s t a n t iv e ly from th e p r o p o s a l a re
lis t e d b e lo w . T h e lis t is n o t e x h a u s t iv e ;
it is m e r e ly in t e n d e d to g iv e e x a m p l e s o f
th e t y p e s o f c h a n g e s th a t h a v e b e e n
m ade.
S ectio n 213.2— D efin itio n s a n d R u les of
C on stru ction
• Comment 2(a)(8)-l discusses when
an assignee may be considered a lessor.
• C om m en t 2 (a )(1 5 )-2 id e n tifie s
d is c lo s a b le se c u r ity in terests.
• Comment 2(a)(17}—3 clarifies the
components of the periodic payments
which are used to calculate the total
lease obligation.
S ectio n 213.4— D isc lo su re s
• Comments 4(a)-l through -5
describe the basis of disclosures, minor
variations, form of disclosures, number
of transactions and treatment of rebates
in lease transactions.
• Comment 4(a)(2)-3 explains who
makes disclosures in multiple lessor
transactions and who receives
disclosures in multiple lessee
transactions.
• Comment 4(g)(15)-3 discusses when
taxes are included in the total lease
obligation.
• Comments 4(h)—1 through -10
explain the relationship between
renegotiations and extensions and
clarify how the lessor determines when
there is either a renegotiation or an
extension.
Commenters suggested some
modifications to the commentary that
are incorporated at this time. The
modifications concerned issues such as
calculating the total contractual
obligation for purposes of the consumer
lease definition in § 213.2(a)(6), and
changes to the definition of
"consummation.” These changes were
not anticipated in the proposal and did
not receive adequate comment.
However, they may be the subject of
clarification or adjustment in a future
commentary revision.
Other suggested changes were not
made because they were contrary to
requirements iri both the regulation and
statute. The staff is currently studying
the Consumer Leasing Act to assist the
Board in determining whether to
recommend statutory amendments to
Congress.
F = == = = = " - - ■■■ '
—
----------
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Reg M; CL-1J
Consumer Leasing; Official Staff
Commentary
agen cy ; Board of Governors of the
Federal Reserve System.
a c tio n : Official staff interpretation.
sum m ary : In a c c o r d a n c e w it h 12 CFR
2 1 3 .1 (d ), th e B o a r d ’s s t a f f is p u b lis h in g a
f in a l o f f i c i a l s t a f f c o m m e n t a r y to
R e g u la t io n W ( C o n s u m e r L e a s in g ). T h e
c o m m e n t a r y e p p l i e s a n d in te r p r e ts th e
r e q u ir e m e n t s o f th e r e g u la tio n a n d is
i n t e n d e d to r e p la c e in d iv id u a l B o a r d
a n d s t a f f in te r p r e ta t io n s . G o o d fa ith
c o m p l ia n c e a f fo r d s l e s s o r s p r o t e c t io n
fr o m c i v i l l i a b i li t y u n d e r s e c t io n 1 3 0 (f) o f
th e T r u th in L e n d in g A c t.
EFFECTIVE
date : M a y 1 2 .1 9 8 2 .
FOR FURTHER INFORMATION CONTACT:
Claudia ). Varus or Steve Zeisel, Staff
A t t o r n e y s ( 2 0 2 -4 5 2 - 3 6 6 7 ), Division of
C o n s u m e r a n d Community A ffa ir s ,
Board of Governors of the Federal
Reserve System, Washington, D.C.
20531.
SUPPLEMENTARY INFORMATION: (1)
Introduction. Tne Board adopted
Regulation M (46 FR 20949, A p r il 7,
1 9 8 1 ), e f f e c t i v e A p r il 1 ,1 9 8 1 , to
im p le m e n t th e c o n s u m e r le a s in g
p r o v i s i o n s o f th e T r u th in L e n d in g A c L
T h e l e a s in g r u le s w e r e fo r m e r ly
c o n t a i n e d in R e g u la t io n Z. 12 CFR P art
2 2 6 . C o m p lia n c e w it h th e n e w r e g u la t io n
b e c o m e s m a n d a t o r y on O c t o b e r 1 .1 9 8 2
(P u b . L 9 7 - 1 1 0 , D e c 26, 1 981). U n til th a t
t im e , l e s s o r s m a y c o m p ly w ith e it h e r
R e g u la t io n M or th e p r e v io u s v e r s io n o f
R e g u la t io n Z .
T h e T r u th in L e n d in g S im p lif ic a tio n
a n d R e fo r m A c t ( T itle VI o f th e
D e p o s it o r y I n s t it u t io n s D e r e g u la t io n a n d
M o n e t a r y C o n tr o l A c t o f 1980, P ub . L.
9 6 - 2 2 1 ) m a d e e x t e n s i v e r e v is io n s to th e
c r e d it p r o v i s i o n s o f T ru th in L e n d in g ,
b u t it a f f e c t e d c o n s u m e r le a s in g o n ly
s lig h t ly . W h e n R e g u la t io n Z w a s r e v is e d
in 1 9 8 1 , th e l e a s in g r u le s w e r e r e m o v e d
a n d c o n s o l i d a t e d a s R e g u la tio n M .
A p a r t fro m a f e w m in o r c h a n g e s
w a r r a n t e d b y th e a m e n d m e n t s to th e
a c t, R e g u la t io n M a d o p t e d a lm o s t
v e r b a t im th e l e a s in g r u le s o f R e g u la t io n
Z.
The commentary modifies the s t a f f s
approach to providing interpretations o f
. the leasing provisions formerly in
Regulation Z Under the previous
regulation, individual staff opinions
were issued in response to inquiries
about specific fact situations and were
normally limited to those fscts. While
this commentary provides specific
guidance and examples, it employs
language that is of more general
application for use by the widest
possible audience. The commentary
attempts to provide sufficient guidance
without overburdening the industry with
excessive detail and multiple research
sources. As the vehicle for additional
staff interpretations, it will be revised
periodically to address new questions.
The final 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 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 commentary. Previous
staff opinion letters, whether official or
unofficial, can provide no certain
guidance in complying with Regulation
M, They were issued as interpretations
of previous Regulation Z only and are
entirely superseded by this commentary
for purposes of interpreting Regulation
M. Of course, they may still be utilized
by courts and administrative agencies in
determining liability for violations of the
previous Regulation Z leasing
provisions.
A p r o p o s e d v e r s io n o f th e
c o m m e n t a r y w a s p u b lis h e d in Federal
R e g is te r o n O c t o b e r 1 3 ,1 9 8 1 (46 FR
5 0 380] a n d e lic it e d 22 r e s p o n s e s fr o m
le s s o r s , tr a d e a s s o c i a t i o n s a n d o n e
R e s e r v e B a n k . N u m e r o u s c h a n g e s to the
s u b s t a n c e o f th e p r o p o s a l w e r e
r e q u e s t e d , m a n y h a v e b e e n a d o p t e d in
th e fin a l c o m m e n t a r y . S e v e r a l c o m m e n t s
r e f le c t e d c o n f u s io n a b o u t th e m e a n in g o f
c e r t a in p r o v is io n s . T h o s e p r e v i s io n s
have b e e n r e v is e d a n d c la r if ie d . In
a d d itio n , m a n y m in o r e d ito r ia l a n d
structural c h a n g e s s u g g e s t e d b y
commer.ters h a v e b e e n in c o r p o r a t e d .
To accommodate substantive and
editorial changes, some sections of the
commentary were restructured, and
comments were added or deleted as
necessary. As a result, the location of a
comment may differ from its original
location in the proposal. In general, the
staff has attempted to piece comments
_____ Complete Text_____
(Fed. Reg., May ^3, 1982)
[Ref. Cir. No. 9298]
in th e s in g le m o s t a p p r o p r ia te a n d u s e f u l
p l a c e , p r o v id in g c r o s s - r e f e r e n c e s w h e r e
n ecessa ry .
S o m e o f th e p r o v is io n s in th e
c c m m e n ta r v th a t w e r e c h a n g e d
s u b s t a n t i v e l y from th e p r o p o s a l a re
l i s t e d b e lo w . T h e lis t is no? e x h a u s t i v e :
it is m e r e ly in te n d e d to g iv e e x a m p l e s o f
th e t y p e s o f c h a n g e s th a t h a v e b e e n
m ade.
S e c tio n 2 1 3 2 —D efin itio n s a n d R u les o f
C o n stru ctio n
• C o m m e n t 2 ( a ) ( 8 ) - ! d i s c u s s e s w -h en
a n a s s i g n e e m a y b e c o n s id e r e d a l e s s o r .
• C o m m e n t 2 ( a )( 1 5 } - 2 i d e n t if ie s
d i s c l o s a b l e s e c u r ity in t e r e s t s .
• C o m m e n t 2 {a )(1 7 } -3 c la r if ie s th e
c o m p o n e n t s o f th e p e r io d ic p a y m e n t s
w h i c h a re u s e d to c a lc u la t e th e t o ta l
l e a s e o b lig a tio n .
S e c tio n 213 4 — D isc lo su re s
• C o m m e n t s 4 ( a } - l th r o u g h - 5
d e s c r i b e th e b a s i s o f d i s c l o s u r e s , m in o r
v a r i a t i o n s , form o f d is c lo s u r e s , n u m b e r
o f t r a n s a c t io n s a n d tr e a t m e n t o f r e b a t e s
in l e a s e t r a n s a c t io n s .
• C o m m e n t 4 (a )(2 )—3 e x p l a i n s w h o
m a k e s d is c lo s u r e s in m u ltip le l e s s o r
t r a n s a c t io n s a n d w h o r e c e iv e s
d is c lo s u r e * in m u ltip le l e s s e e
tr a n s a c tio n s .
• C o m m e n t 4 (g )(1 5 } -3 d i s c u s s e s w h e n
t a x e s a re in c lu d e d in th e to ta l l e a s e
o b lig a t io n .
• C o m m e n t s 4 ( h } - l th r o u g h - 1 0
e x p l a i n th e r e la t io n s h ip b e t w e e n
r e n e g o t ia t io n s a n d e x t e n s i o n s a n d
c la r if y h o w th e le s s o r .d e t e r m i n e s w h e n
th e r e is e ith e r a r e n e g o t ia t io n or a n
e x te n s io n .
C o m m en ters su g g e ste d so m e
m o d i f i c a t i o n s to th e c o m m e n t a r y t h a t
a r e in c o r p o r a t e d a* th is tim e . T h e
m o d ific a tio n s c o n c e r n e d is s u e s su ch a s
c a lc u la t in g th e to ta l c o n t r a c t u a l
o b l i g a t i o n for p u r p o s e s o f th e c o n s u m e r
l e a s e d e f in it io n in { 2 1 3 .2 (a )(6 ), a n d
c h a n g e s to th e d e f in it io n o f
“ c o n s u m m a t i o n .“ T h e s e c h a n g e s w e r e
n o t a n t ic ip a t e d in th e p r o p o s a l a n d dad
n o t r e c e iv e a d e q u a te c o m m e n t.
H o w e v e r , t h e y m a y b e th e s u b j e c t o f
c la r if ic a t io n or a d ju s tm e n t in a fu tu r e
c o m m e n t a r y r e v is io n .
O th e r su g g ested c h a n g e s w e r e n o t
m a d e b e c a u s e th e y w e r e c o n tr a r y to
r e q u ir e m e n ts in b o th th e r e g u la t io n a n d
i
s t a t u te . T h e s t a f f is c u r r e n t ly s t u d y in g
th e C o n su m e r L e a s in g A c t to a s s i s t th e
B o a r d in d e t e r m in in g w h e t h e r to
r e c o m m e n d s t a t u to r y a m e n d m e n t s to
C o n g ress.
L ist o f S u b je c t s in 12 C F R P a rt 2 1 3
A d v e r tis in g ; B a n k s , b a n k in g ;
C o n su m e r p r o te c tio n ; F e d e r a l R e s e r v e
S y ste m ; L e a sin g ; P e n a lt ie s ; T r u th in
le n d in g .
Authority .
15 U .S .C . 1 6 4 0 (f).
P art 213 is a m e n d e d b y a d d in g
S u p p le m e n t I to r e a d a s f o l lo w s ;
S U P P L E M E N T I - C L -l- ^ O f R d a l S ta ff
C o m m e n ta r y to R e g u la t io n M
Introduction
1. O fficia l sta tu s. T h is c o m m e n t a r y is
th e v e h ic le b y w h ic h th e s t a f f o f th e
D iv is io n o f C o n s u m e r a n d C o m m u n ity A f fa ir s o f th e F e d e r a l R e s e r v e B o a r d
i s s u e s o f fic ia l s t a f f in t e r p r e t a t io n s o f
R e g u la tio n M . e f f e c t i v e A p r il 1 ,1 9 8 1 .
G o o d fa ith c o m p lia n c e w it h t h is
c o m m e n t a r y a f fo r d s p r o t e c t io n from
lia b ilit y u n d e r s e c t i o n 1 3 0 (f) o f th e T r u th
in L e n d in g A c t (15 U .S .C . 1 6 4 0 ). S e c t i o n
130(1) p r o t e c t s l e s s o r s fro m c iv il lia b ilit y
for a n y a c t d o n e o r o m it t e d in g o o d fa ith
in c o n fo r m ity w it h a n y in te r p r e ta t io n
is s u e d b y a d u ly a u th o r iz e d o f f i c i a l or
e m p lo y e e o f th e F e d e r a l R e s e r v e
S y stem .
2. P rocedu res fo r req u e stin g
in terpretation s. U n d e r s e c t i o n 2 1 3 .1 (d )
o f th e r e g u la t io n , a n y o n e m a y r e q u e s t a n
o f fic ia l s t a f f in te r p r e ta t io n .
In te r p r e ta tio n s th a t a r e a d o p t e d w i l l b e
in c o r p o r a te d in th is c o m m e n t a r y
f o llo w in g p u b lic a t io n in th e F e d e r a l
R e g is te r . N o o f f ic ia l s t a f f in t e r p r e t a t io n s
a r e e x p e c t e d to b e i s s u e d o t h e r th a n b y
m e a n s o f th is c o m m e n t a r y .
3. S tatu s o f p re v io u s in te rp re ta tio n s.
A ll s t a t e m e n t s a n d o p i n i o n s i s s u e d b y
th e F e d e r a l R e s e r v e B o a r d a n d it s s t a f f
In te r p r e tin g p r e v io u s R e g u la t io n Z
r e m a in e f f e c t i v e u n til O c t o b e r 1 ,1 9 8 2 ,
o n ly in s o f a r a s t h e y in te r p r e t th a t
r e g u la tio n . W h e n c o m p l ia n c e w it h
R e g u la tio n M b e c o m e s m a n d a t o r y o n
O c t o b e r 1 ,1 9 8 2 , th e B o a r d a n d s t a f f
in te r p r e ta t io n s o f th e p r e v i o u s
R e g u la tio n Z l e a s in g p r o v i s i o n s w i l l b e
e n t ir e ly s u p e r s e d e d b y R e g u la t io n M
e n d th is c o m m e n t a r y , e x c e p t w it h
re g a r d to lia b ilit y u n d e r th e p r e v io u s
r e g u la tio n .
,
4. R u les o f con stru ction , (a ) L is ts th a t
a p p e a r in th e c o m m e n t a r y m a y b e
e x h a u s t i v e or illu s t r a tiv e ; th e
a p p r o p r ia te c o n s t r u c t io n s h o u ld b e c le a r
from th e c o n t e x t . In m o s t c a s e s ,
illu s t r a tiv e l i s t s a r e in tr o d u c e d b y
p h r a s e s s u c h a s “in c lu d in g , b u t n o t
lim ite d t o ,” " a m o n g o th e r t h in g s ,” "for
e x a m p le ," or " s u c h a s .”
(b) T h r o u g h o u t th e c o m m e n t a r y a n d
r e g u la tio n , r e f e r e n c e to th e r e g u la t io n
s h o u ld b e c o n s t r u e d to r e fe r to
R e g u la tio n M , u n l e s s th e c o n t e x t
in d ic a t e s th a t a r e f e r e n c e to p r e v io u s
R e g u la tio n Z (12 C F R P art 2 26] is a l s o
in te n d e d .
(c) T h r o u g h o u t t h e c o m m e n t a r y ,
r e f e r e n c e to " th is s e c t io n " or " th is
p a ra g ra p h " m e a n s th e s e c t io n or
p a r a g r a p h in th e r e g u la t io n th a t is th e
s u b j e c t o f th e c o m m e n t .
5. Comment designations. E a c h
c o m m e n t in th e c o m m e n t a r y is
id e n tif ie d b y a n u m b e r a n d th e
r e g u la to r y s e c t io n or p a r a g r a p h th a t it
in te r p r e ts . T h e c o m m e n t s a re d e s ig n a t e d
w ith a s m u c h s p e c i f i c i t y a s p o s s ib le
a c c o r d in g to th e p a r tic u la r r e g u la to r y
p r o v is io n a d d r e s s e d . F or e x a m p le , s o m e
o f th e c o m m e n t s to s e c t io n 2 1 3 .4 (a ) a re
fu rth er d iv id e d b y su b p a r a g r a p h , s u c h
as com m ent 4 ( a )( l)- l and com m ent
4 ( a ) ( l ) - 2 . In o t h e r c a s e s , c o m m e n t s h a v e
m o re g e n e r a l a p p lic a t io n a n d a re
d e s ig n a t e d , for e x a m p le , a s c o m m e n t
4 ( a ) - l . T h is in tr o d u c t io n m a y b e c it e d a s
c o m m e n t s 1-1 th r o u g h 1-6. T h e
a p p e n d ic e s m a y b e c it e d a s c o m m e n t s
ap p . C - l a n d ap p . C -2 .
6. Cross-references. T h e f o llo w in g
c r o s s - r e f e r e n c e s to r e la t e d m a te r ia l
a p p e a r at th e e n d o f e a c h s e c t io n o f th e
c o m m e n ta r y : (a ) “ S ta tu te " — t h o s e
s e c t i o n s o f th e T ru th in L e n d in g A c t o n
w h ic h th e r e g u la to r y p r o v is io n is b a s e d ;
(b) " O th e r s e c t io n s " — o th e r p r o v is io n s
in th e r e g u la t io n n e c e s s a r y to
u n d e r s ta n d th a t s e c tio n ; (c) “P r e v io u s
r e g u la tio n " — p a r a lle l p r o v is io n s in
p r e v io u s R e g u la t io n Z; a n d (d ) ‘1 9 8 1
c h a n g e s " — a b r ie f d e s c r ip t io n o f th e
m a jo r r e g u la to r y c h a n g e s m a d e w h e n
th e le a s in g r u le s w e r e m o v e d from
p r e v io u s R e g u la t io n Z to R e g u la t io n M .
Section 213.1—General Provisions
1. Foreign a p p lic a b ility . R e g u la tio n M
a p p lie s to a ll p e r s o n s ( in c lu d in g
b r a n c h e s o f f o r e ig n b a n k s or le a s in g
c o m p a n ie s l o c a t e d in th e U n ite d S ta t e s )
th a t o ffe r c o n s u m e r l e a s e s to r e s id e n t s
( in c lu d in g r e s id e n t a lie n s ) o f a n y s t a t e
. a s d e f in e d in § 2 1 3 .2 fa )(1 6 ). T h e
regulation does not apply to a foreign
branch of a U.S. bank or leasing
company leasing to a U.S. citizen
residing or visiting abroad or to a
foreign national abroad.
2. Issu a n c e o f s ta f f in terp reta tio n s.
T h is c o m m e n ta r y ' is th e m e th o d b y
w h ic h th e s t a f f p r o v id e s in t e r p r e t a t io n s
th a t a f fo r d fo r m a ! p r o t e c t io n u n d e r
s e c t io n 1 3 0 (f) o f th e a c t. T h is
co m m e n ta ry m a y b e a m en d e d
p e r io d ic a lly .
R eferen ces:
S ta tu te: § § 1 0 2 (b ). 105, a n d 1 3 0 (f).
P re v io u s regulation: § 22 6 .1 .
1951 ch a n g es: None.
S ectio n 213.2— D efin itio n s a n d R u les o f
C o n stru ctio n
2(a) D efin itio n s.
2(a)(2) "A d v e r tis e m e n t"
1. C o vera g e. 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 list of
examples in the definition is not
exhaustive; telephone solicitations and
letters sent to customers as part of an
organized solicitation of business, for
example, are also advertisements. The
term does n o t include the following:
• Direct personal contacts, such as
follow-up letters, cost estimates for
individual lessees, or ora! or written
communications relating to the
negotiation of a specific transaction.
• Informational materia! distributed
only to businesses.
• Notices required by federal or state
law, if the law mandates that specific
information be displayed and only the
information so mandated is included in
the notice.
• News articles, the use of w-hich is
controlled by the news medium.
• Market research oi educational
materials that do not solicit business.
2. P e rso n s c o vered . See the
c o m m e n t a r y to § 2 1 3 .5 (a ).
2(a)(4) “A rra n g e fo r le a s e o f p e r s o n a l
p ro p e rty ’"
1.
G en era l. The definition of lessor
includes one who, in the
ordinary course of business, regularly
arranges for the leasing of personal
property. For example:
• An automobile dealer who,
§ 2 1 3 .2 ( a )( 8 )
in
- 3 -
'p u r s u a n t to a b u s i n e s s r e la t io n s h ip ,
c o m p le t e s th e n e c e s s a r y l e a s e
a g r e e m e n t b e f o r e f o r w a r d in g it to th e
le a s in g c o m p a n y (to w h o m th e
o b lig a tio n is p a y a b le o n its f a c e ) fo r
e x e c u t io n is ‘'a rra n g in g " fo r th e l e a s e .
• A n a u to m o b ile d e a l e r w h o ,
r e c e iv in g n o f e e for th e s e r v i c e , r e f e r s a
c u s t o m e r to a l e a s in g c o m p a n y th a t w ill
p r e p a r e a ll r e le v a n t c o n t r a c t d o c u m e n t s
is n o t “a rra n g in g " fo r th e l e a s e .
2. Multiple lessors. S e e th e
c o m m e n t a r y to § 213 4 (c ).
3. Consideration. T h e te r m " o th e r
c o n s id e r a tio n " r e f e r s to a n a c t u a l
p a y m e n t c o r r e s p o n d in g to a f e e o r
s im ila r c o m p e n s a t io n , It d o e s n o t r e f e r
to in ta n g ib le b e n e f it s , s u c h a s th e
a d v a n t a g e o f i n c r e a s e d b u s i n e s s , th a t
m a y f lo w fro m th e r e la t io n s h ip b e t w e e n
♦he p a r tie s .
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.
o n s t a t e or o th e r a p p lic a b le la w . F or
e x a m p l e , a m o b ile h o m e o r h o u s e b o a t
m a y b e c o n s id e r e d p e r s o n a l p r o p e r ty in
o n e s t a t e b u t r e a l p r o p e r ty in a n o th e r .
2fa)(14) " R ea lized value".
1. G en eral. R e a liz e d v a lu e is n o t a
r e q u ir e d d is c lo s u r e . It r e fe r s to th e v a lu e
o f th e p r o p e r ty a t e a r ly te r m in a tio n o r a t
th e e n d o f th e l e a s e term . It m a y b e
e it h e r th e r e ta il or w h o l e s a l e v a lu e .
R e a l i z e d v a lu e is r e le v a n t o n ly to l e a s e s
in w h i c h th e l e s s e e ’s lia b ilit y at e a r ly
t e r m in a t io n or a t th e e n d o f th e l e a s e
term i s th e d if f e r e n c e b e t w e e n th e
e s t i m a t e d v a lu e o f th e p r o p e r ty a n d its
(i) Agrees to pay as compensation for r e a l i z e d v a lu e .
use a sum substantially equivalent to, or 2. O ption s. S u b je c t to th e c o n t r a c t a n d
to s t a t e o r o th e r a p p lic a b le la w , th e
in excess of, the total value of the
l e s s o r m a y c h o o s e a n y o f th e 3 m e th o d s
property and sendees involved; and
fo r c a l c u la t in g th e r e a liz e d v a lu e in
(ii) Will become (or has the option to
become), for no additional consideration d e t e r m in in g th e l e s s e e ’s lia b ilit y a t th e
2(a)(6) "Consumer lease".
or for nominal consideration, the owner e n d o f th e l e a s e term or at e a r ly
1. Primary purposes. A l e s s o r m u s t
t e r m in a t io n . If th e l e s s o r s e l l s th e
of the property upon compliance with
d e te r m in e in e a c h c a s e i f th e l e a s e d
p r o p e r t y p rio r to m a k in g th a t
the agreement.”
p r o p e r ty w ill b e u s e d p r im a r ily fo r
d e t e r m in a t io n , th e p r ic e r e c e iv e d fo r th e
5. S afe d e p o sit b o x es. A l e a s e o f a
p e r s o n a l, fa m ily , or h o u s e h o l d p u r p o s e s . s a f e d e p o s it b o x is n o t a c o n s u m e r l e a s e p r o p e r t y is th e r e a liz e d v a lu e . If th e
If s o m e q u e s t io n e x i s t s a s to t h e p r im a r y fo r p u r p o s e s o f th is r e g u la t io n .
l e s s o r d o e s n o t s e ll th e p r o p e r ty p rio r to
p u r p o s e fo r a l e a s e , th e l e s s o r is , o f
m a k in g th a t d e t e r m in a t io n , th e l e s s o r
6. L e a ses o f p e r s o n a l p r o p e r ty
c o u r s e , fr e e to m a k e t h e d is c l o s u r e s , a n d in c id e n ta l to a se r v ic e . The following
m a y c h o o s e e it h e r th e h ig h e s t o ffe r or
th e fa c t th a t d i s c l o s u r e s a r e m a d e in
th e f a ir m a r k e t v a lu e a s th e r e a liz e d
leases of personal property that are
s u c h c ir c u m s t a n c e s is n o t c o n t r o llin g o n
incidental to services are not consumer v a l u e .
th e q u e s t io n o f w h e t h e r th e t r a n s a c t io n
leases subject to the requirements of the 3. E xclu sion s. T h e r e a liz e d v a lu e m a y
w a s e x e m p t. T h e p r im a r y p u r p o s e o f a
e x c l u d e a n y a m o u n t a t tr ib u t a b le to
regulation:
l e a s e is g e n e r a lly d e t e r m in e d b e f o r e o r
ta x es.
• Home entertainment systems
a t c o n s u m m a tio n a n d a s u b s e q u e n t
4. D isp o sitio n charges. D is p o s it io n
requiring the consumer to lease
c h a n g e in p r im a r y u s a g e is g o v e r n e d b y
equipment that enables a television to c h a r g e s m a y n o t b e s u b t r a c t e d in
§ 2 1 3 .4 (e ).
d e t e r m in in g th e r e a liz e d v a lu e . If th e
receive the transmitted programming.
2. Period of time. T o b e a c o n s u m e r
• Burglar alarm systems requiring the l e s s o r c h a r g e s th e l e s s e e a f e e to c o v e r
le a s e , th e in itia l term o f th e l e a s e m u s t
th e d i s p o s it i o n e x p e n s e s , th e f e e m u s t
installation of leased equipment that
b e m o r e th a n 4 m o n t h s . T h u s , a l e a s e o f
triggers a telephone call when a home is b e d i s c l o s e d at c o n s u m m a t io n u n d e r
p e r s o n a l p r o p e r ty for 4 m o n t h s , 3
§ 2 1 3 .4 (g )(5 ). D is p o s it io n c h a r g e s m a y b e
burglarized.
m o n th s or o n a m o n t h - to - m o n t h or
e s t i m a t e d in a c c o r d a n c e w it h § 2 1 3 .4 (d ),
2(a)(7)
"Lessee".
w e e k - t o - w e e k b a s i s ( e v e n th o u g h t h e
a n d t h is d o e s n o t p r e v e n t th e l e s s o r
1. Guarantors. Guarantors are not
l e a s e a c t u a lly e x t e n d s b e y o n d 4 m o n t h s )
fro m c o l l e c t i n g th e a c t u a l d is p o s it io n
lessees
for
purposes
of
the
regulation.
is n o t a c o n s u m e r l e a s e a n d is n o t
c o s t s in c u r r e d .
2(a)(8) "Lessor".
s u b j e c t to th e d i s c lo s u r e r e q u ir e m e n t s o f
5. O ffers. In d e t e r m in in g th e h ig h e s t
1.
Assignees.
.An
assignee
may
be
a
th e r e g u la tio n . A l e a s e w it h a p e n a l t y
o f fe r fo r d is p o s it io n , th e le s s o r n e e d n o t
fo r c a n c e llin g d u rin g th e fir s t 4 m o n t h s is lessor for purposes of the regulation in
c o n s i d e r o f fe r s th a t th e o ffe r o r h a s
circumstances such as those described w i t h d r a w n or is u n a b le or u n w illin g to
c o n s id e r e d to h a v e a term o f m o r e th a n
in "Ford Motor Credit Co. v . Cenance," p e r fo r m .
4 m o n th s . A m o n t h - to - m o n t h or w e e k - t o 4 5 2 U .S . 1 5 5 ,1 0 1 S.Ct. 2 2 3 9 (19 8 1 ). In that
w e e k e x t e n s i o n o f a l e a s e th a t w a s
6. A p p ra isa ls. T h e l e s s o r m a y o b ta in
case, the Supreme Court held that an
o r ig in a lly for 4 m o n t h s o r l e s s is n o t a
a n a p p r a is a l o f th e le a s e d p r o p e r ty to
assignee
was
a
creditor
for
purposes
of
c o n s u m e r l e a s e , e v e n i f th e e x t e n s i o n
d e t e r m in e its r e a liz e d v a lu e . S u c h a n
previous Regulation Z because of its
a c t u a lly l a s t s for m o r e t h a n 4 m o n t h s .
a p p r a is a l, h o w e v e r , is n o t th e o n e
substantial involvement in the credit
F or e x a m p le , a 3 -m o n th l e a s e e x t e n d e d
a d d r e s s e d in s e c t i o n 1 8 3 (c ) o f th e a c t
transaction.
o n a m o n th -to -m o n th b a s i s a n d
a n d S 2 1 3 .4 (g )(1 4 ); t h o s e p r o v is io n s r e fe r
2(h)(9) "Organization".
te r m in a te d a f te r 1 y e a r d o e s n o t r e q u ir e
to t h e l e s s e e ’s righ t to a n i n d e p e n d e n t
1. Coverage. The term includes joint
c o n su m e r le a s e d is c lo s u r e s .
p r o f e s s i o n a l a p p r a is a l.
ventures and persons operating under a
3. Organization. A c o n s u m e r l e a s e
2(a )(1 5 ) "S ecu rity in terest" .
business name.
d o e s n o t in c lu d e a l e a s e m a d e to a n
1.
C overage. T h e lis t o f s e c u r ity
2(a)(12) " P erson alproperty" .
o r g a n iz a t io n , a s d e f in e d in § 2 1 3 .2 (a )(9 ).
i n t e r e s t s in th e d e f in it io n is n o t
1.
Coverage. Whether property is
A l e a s e to a n o r g a n iz a t io n is o u t s i d e th e
e x h a u s t i v e . O th e r th a n t h o s e lis t e d , o n ly
- r e q u ir e m e n ts o f th e r e g u la t io n e v e n if
4. Credit sale. A l e a s e th a t m e e t s th e
d e f in it io n o f a c r e d it s a l e in R e g u la t io n
Z , 12 CFR 2 2 6 .2 (a )(1 6 ), is n o t a c o n s u m e r
l e a s e . R e g u la t io n Z d e f i n e s a c r e d it s a le ,
in p a rt, a s "a b a ilm e n t o r l e a s e ( u n le s s
te r m in a b le w it h o u t p e n a lt y a t a n y tim e
b y th e c o n s u m e r ) u n d e r w h ic h th e
con su m er—
considered personal property depends
i n t e r e s t s th a t a r e s e c u r ity in t e r e s t s
—
•---------- ---------------------—
-
h -
I
under state or other applicable law are
encompassed by the definition. For
example, any interest the lessor may
have in the leased property falls within
this definition only if it is considered a
security interest under state or other
applicable law.
2. D isc lo sa b le in te re sts. 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 s security interest for
purposes of this regulation.
3. Insurance. The lessor's right to
insurance proceeds or unearned
insurance premiums is not a security
interest for purposes of this regulation.
2(a)(17) "Total lease obligation ”.
1. D isclosu re. The total lease
obligation is disclosed under
§ 2 1 3 .4 (g )(1 5 )(i). It i s r e le v a n t o n ly to s o c a l l e d o p e n - e n d l e a s e s in w h ic h th e
l e s s e e ’s l ia b ilit y at th e e n d o f th e l e a s e
term is b a s e d o n th e d iff e r e n c e b e t w e e n
th e e s t i m a t e d v a l u e o f th e l e a s e d
p r o p e r ty a n d it s r e a liz e d v a lu e .
2. P erio d ic p a y m e n ts: d isclo su re
d istin gu ish ed. C e r ta in it e m s th a t m a y b e
p a id p e r i o d i c a l l y a r e n o t p a rt o f th e
l e s s e e ’s to ta l l e a s e o b lig a t io n . T h e r e fo r e ,
th e a m o u n t o f th e s c h e d u l e d p e r io d ic
p a y m e n t s fo r p u r p o s e s o f c a lc u la t in g th e
t o ta l l e a s e o b lig a t io n m a y b e l e s s th a n
th e a m o u n t o f th e p e r io d ic p a y m e n t s
d i s c l o s e d u n d e r § 2 1 3 .4 (g )(3 ).
3. P erio d ic p a y m e n ts : in clu sion s a n d
The total of scheduled
periodic payments under the lease for
purposes of calculating the total lease
obligation is composed of the following
items:
• Any portion of the periodic
payments attributable to depreciation,
cost of money, and profit.
• Taxes in some cases. See the
commentary to § 2 1 3 .4 (g )(1 5 ).
• The capitalized cost of mechanical
breakdown protection contracts.
The total of scheduled periodic
payments under the lease for purposes
of calculating the total lease obligation
does n o t include the following:
exclu sion s.
• A n y a m o u n t n o t p a id p e r io d ic a lly .
• Any portion or periodic payments
attributable to official fees, registration,
certificate of title, or license fees.
• T a x e s in s o m e c a s e s . S e e th e
c o m m e n t a r y to $ 2 1 3 .4 (g )(1 5 ).
A t th e l e s s o r ’s o p tio n , th e c a p i t a li z e d
c o s t o f s e r v ic e c o n t r a c t s a n d in s u r a n c e
p r e m iu m s m a y b e e it h e r in c lu d e d o r
e x c l u d e d fro m th is c a lc u la t io n .
4. In itia l p a y m e n ts. T h e f o l lo w in g
a m o u n t s a r e n ot in c lu d e d a m o n g th e
p a y m e n t s at c o n s u m m a t io n w h e n
c a lc u la t in g th e to ta l l e a s e o b lig a tio n :
• R e f u n d a b le s e c u r it y d e p o s it s .
• O f fic ia l f e e s a n d c h a r g e s d i s c l o s a b l e
u n d e r $ 2 1 3 .4 (g )(4 ).
• " O th er c h a r g e s " d i s c l o s a b l e u n d e r
| 2 1 3 .4 (g )(5 ).
• T h e c o s t o f a m e c h a n ic a l b r e a k d o w n
p r o t e c t io n c o n tr a c t p u r c h a s e d a t
c o n s u m m a tio n .
5. E stim a te d value. S e e th e
c o m m e n t a r y to 5 2 1 3 .4 (d ) r e g a r d in g th e
u s e o f e s t im a t e s a n d § 1 8 3 (a ) o f th e a c t
r e g a r d in g th e c r ite r ia fo r e s t im a t in g t h e
v a lu e o f th e l e a s e d p r o p e r t y a t th e e n d
o f th e l e a s e term .
2(a)(18) "V alue a t co n su m m a tio n ”
1. D isclosure. T h e v a lu e a t
c o n s u m m a tio n is r e le v a n t o n ly to s o c a lle d o p e n -e n d l e a s e s a n d is d i s c l o s e d
a n d s u b t r a c t e d fro m th e to ta l l e a s e
o b lig a t io n u n d e r § 2 1 3 .4 (g )(1 5 )(i).
2. Taxes. T h e v a lu e a t c o n s u m m a t io n
i n c lu d e s t a x e s p a id b y th e l e s s o r in
c o n n e c t io n w it h t h e a c q u is it io n o f
l e a s e d p r o p e r ty a n d a m o r tiz e d o v e r th e
l e a s e term . S e e th e c o m m e n t a r y to
§ 2 1 3 .4 (g )(1 5 ).
3. O th er am ounts. T h e d e f in it io n o f
th e v a lu e a t c o n s u m m a tio n e x p l i c i t l y
p e r m its th e l e s s o r to in c lu d e a p r o fit or
m a rk u p (w ith o u t s e p a r a t e it e m iz a t io n ) .
T h e l e s s o r m a y in c lu d e c o s t s o f d o in g
b u s i n e s s , s u c h a s in s u r a n c e th a t th e
le s s o r p u r c h a s e s o n it s o w n b e h a lf . S e e
th e c o m m e n t a r y to § 2 1 3 .4 (g )(6 ). T h e
l e s s o r m a y n o t in c lu d e in th is a m n o u n t
o th e r it e m s (s u c h a s m a i n t e n a n c e or
e x t e n d e d w a r r a n t y in s u r a n c e ) th a t a r e
p u r c h a s e d b y th e l e s s e e .
f e e ) u n l e s s , o f c o u r s e , a p p l i c a b le l a w
h o ld s o t h e r w is e .
References
S ta tu te: S e c t i o n s 1 0 3 (g ) a n d 1 8 1 .
Previous regulation: 8 22 6 .2 .
1961 changes: " A g r ic u ltu r a l p u r p o s e ”
h a s b e e n s lig h t ly r e v is e d t o c o n f o r m to
th e a m e n d e d a c t.
Section 213.3—Exempted Transactions
References
S ta tu te: § 1 0 5 (a ).
Previous regulation:
1981 changes: N o n e .
§ 2 2 6 .3 (f).
Section 213.4—Disclosures
4(a) General requirements.
1. B a sis o f disclosu res. T h e r e g u la t io n
a s s u m e s th a t p a r tie s w i l l p e r fo r m f u lly
a c c o r d in g to th e l e a s e t e r m s . F o r
e x a m p le :
• In a 3 -y e a r l e a s e w it h a 1 - y e a r
m in im u m term a fte r w h ic h t h e r e i s n o
p e n a lt y fo r te r m in a tio n , d i s c l o s u r e s
s h o u ld b e b a s e d o n th e fu ll 3 - y e a r te r m
o f th e l e a s e . T h e 1 -y e a r m in im u m te r m i s
o n ly r e le v e n t to th e e a r ly t e r m in a t io n
p r o v i s i o n s o f 8 2 1 3 .4 (g ) (1 2 ), (1 3 ), a n d
(1 4 ).
2. M in o r variations. T h e l e s s o r m a y
d is r e g a r d th e e f f e c t s o f th e f o l lo w in g in
m a k in g c a lc u la t io n s a n d d is c l o s u r e s :
• T h a t p a y m e n t s m u s t b e c o l l e c t e d in
w h o le c e n ts .
• T h a t d a te s o f sc h e d u le d p a y m e n ts
m a y b e c h a n g e d b e c a u se th e s c h e d u le d
d a t e i s n o t a b u s in e s s d a y .
• T h a t m o n th s h a v e d iff e r e n t n u m b e r s
o f d a y s.
3. Fohn of disclosures. In m a k in g
d is c lo s u r e s le s s o r s m a y c r o s s -r e fe r e n c e
r a th e r th a n r e p e a t it e m s th a t a r e
d i s c l o s e d e l s e w h e r e in th e l e a s e
d is c l o s u r e s t a t e m e n t In a d d it io n , w h e n
a r e q u ir e d d is c lo s u r e c o n s i s t s o f a s i n g l e
c h a r g e , le s s o r s d o n o t h a v e to r e p e a t th e
c h a r g e a s a n it e m iz a t io n a n d a t o ta l
2(b) R u les o f con stru ction .
a m o u n t. S e e th e c o m m e n ta r y ' to
1. F ootnotes. M a t e r ia l th a t a p p e a r s in
8 2 1 3 .4 (g ) (5) a n d (15).
a f o o t n o t e h a s th e s a m e le g a l w e ig h t a s
4. N u m ber o f tran saction s. L e s s o r s
m a te r ia l in th e b o d y o f th e r e g u la t io n .
h a v e flex ib ility - in h a n d lin g l e a s e
2. C onsum m ation. W h e n a c o n t r a c t u a l t r a n s a c t io n s th a t m a y b e v i e w e d a s
r e la t io n s h ip is c r e a t e d b e t w e e n th e
m u ltip le t r a n s a c t io n s . F o r e x a m p le :
l e s s o r a n d th e l e s s e e is a m a tt e r to b e
• W h e n a le s s o r l e a s e s t w o i t e m s to
d e t e r m in e d u n d e r s t a t e o r o t h e r
th e s a m e l e s s e e o n th e s a m e d a y , t h e
l e s s o r m a y d i s c l o s e th e l e a s e s a s e it h e r
a p p lic a b le la w ; th e r e g u la t io n d o e s n o t
o n e o r t w o l e a s e t r a n s a c t io n s .
m a k e th a t d e t e r m in a t io n .
• W h e n a le s s o r s e l ls in s u r a n c e o r
C o n s u m m a tio n d o e s n o t o c c u r m e r e ly
o th e r in c id e n t a l s e r v ic e s in c o n n e c t i o n
b e c a u s e th e l e s s e e h a s m a d e s o m e
w it h a l e a s e , th e le s s o r m a y d i s c l o s e in
f in a n c ia l in v e s t m e n t in th e t r a n s a c t io n
(fo r e x a m p le , b y p a y in g a n o n r e f u n d a b le o n e o f t w o w a y s : a s in g le l e a s e
f *
- 5 J— ^
=
88 .---------------- J.-.
t r a n s a c t io n o r a l e a s e a n d c r e d it s a l e
t r a n s a c t io n .
5.
R eb a tes. In a l e a s e t r a n s a c t io n , a
s e lle r 's or m a n u f a c t u r e r ’s r e b a t e m a y b e
o ffe r e d to p r o s p e c t i v e l e s s e e s . A t th e
l e s s o r ’s o p tio n , t h e s e r e b a t e s m a y b e
e ith e r r e f le c t e d in or d is r e g a r d e d in the
l e a s e d i s c l o s u r e s r e q u ir e d u n d e r th e
r e g u la tio n . If th e l e s s o r c h o o s e s to
r e f le c t th e r e b a t e in th e l e a s in g
d is c lo s u r e s , it m a y b e t a k e n in to
a c c o u n t in a n y m a n n e r a s p a r t o f t h o s e
d is c lo s u r e s .
P aragraph 4(a)(1).
1. C learly, c o n sp ic u o u sly a n d in
m eaningful sequ en ce. T h is s t a n d a r d
r e q u ir e s th a t d i s c l o s u r e s b e in a
r e a s o n a b ly u n d e r s t a n d a b le fo r m . F or
e x a m p l e , w h i l e th e r e g u la t io n r e q u ir e s
n o p a r tic u la r m a t h e m a t ic a l p r o g r e s s io n
o r fo rm a t, th e d i s c l o s u r e s m u s t b e
p r e s e n t e d in a w a y th a t d o e s n o t
o b s c u r e th e r e la t io n s h ip o f t h e te r m s to
e a c h o th e r . A p p e n d ix C c o n t a i n s m o d e l
fo r m s th a t m e e t th is s t a n d a r d , a lth o u g h
le s s o r s a r e n o t r e q u ir e d to u s e t h e s e
fo r m s. T h e r e q u ir e m e n t th a t d i s c l o s u r e s
b e m a d e c le a r ly a n d c o n s p i c u o u s ly d o e s
n o t m e a n th a t t h e y m u s t b e m o r e
c o n s p ic u o u s t h a n o t h e r t e r m s in a
c o m b in e d c o n t r a c t - d i s c lo s u r e s t a t e m e n t ,
n o r d o e s it p r e c lu d e th e u s e o f a m u lt i
p u r p o s e d i s c l o s u r e fo r m th a t e n a b l e s th e
le s s o r to d e s i g n a t e t h e s p e c i f i c
d i s c lo s u r e s a p p l i c a b le t o a g i v e n
t r a n s a c t io n . S e e th e c o m m e n t a r y to
A p p e n d ix C.
2. T ype size. T h e te r m “p o in t" in th e
p h r a s e “1 0 -p o in t ty p e " is a p r in tin g term
th a t r e fe r s to th e s i z e o f t h e b o d y o f th e
ty p e , a s d is t in g u is h e d fr o m th e s i z e o f
th e ty p e f a c e w h i c h m a y v a r y a m o n g
d iffe r e n t p rin t m a n u f a c t u r e r s .
P aragraph 4(a)(2).
1. C onsum m ation . S e e th e
c o m m e n t a r y to § 2 1 3 .2 (b ).
2. Id en tifica tio n o f p a r tie s . W h i l e
d is c lo s u r e s m u s t a l w a y s b e m a d e
c le a r ly a n d c o n s p i c u o u s ly , it i s n o t
n e c e s s a r y to u s e th e w o r d s “ le s s o r " or
" le s s e e " w h e n id e n t if y in g t h o s e p a r t ie s .
3. M u tip ie le s so rs a n d m u ltip le
le sse e s. In t r a n s a c t i o n s i n v o l v i n g
m u ltip le l e s s o r s a n d l e s s e e s , th e
d is c lo s u r e s t a t e m e n t m u s t i d e n t i f y a ll
th e le s s o r s a n d l e s s e e s ; h o w e v e r ,
£ 2 1 3 .4 (c ) p e r m its a s i n g l e l e s s o r to
m a k e a il th e d i s c l o s u r e s to a s in g le
le s s e e .
4. In teg ra ted le a s e /d is c lo s u r e form s.
C o n tr a c t te r m s or d i s c l o s u r e s th a t are
n o t r e q u ir e d b y th e r e g u la t io n m a y b e
a d d e d to th e d i s c l o s u r e s t a t e m e n t s o
lo n g a s th e r e q u ir e d d i s c l o s u r e s a r e
m a d e t o g e th e r o n a s in g le p a g e ( w h ic h
m a y in c lu d e b o th s i d e s ) a n d a b o v e th e
p la c e for th e l e s s e e ’s s ig n a t u r e .
G e n e r a lly , o t h e r te r m s a n d d i s c l o s u r e s
m a y p r e c e d e , f o l lo w , or b e in te r m in g le d
d is c lo s u r e .
4 (d ) U n kn ow n -in form ation estim a te.
1. T im e o f e s tim a te d disclosu re. T h e
l e s s o r m a y u s e e s t i m a t e s to m a k e
d i s c l o s u r e s i f n e c e s s a r y in fo r m a tio n is
u n k n o w n or u n a v a i l a b l e at th e tim e th e
d i s c l o s u r e s a r e m a d e . F or e x a m p le :
w it h th e r e g u la t io n ’s d i s c l o s u r e s w it h in
• S e c t i o n 2 1 3 .4 (g )(4 ) r e q u ir e s th e
th e lim it s o f § 2 1 3 .4 (b ) g o v e r n in g th e u s e
l e s s o r to d i s c l o s e th e to ta l a m o u n t
o f a d d it io n a l in fo r m a t io n a n d th e c le a r ,
p a y a b l e b y th e l e s s e e d u rin g th e l e a s e
c o n s p ic u o u s , a n d m e a n in g f u l s e q u e n c e
te r m for o f f ic ia l f e e s , r e g is tr a tio n ,
d is c lo s u r e s t a n d a r d in § 2 1 3 .4 (a )(1 ).
5.
L e ssee's sign atu re. T h e r e g u la t io n c e r t i f ic a t e o f title , l i c e n s e f e e s , or t a x e s .
d o e s n o t r e q u ir e t h e l e s s e e to sig n th e
If t h e s e a m o u n t s a re s u b j e c t to
d i s c l o s u r e s b u t. i f d i s c l o s u r e s a re
i n d e t e r m in a b le i n c r e a s e s or d e c r e a s e s
c o m b in e d w it h c o n t r a c t te r m s, th e l e s s o r o v e r t h e c o u r s e o f th e l e a s e , th e l e s s o r
m a y r e q u ir e th e l e s s e e ’s s ig n a t u r e for
m a y e s t i m a t e its d is c lo s u r e s b a s e d o n
c o n t r a c t or e v i d e n t ia r y p u r p o s e s . In
th e r a t e s or c h a r g e s in e f fe c t a t th e tim e
o f d is c lo s u r e .
su c h a c a s e , th e d i s c l o s u r e s m u s t b e
2. B a sis o f e stim a te s. E s tim a t e s m u s t
m a d e a b o v e th e p l a c e for th e l e s s e e ’s
b e m a d e o n th e b a s i s o f th e b e s t
sig n a tu r e . W h e n d i s c l o s u r e s a n d
c o n tr a c t te r m s a p p e a r o n b o th s i d e s o f a in fo r m a t io n r e a s o n a b ly a v a ila b le at th e
tim e d i s c l o s u r e s a re m a d e . T h e
p a g e , th e c o n s u m e r ’s s ig n a t u r e u s u a lly
“r e a s o n a b ly a v a ila b le ” sta n d a rd
a p p e a r s o n t h e b o t t o m o f th e s e c o n d
r e q u ir e s th a t th e le s s o r , a c tin g in g o o d
s id e . F or p u r p o s e s o f th e r e g u la tio n , th e
c o n s u m e r ’s s ig n a t u r e m a y a p p e a r o n th e fa ith , e x e r c i s e d u e d ilig e n c e in o b ta in in g
in fo r m a t io n . T h e l e s s o r n o r m a lly m a y
b o tt o m o f th e First s i d e if a ll th e
r e ly o n th e r e p r e s e n t a t io n s o f o th e r
d i s c l o s u r e s a p p e a r o n th a t s id e .
p a r t i e s in o b t a in in g in fo r m a tio n . F or
P aragraph 4(a)(4).
e x a m p l e , th e l e s s o r m ig h t lo o k to th e
1. P e rm issib le uses. If th e l e s s o r
c o n s u m e r to d e t e r m in e th e p u r p o s e for
c h o o s e s to p r o v id e fo r e ig n -la n g u a g e
w h i c h l e a s e d p r o p e r ty w ill b e u s e d , to
t r a n s la t io n s o f t h e d is c l o s u r e s o r is
in s u r a n c e c o m p a n ie s fo r th e c o s t o f
r e q u ir e d to d o s o b y s l a t e , f e d e r a l, o r
in s u r a n c e , o r to a n a u to m o b ile
lo c a l la w , th e t r a n s l a t i o n s a r e n o t
m a n u f a c t u r e r or d e a le r for th e d a t e o f
i n c o n s i s t e n t p e r s e w it h d i s c l o s u r e s
d e liv e r y .
u n d e r th e r e g u la t io n a n d m a y b e
3. E stim a te d va lu e o f le a s e d p r o p e r ty
p r o v id e d a s a d d it io n a l in fo r m a t io n
a t term in a tio n . W h e n th e l e s s e e ’s
u n d e r § 2 1 3 .4 (b ).
li a b i li t y a t th e e n d o f th e l e a s e term is
2. A d v e r tis e m e n ts in P u erto R ico. T h e
b a s e d o n th e e s t im a t e d v a lu e o f th e
r e q u ir e m e n t fo r p r o v id in g E n g lis h
l e a s e d p r o p e r ty ( s e e £ 2 1 3 .4 (g )(1 5 )), th e
d i s c l o s u r e s u p o n r e q u e s t d o e s n o t a p p ly
e s t i m a t e m u s t b e r e a s o n a b le a n d b a s e d
to a d v e r t i s e m e n t s s u b j e c t to § 2 1 3 .5 o f
o n th e b e s t in fo r m a t io n r e a s o n a b ly
th e r e g u la t io n ,
a v a i l a b l e to th e le s s o r . T h a t s t a n d a r d
4(b) A d d itio n a l in form ation .
p e r m its a l e s s o r to u s e a g e n e r a lly
1.
S ta te la w d isc lo su re s. If s t a t e l a w a c c e p t e d tr a d e p u b lic a tio n lis tin g
d i s c l o s u r e s a r e n o t i n c o n s i s t e n t w it h th e e s t i m a t e d c u r r e n t or fu tu re m a r k e t
a c t a n d r e g u la t io n u n d e r § 2 1 3 .7 , th e
p r i c e s fo r th e l e a s e d p r o p e r ty , r a th e r
l e s s o r m a y m a k e t h o s e d i s c l o s u r e s in
th a n i n v e s t i n g in th e m o s t s o p h is t ic a t e d
a c c o r d a n c e w it h th e fir st s e n t e n c e o f
c o m p u t e r e q u ip m e n t to d e r iv e th e
th is p a r a g r a p h . If s t a t e l a w d i s c l o s u r e s
e s t i m a t e d v a lu e at th e e n d o f th e l e a s e
a re i n c o n s i s t e n t u n d e r § 2 1 3 .7 a n d th e
te r m . T h e l e s s o r s h o u ld re ly o n o th e r
l e s s o r e l e c t s to m a k e th e m , it m u s t d o s o in fo r m a t io n , its e x p e r ie n c e , or
in a c c o r d a n c e w it h th e s e c o n d s e n t e n c e
r e a s o n a b l e b e lie f , i f t h o s e s o u r c e s
o f th is p a r a g r a p h .
p r o v id e th e b e s t in fo r m a tio n . F or
4(c) M u ltip le le sso rs; m u ltip le le s se e s. e x a m p le :
• A n a u t o m o b ile l e s s o r o ffe r in g a 31.
M u ltip le le sso rs. If a l e a s e
y e a r o p e n - e n d l e a s e in te n d s to a s s ig n a
t r a n s a c t io n i n v o l v e s m o r e th a n o n e
w h o l e s a l e v a lu e to th e v e h ic le a t th e
le s s o r , th e l e s s o r s m a y c h o o s e w h ic h o f
e n d o f th e l e a s e term . T h e l e s s o r m a y
th e m w i l l m a k e t h e d i s c l o s u r e s . A ll
d i s c l o s e a s a n e s t im a t e d v a lu e a
d i s c l o s u r e s fo r th e t r a n s a c t io n m u s t b e
w h o l e s a l e v a lu e d e r iv e d from a c r e d ib le
g iv e n , e v e n if th e d i s c l o s i n g le s s o r
t r a d e p u b lic a t io n lis t in g cu rren t
w o u ld n o t o t h e r w i s e h a v e b e e n
w h o l e s a l e v a lu e s , if th e tr a d e
o b lig a t e d to m a k e a p a r t ic u la r
ft
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* -
6
-
=
p u b lic a tio n is th e b e s t in fo r m a t io n
a v a ila b le .
• S a m e f a c t s a s a b o v e , e x c e p t th a t
th e le s s o r d i s c l o s e s a n e s t i m a t e d v a lu e
d e r iv e d b y a d ju s tin g th e v a lu e q u o te d in
th e tr a d e p u b lic a tio n b e c a u s e , in its
e x p e r ie n c e , th e tr a d e p u b lic a t io n v a l u e s
e it h e r u n d e r s t a t e o r o v e r s t a t e th e p r ic e s
a c t u a lly r e c e iv e d in lo c a l u s e d v e h i c l e
m a r k e ts . T h e l e s s o r m a y a d ju s t
e s tim a te d v a l u e s q u o te d in tr a d e
p u b lic a t io n s b a s e d o n t h e l e s s o r ’s
e x p e r ie n c e o r r e a s o n a b le b e l i e f th a t
su c h v a lu e s w ill b e u n d e r s t a t e d o r
o v e r s ta t e d .
4
R e ta il or w h o le sa le value. T h e
le s s o r m a y c h o o s e e it h e r a r e t a il o r a
w h o l e s a l e v a lu e in e s t im a t in g th e v a l u e
o f th e l e a s e d p r o p e r ty a t t e r m in a t io n ,
p r o v id e d th a t c h o ic e is c o n s i s t e n t w ith
th e le s s o r 's g e n e r a l p r a c t ic e or in te n t io n
w h e n d e te r m in in g th e v a lu e o f th e
p r o p e r ty a t th e e n d o f th e l e a s e term .
5. L abelling e stim a te s. G e n e r a lly , o n ly
th e p a r tic u la r d i s c l o s u r e fo r w h ic h th e
e x a c t in fo r m a tio n is u n k n o w n is
la b e lle d a s a n e s t im a t e . H o w e v e r , wrh e n
s e v e r a l d i s c l o s u r e s a re a f f e c t e d b e c a u s e
o f th e u n k n o w n in fo r m a t io n , th e l e s s o r
h a s th e o p tio n o f l a b e llin g a s a n
e s t im a t e e ith e r e v e r y a f f e c t e d d is c lo s u r e
o r o n ly th e d is c lo s u r e p r im a r ily a f f e c t e d .
b e m a d e o n ly a s a p p lic a b le . A n y
d is c lo s u r e n o t r e le v a n t t o a p a r t ic u la r
t r a n s a c t io n m a y b e e lim in a t e d e n t ir e ly .
F or e x a m p le , if th e l e s s o r d o e s n o t ta k e
a s e c u r ity i n t e r e s t n o d is c lo s u r e i9
r e q u ir e d u n d er § 2 1 3 .4 (g )(9 ). S e e th e
c o m m e n t a r y to A p p e n d ix C.
2.
O th er req u ire d d isclo su res. T h e
d is c lo s u r e s t a t e m e n t m u s t in c lu d e th e
d a te a n d id e n tif y t h e l e s s o r a n d th e
le s s e e . S e e th e c o m m e n t a r y to
§ 213 4 (a )(2 ). T h e l e s s o r n e e d o n ly b e
id e n tif ie d b y n a m e ; n o a d d r e s s is
r e q u ir e d .
Paragraph 4(g)(1).
1. M u ltiple-item lea se. In a m u ltip le -
th a t a r e p a id p e r io d ic a lly . In a d d it io n ,
th e le s s o r m u s t d i s c l o s e th e to ta l o f s u c h
p e r io d ic p a y m e n t s . In a n o p e n - e n d
le a s e , h o w e v e r , t h e le s s o r m a y d i s c l o s e
86 th e to ta l o f p e r io d ic p a y m e n t s th e
s u m o f th e s c h e d u le d p e r io d ic p a y m e n t s
r e fe r r e d to in § 2 1 3 .2 (a )(1 7 ). S e e th e
c o m m e n t a r y to § 2 1 3 .2 (a )(1 7 ).
Paragraph 4(g)(4).
1. Taxes. T a x e s th a t a r e in c lu d e d in
th e v a lu e a t c o n s u m m a t io n a r e n o t
d is c lo s e d p u r s u a n t to t h is p a r a g r a p h .
S e e th e c o m m e n t a r y to § 2 1 3 .2 (a )(1 8 ).
Paragraph 4(g)(5).
1. C overage. S e c t io n 2 1 3 .4 (g )(5 )
r e q u ir e s th e d is c lo s u r e o f c h a r g e s th a t
a r e a n t ic ip a t e d b y th e p a r t ie s a s
in c id e n t to th e n o r m a l o p e r a t io n o f th e
l e a s e a g r e e m e n t . It d o e s n o t r e q u ir e
Paragraph 4(g)(2).
d is c lo s u r e o f c h a r g e s th a t a re im p o s e d
1. Item ization n o t requ ired. T h e l e s s o r
w h e n th e l e s s e e t e r m in a t e s e a r ly o r f a i ls
m u st d is c lo s e o n e t o t a l in itia l p a y m e n t
to a b id e b y th e l e a s e a g r e e m e n t , s u c h a s
a m o u n t a n d id e n t if y t h e c o m p o n e n t s o f
charges fo r
th is o n e a m o u n t (fo r e x a m p le ,
• L a te p a y m e n t .
c a p it a liz e d c o s t r e d u c t io n , m e c h a n ic a l
• D e fa u lt.
b r e a k d o w n p r o t e c t io n , r e g is tr a t io n f e e s ) .
• E a r ly t e r m in a t io n .
T h e le s s o r m a y , b u t n e e d n o t, d i s c l o s e
• D e fe r r a l o f p a y m e n t s .
th e d o lla r a m o u n t o f e a c h c o m p o n e n t .
• E x t e n s io n o f th e le a s e .
2. C onsum m ation. S e e th e
2. Form o f d isclo su re. A lt h o u g h th e
c o m m e n ta r y to § 2 1 3 .2 (b ).
d is c lo s u r e o f a n o t h e r c h a r g e or t h e t o ta l
3. Fees p a y a b le upon d e liv e ry . T h is
o f a ll o t h e r c h a r g e s m u s t b e c le a r a n d
p r o v is io n d o e s n o t a p p ly to f e e s p a id at
c o n s p ic u o u s , th e l e s s o r n e e d n o t u s e t h e
6. Understating the estim ated value.
d e liv e r y , w h e n d e liv e r y o c c u r s a f te r
s p e c if ic t e r m in o lo g y " o th e r c h a r g e .”
In n o n - p u r c h a s e -o p t io n l e a s e s , th e
c o n s u m m a tio n . F o r e x a m p le :
M o r e o v e r , th e r e g u la t io n d o e s n o t
l e s s o r m a y n o t u s e a v a l u e l o w e r th a n
• T h e l e s s e e a g r e e s to p a y
im p o s e a lo c a t io n r e q u ir e m e n t fo r th e
th a t in d ic a t e d b y th e b e s t in fo r m a t io n
r e g is tr a tio n f e e s , s a l e s t a x e s , a n d a
d is c lo s u r e o f o th e r c h a r g e s . F or
a v a ila b le w h e n d i s c l o s i n g th e e s t i m a t e d
d e liv e r y c h a r g e in o n e lu m p su m o n th e
e x a m p le :
v a lu e o f le a s e d p r o p e r ty a t th e e n d o f
d a te th e a u t o m o b ile is d e liv e r e d , s o m e
• A le s s o r h a s a s in g le o th e r c h a r g e ,
th e l e a s e term u n d e r § 2 1 3 .4 (g )(1 5 ).
tim e a fter c o n s u m m a t io n . N o n e o f t h e s e
w h ic h is a d is p o s it io n f e e o f $ 1 0 0 . T h e
4(e) E ffect o f su b se q u e n t o ccu rren ce.
le s s o r m a y d is c l o s e th e d is p o s it io n f e e
S u bsequ en t occu rren ces. E x a m p le s c h a r g e s is a n in itia l p a y m e n t u n d e r
1.
§ 21 3 .4 (g )(2 ) b e c a u s e t h e y a r e p a id a fte r
w it h r e la t e d d is c lo s u r e s a b o u t e a r ly or
o f s u b s e q u e n t o c c u r r e n c e s in c lu d e :
c o n s u m m a tio n o f t h e l e a s e . T h e
s c h e d u le d t e r m in a t io n . It m a y b u t n e e d
• A c h a n g e fro m a m o n t h ly to a
r e g is tr a tio n f e e s a n d s a l e s t a x e s a r e
n o t r e p e a t th e c h a r g e a s a to ta l w it h th e
w e e k l y p a y m e n t s c h e d u le .
d is c lo s e d u n d e r § 2 1 3 .4 (g )(4 ), a n d th e
la b e l o f " o th e r c h a r g e " or s h o w a to ta l
• T h e a d d itio n o f i n s u r a n c e o r a
d e liv e r y c h a r g e is d i s c l o s e d a s a n " o th e r o f o th e r c h a r g e s .
s e c u r ity in te r e s t b y th e l e s s o r b e c a u s e
3. R ela tio n sh ip to o th e r p ro visio n s.
th e l e s s e e h a s n o t p e r fo r m e d o b lig a t io n s ch a r g e " u n d e r § 2 1 3 .4 (g )(5 ).
T h e o th e r c h a r g e s m e n t io n e d in
Paragraph 4(g)(3).
c o n t r a c t e d for in th e l e a s e .
§ 2 1 3 .4 (g )(5 ) a r e c h a r g e s th a t a r e n o t
1. Item ization n ot requ ired. S e c t io n
• A n i n c r e a s e in o f f ic ia l f e e s or t a x e s .
r e q u ir e d to b e d i s c l o s e d u n d e r a n o th e r
2 1 3 .4 (g )(3 ) d o e s n o t r e q u ir e th e le s s o r to
S e e th e c o m m e n t a r y to § 2 1 3 .4 (d ).
p r o v is io n o f § 2 1 3 .4 (g ). F or e x a m p le :
ite m iz e th e c o m p o n e n t s o f th e p e r io d ic
• A n i n c r e a s e in in s u r a n c e p r e m iu m
• A d e liv e r y c h a r g e th a t is p a id a fte r
p a y m e n t s . S o m e o f th e c o m p o n e n t s m u s t
o r c o v e r a g e c a u s e d b y a c h a n g e in l a w .
c o n s u m m a tio n is d i s c l o s e d as a n " o th e r
• L a te d e liv e r y o f a n a u t o m o b ile
b e d is c lo s e d s e p a r a t e ly if th e ir
c h a r g e ." A d e liv e r y c h a r g e th a t is p a id
c a u s e d b y a s tr ik e .
d is c lo s u r e is r e q u ir e d b y o th e r
at c o n s u m m a tio n , h o w e v e r , is d i s c l o s e d
• 2. R ed isclo su re. W h e n a d i s c l o s u r e
p r o v is io n s o f th e r e g u la t io n , s u c h a s
b e c o m e s in a c c u r a t e b e c a u s e o f a
a s part o f th e to ta l in itia l c h a r g e s u n d e r
o f fic ia l f e e s a n d l e s s e e ’s in s u r a n c e ,
s u b s e q u e n t o c c u r r e n c e , th e l e s s o r n e e d
§ 2 1 3 .4 (g )(2 ), n o t a s a n " o th e r c h a r g e ."
2. P eriodic p a y m e n ts. T h e p h r a s e
not m ake n e w d isc lo s u r e s u n le s s n e w
• O c c a s io n a lly , th e p r ic e o f a
" n u m b er, a m o u n t, a n d d u e d a t e s or
d i s c l o s u r e s a r e r e q u ir e d u n d e r
m e c h a n ic a l b r e a k d o w n p r o t e c t io n
p e r io d s o f p a y m e n t s " r e q u ir e s th e
S 2 1 3 .4 (h ).
d is c lo s u r e o f a ll p a y m e n t s m a d e
(M B P ) c o n t r a c t is d is c l o s e d a s a n " o th e r
4(g) S p ecific d isc lo su re req u irem en ts.
p e r io d ic a lly . T h e d i s c l o s e d p a y m e n t s
c h a r g e " M o r e o f te n , th e p r ic e o f M B P is
1.
In a p p lica b le d isc lo su re s. T h e
m u s t in c lu d e a ll a m o u n t s , s u c h a s
r e f le c t e d in th e p e r io d ic p a y m e n t
d is c lo s u r e s r e q u ir e d b y t h is s e c t i o n n e e d m a in t e n a n c e a n d i n s u r a n c e c h a r g e s ,
d is c lo s u r e u n d e r { 2 1 3 .4 (g )(3 ), in w h ic h
I-----------------------------------------------
ite m le a s e , t h e p r o p e r t y m a y b e
d e s c r ib e d in s e p a r a t e s t a t e m e n t s a s
p r o v id e d in § 2 1 3 .4 (a )(3 ).
- T -
J-------------------------c a s e it is n o t d i s c l o s e d a s a n " o th e r
c h a r g e " . In s t a t e s w h e r e M B P is
r e g a r d e d a s in s u r a n c e , h o w e v e r , th e
c o s t s h o u ld b e d i s c l o s e d in a c c o r d a n c e
w it h § 2 1 3 .4 [g }(6 ), n o t a s a n " o th e r
c h a r g e ." S e e th e c o m m e n t a r y to
§ 2 1 3 .4 (g )(6 ).
4.
L e sse e lia b iltie s a t the e n d o f th e
le a s e term . L ia b ilit ie s th a t th e l e a s e
i m p o s e s u p o n th e l e s s e e at th e e n d o f
t h e s c h e d u l e d l e a s e term a n d th a t m u s t
b e d i s c l o s e d in c lu d e , b u t a re n o t lim it e d
to , d i s p o s it i o n a n d “p ic k -u p " c h a r g e s .
in te r e sts m u st b e d is c lo s e d .
' W h e t h e r a p u r c h a s e o p tio n e x i s t s is
d e t e r m in e d b y s t a t e or o th e r a p p lic a b le
la w . T h e l e s s e e ' s rig h t to su b m it a b id to
im p o s itio n o f c o l l e c t i o n c o s t s or
p u r c h a s e p r o p e r ty a t t e r m in a tio n o f th e
a t to r n e y f e e s u p o n d e f a u lt m u s t b e
l e a s e is n o t a n o p tio n to p u r c h a s e u n d e r
d i s c l o s e d u n d e r $ 2 1 3 .4 (g )(1 0 ). C o lle c t io n § 2 1 3 .4 ( g ) ( l l ) if th e l e s s o r is n o t r e q u ir e d
c o s t s or a t to r n e y f e e s th a t a r e n o t
to a c c e p t th e l e s s e e ’s b id a n d th e l e s s e e
im p o s e d a u t o m a t ic a lly , b u t a r e
d o e s n o t r e c e iv e p r e f e r e n t ia l tr e a t m e n t .
c o n t in g e n t u p o n e x p e n d it u r e o f a m o u n t s
3.
P u rch a se op tio n fe es. A p u r c h a s e
in c o n j u n c t io n w it h a c o l l e c t i o n
o p t io n f e e m u s t b e d i s c l o s e d u n d e r t h is
p r o c e e d in g o r u p o n th e e m p lo y m e n t o f
p a r a g r a p h u n l e s s th e l e s s o r d i s c l o s e s
a n a t to r n e y to e f f e c t c o l l e c t i o n , n e e d n o t th e f e e u n d e r § 2 1 3 .4 (g )(5 ) a s a n o t h e r
b e d is c lo s e d .
charge.
2. C h arges fo r e a r ly term in ation .
P aragraph 4(g)(12).
P aragraph 4(g)(6).
W h e n d e f a u lt is a c o n d it io n fo r e a r ly
1. L esso r's insu ran ce. I n s u r a n c e th a t
1. D efault. W h e n d e f a u lt is a l s o a
t e r m in a tio n o f a l e a s e , d e f a u lt c h a r g e s
i s p u r c h a s e d b y th e l e s s o r p r im a r ily fo r
c o n d i t i o n fo r e a r ly t e r m in a t io n o f a
m u s t a ls o b e d i s c l o s e d u n d e r
it s o w n b e n e f it , a n d th a t is a b s o r b e d a s
l e a s e , d e f a u lt c h a r g e s m u s t b e d i s c l o s e d
§ 2 1 3 .4 (g )(1 2 ). T h e § 2 1 3 .4 (g )(1 0 ) a n d (12) u n d e r th is p a r a g r a p h . S e e th e
a b u s i n e s s e x p e n s e a n d n o t s e p a r a t e ly
d is c lo s u r e s m a y b e c o m b in e d . E x a m p le s c o m m e n t a r y to § 2 1 3 .4 (g )(1 0 ).
c h a r g e d to th e l e s s e e , n e e d n o t b e
o f c o m b in e d d i s c l o s u r e s a re p r o v id e d in
d i s c l o s e d u n d e r § 2 1 3 .4 (g )(6 ) e v e n i f it
2. L e s s e e ’s lia b ility a t e a r ly
th e m o d e l l e a s e d is c lo s u r e fo r m s in
p r o v i d e s a n in c id e n t a l b e n e f it to th e
term in a tio n . W h e n th e l e s s e e is l i a b l e
A p p e n d ix C.
le s se e .
fo r t h e d if f e r e n c e b e t w e e n th e
3. S im p le -in te re st le a se s. In a s im p le 2. M e c h a n ic a l b rea k d o w n p ro tectio n .
u n a m o r t iz e d c a p i t a li z e d c o s t a n d th e
in t e r e s t a c c o u n t in g l e a s e , ih e a d d it io n a l
W h e th e r m e c h a n ic a l b r e a k d o w n
r e a l i z e d v a lu e a t e a r ly te r m in a tio n , th e
l e a s e c h a r g e th a t a c c r u e s o n th e l e a s e
p r o t e c t io n (M B P ) p u r c h a s e d in
a m o u n t or th e m e th o d o f d e t e r m in in g
b a l a n c e w h e n a p e r io d ic p a y m e n t is
c o n j u n c t io n w it h a l e a s e s h o u ld b e
th e a m o u n t o f th e d i f f e r e n c e m u s t b e
m a d e a fte r th e d u e d a te d o e s n o t
t r e a t e d a s in s u r a n c e is d e t e r m in e d b y
d i s c l o s e d u n d e r th is p a r a g r a p h .
c o n s t it u t e a p e n a l t y or o t h e r c h a r g e fo r
s t a t e o r o t h e r a p p lic a b le la w . In s t a t e s
3. R e a so n a b le n e ss o f charges.
la t e p a y m e n t . S im ila r ly , c o n t in u e d
th a t d o n o t tr e a t M B P a s in s u r a n c e , th e
P e n a lt i e s o r o t h e r c h a r g e s for
a c c r u a l o f th e l e a s e c h a r g e a f te r
l e s s o r n e e d n o t m a k e § 2 1 3 .4 (g )(6 )
d e lin q u e n c y , d e f a u lt , or e a r ly
t e r m in a t io n o f th e l e a s e b e c a u s e th e
d is c l o s u r e s . T h e l e s s o r m a y , h o w e v e r ,
t e r m in a t io n m a y b e s p e c i f i e d in th e
l e s s e e f a ils to r etu rn th e l e a s e d p r o p e r ty l e a s e b u t o n ly in a n a m o u n t th a t is
d i s c l o s e th e § 2 1 3 .4 (g )(6 ) in fo r m a t io n in
d o e s n o t c o n s t it u t e a d e f a u l t c h a r g e . In
s u c h c a s e s in a c c o r d a n c e w it h th e
r e a s o n a b l e . S e c t i o n 1 8 3 (b ) o f th e a c t s e t s
e it h e r c a s e , if th e a d d it io n a l c h a r g e
a d d it io n a l in fo r m a t io n p r o v is io n in
fo r th th e s t a n d a r d s fo r d e t e r m in in g a
a c c r u e s a t a r a te h ig h e r th a n th e n o r m a l r e a s o n a b l e p e n a l t y o r c h a r g e .
§ 2 1 3 .4 (b ).
le a s e ch a rg e, th e le s s o r m u st d is c lo s e
P ara g ra p h 4(g)(14).
P aragraph 4(g)(7).
th e a m o u n t o f o r th e m e th o d o f
1. D isc lo su re in a p p lic a b le. W h e n t h e
1. B rie f id e n tific a tio n . T h e s t a t e m e n t
d e t e r m in in g th e a d d it io n a l c h a r g e u n d e r
l e s s e e is lia b le a t th e e n d o f th e l e a s e
i d e n t if y in g w a r r a n t ie s m a y b e b r ie f. F or
§ 2 1 3 .4 (g )(1 0 ).
te r m o r at e a r ly t e r m in a t io n fo r
e x a m p le , m a n u f a c t u r e r 's w a r r a n t ie s
4. E xten sion charges. E x t e n s io n
u n r e a s o n a b l e w e a r o r u s e b u t n o t fo r th e
m a y b e i d e n t i f i e d s im p ly b y a r e f e r e n c e
c h a r g e s th a t e x c e e d th e l e a s e c h a r g e in
e s t i m a t e d v a lu e o f th e l e a s e d p r o p e r ty ,
to th e s t a n d a r d m a n u f a c t u r e r ’s
a s im p le - in t e r e s t a c c o u n t in g l e a s e or
th e l e s s o r n e e d n o t d i s c l o s e th e l e s s e e ’s
w a r r a n ty .
th a t a re a d d e d s e p a r a t e l y a r e d i s c l o s e d
r ig h t to a n i n d e p e n d e n t a p p r a is a l. F o r
2. W a rra n ty d isc la im e rs. A lt h o u g h a
u n d e r § 2 1 3 .4 (g )(1 0 ).
e x a m p le :
d is c l a i m e r o f w a r r a n t ie s is n o t r e q u ir e d
5. R e a so n a b le n e ss o f charges.
• T h e a u t o m o b ile l e s s o r m a y
b y th e r e g u la t io n , th e l e s s o r m a y g iv e a
P e n a lt ie s o r o th e r c h a r g e s fo r
r e a s o n a b l y e x p e c t a l e s s e e to retu rn a n
d i s c l a i m e r a s a d d it io n a l in fo r m a tio n in
d e lin q u e n c y , d e f a u lt , o r e a r ly
u n d e n t e d c a r w it h fo u r g o o d tir e s a t th e
a c c o r d a n c e w it h § 2 1 3 .4 (b ).
t e r m in a t io n m a y b e s p e c i f i e d in th e
3. S ta te la w . W h e t h e r a n e x p r e s s
e n d o f th e l e a s e term . E v e n th o u g h it
l e a s e b u t o n ly in a n a m o u n t th a t is
w a r r a n t y o r g u a r a n ty e x i s t s is
h o ld s th e l e s s e e l ia b le for th e d if f e r e n c e
r e a s o n a b le . S e c t io n 1 8 3 (b ) o f th e a c t s e t s b e t w e e n a d e n t e d c a r w it h b a ld t ir e s
d e t e r m in e d b y s t a t e or o th e r a p p lic a b le
fo r th th e s t a n d a r d s for d e t e r m in in g a
a n d th e v a lu e o f a c a r in r e a s o n a b ly
la w .
r e a s o n a b l e p e n a lt y or c h a r g e .
P aragraph 4(g)(8).
g o o d r e p a ir , th e l e s s o r is n o t r e q u ir e d to
P aragraph 4 (g )(ll).
1.
S ta n d a r d s fo r w e a r a n d use. T h e
d i s c l o s e th e l e s s e e ’s a p p r a is a l righ t.
1. M a n d a to ry d isc lo su re o f no
l e s s o r is p e r m itt e d , b u t n o t r e q u ir e d , to
2. L esso r's a p p ra isa l. T h e le s s o r m a y
p u rc h a se option . A lt h o u g h g e n e r a lly th e o b t a in a n a p p r a is a l o f th e le a s e d
s e t s t a n d a r d s fo r w e a r a n d u s e ( s u c h a9
l e s s o r n e e d o n ly m a k e th e s p e c i f i c
e x c e s s m ile a g e ) . T h e d is c lo s u r e m a y b e
p r o p e r ty to d e t e r m in e its r e a liz e d v a lu e .
r e q u ir e d d i s c l o s u r e s th a t a p p ly to a
o m it t e d b y l e s s o r s th a t d o n o t s e t s u c h
S u c h a n a p p r a i s a l h o w e v e r , is n o t th e
t r a n s a c t io n , it m u s t d i s c l o s e
s t a n d a r d s . S e e th e c o m m e n t a r y to
o n e a d d r e s s e d in § 1 8 3 (c ) o f th e a c t, a n d
a f f ir m a t iv e ly th a t th e l e s s e e h a s n o
§ 2 1 3 .4 ( g )( 1 5 ).
th e l e s s o r s t ill m u s t d i s c l o s e th e l e s s e e ’s
o p tio n to p u r c h a s e th e l e a s e d p r o p e r ty
P aragraph 4(g)(9).
in d e p e n d e n t righ t to a n a p p r a is a l u n d e r
1.
D is c lo s a b le s e c u r ity in te re sts. S e e w h e n th e p u r c h a s e o p tio n is
§ 2 1 3 .4 (g K l4 ).
5 2 1 3 .2 (a )(1 5 ) a n d a c c o m p a n y in g
in a p p lic a b le .
3. T im e re stric tio n on a p praisal.
c o m m e n t a r y to d e t e r m in e w-hat s e c u r it y
2. E x iste n c e o f p u rc h a se option.
N e it h e r th e a c t n o r th e r e g u la tio n
P aragraph 4(g)(10).
1. C o llectio n co sts. T h e a u to m a t ic
)
i
- 8 -
.s p e c i f i e s a n y tim e p e r io d in w h ic h th e
l e s s e e m u st e x e r c is e th e a p p r a is a l righ t.
T h e le s s o r m a y r e q u ir e a l e s s e e to
o b ta in th e a p p r a is a l w it h in a r e a s o n a b le
tim e a fter t e r m in a tio n o f th e l e a s e . T h e
r e g u la tio n d o e s n o t d e f in e w h a t is a
“ r e a s o n a b le tim e."
Paragraph 4(g)(15).
1. Coverage. T h e d is c lo s u r e
u n der
P a ra g ra p h 4 (g )(1 5 ) lim itin g th e l e s s e e ' s
lia b ilit y for th e v a lu e o f th e le a s e d
p r o p e r ty d o e s n o t a p p ly a t e a r ly
te r m in a tio n .
2. Total lease obligation. T h e
r e q u ir e m e n t th a t th e t o ta l l e a s e
o b lig a tio n b e it e m iz e d is s a t i s f i e d b y
d is c lo s in g th e 3 c o m p o n e n t s in th e
d e f in it io n o f to ta l l e a s e o b lig a t io n in
§ 2 1 3 .2 (a )(1 7 ) w ith th e ir c o r r e s p o n d in g
a m o u n ts. T h e le s s o r m a y c r o s sr e f e r e n c e th e in d iv id u a l c o m p o n e n t s
d i s c l o s e d e l s e w h e r e in th e l e a s e
d is c lo s u r e s t a t e m e n t , a s d o n e in
A p p e n d ix C - l .
3. Taxes. T a x e s in c lu d e d in th e v a lu e
a t c o n s u m m a tio n a r e in c lu d e d in th e
to ta l le a s e o b lig a tio n . T a x e s n o t
in c lu d e d in th e v a lu e a t c o n s u m m a t io n
m a y . b ut n e e d n o t, b e in c lu d e d in th e
to ta l le a s e o b lig a t io n a t th e le s s o r ' s
o p tio n . S e e th e c o m m e n t a r y to
§ 2 1 3 .2 (a )(1 8 ).
4. Leases with a minimum term. If a
le a s e h a s a n a lt e r n a t iv e m in im u m term ,
th e § 2 1 3 .2 (g )(1 5 ) d i s c l o s u r e s g o v e r n in g
th e lia b ilit y lim it a t io n a r e n o t a p p lic a b le
for th e m in im u m term . S e e th e
c o m m e n t a r y to § 2 1 3 .4 (a ).
5. A verage payment allocable to a
monthly period. T h e p h r a s e " a v e r a g e
p a y m e n t a l l o c a b l e to a m o n t h ly p e r io d "
is b a s e d o n th e p e r io d ic p a y m e n t u s e d
to c o m p u te th e to ta l l e a s e o b lig a t io n .
S e e th e c o m m e n t a r y to § 2 1 3 .2 (a )(1 7 ).
6. Charges not subject to rebuttable
presumption. T h e lim it a t io n o n lia b ilit y
a p p lie s o n ly to li a b i li t y th a t is b a s e d on
th e e s t im a t e d v a lu e o f th e p r o p e r ty at
th e e n d o f th e l e a s e term . T h e l e s s o r
a l s o m a y r e c o v e r a d d it io n a l c h a r g e s
from th e l e s s e e a t th e e n d o f th e l e a s e
term . E x a m p le s o f s u c h a d d it io n a l
c h a r g e s in c lu d e :
• Disposition charges.
• Excess mileage charges.
• Late payment and default charges.
• Amounts b y which the unamortized
c a p it a liz e d cost exceeds the estimated
r e s id u a l v a lu e that h a v e accrued in
s im p le interest accounting leases
b e c a u s e the lessee has made late
p a y m e n ts
4(h) Renegotiations or extensions.
1. General coverage. S e c t io n 2 1 3 .4 (h )
a p p lie s o n ly to e x i s t i n g l e a s e s th a t w e r e
c o v e r e d b y th e r e q u ir e m e n ts o f th e
r e g u la tio n or p r e v io u s R e g u la t io n Z. It
th e r e fo r e d o e s n o t a p p ly to th e
r e n e g o t ia tio n or e x t e n s i o n o f l e a s e s w ith
a n in itia l term o f 4 m o n th s o r l e s s ,
b e c a u s e su c h l e a s e s a r e n o t c o v e r e d b y
th e d e f in it io n o f c o n s u m e r l e a s e in
§ 2 1 3 .2 (a )(6 ).
2. Renegotiation defined. A
r e n e g o t ia tio n o c c u r s w h e n a n e x i s t i n g
c o n s u m e r l e a s e is s a t i s f i e d a n d r e p la c e d
b y a n e w le a s e u n d e r ta k e n b y th e s a m e
l e s s e e . A r e n e g o t ia tio n is a n e w l e a s e
r e q u ir in g n e w d i s c l o s u r e s . W h e t h e r a n d
w h e n a l e a s e is s a t i s f i e d a n d r e p la c e d
b y a n e w le a s e is d e t e r m in e d b y s t a t e o r
o th e r a p p lic a b le la w .
3. Renegotiation e x cep tio n s. T h e
f o llo w in g e v e n t s a r e n o t r e n e g o t i a t i o n s
e v e n if t h e y a re a c c o m p lis h e d - b y
s a t is f y in g a n d r e p la c in g a n e x i s t i n g
le a s e :
• A s u b s t it u t io n o f l e a s e d p r o p e r ty in
a m u ltip le -ite m l e a s e , p r o v id e d th e
a v e r a g e p a y m e n t is n o t c h a n g e d b y
m o r e th a n 25 p e r c e n t.
• A r e d u c tio n in th e l e a s e c h a r g e .
• A s u b s tit u tio n o f l e a s e d p r o p e r t y
w ith p r o p e r ty t h a r h a s a s u b s t a n t i a l ly
e q u iv a le n t or g r e a te r e c o n o m i c v a lu e ,
p r o v id e d n o o th e r l e a s e te r m s a r e
changed.
4. Extension defined. A n e x t e n s i o n i s
a n y c o n t in u a t io n o f a n e x i s t i n g
c o n s u m e r le a s e b e y o n d th e o r ig in a lly
s c h e d u le d te r m in a tio n d a te , b u t o n ly if
th e c o n t in u a t io n i s n o t th e r e s u lt o f a
r e n e g o t ia tio n . T h e c o n t in u a t io n ro u st b e
a g r e e d to b y b o th th e l e s s o r a n d t h e
l e s s e e . A n e x t e n s i o n th a t e x c e e d s 6
m o n th s is a n e w l e a s e r e q u ir in g n e w
d is c lo s u r e s .
5. Tim e o f ex te n sio n d isc lo su re s. If a
c o n s u m e r l e a s e is e x t e n d e d fo r a
s p e c if ie d term g r e a te r th a n 6 m o n t h s ,
n e w d is c lo s u r e s a r e r e q u ir e d at th e tim e
th e e x t e n s i o n is a g r e e d to . If th e l e a s e is
e x t e n d e d o n a m o n th -to -r n o n th b a s i s
an d e x c e e d s 6 m o n th s, n e w d is c lo s u r e s
a r e r e q u ir e d at th e c o m m e n c e m e n t o f
th e s e v e n t h m o n th . If a c o n s u m e r l e a s e
is e x t e n d e d for s e v e r a l te r m s, o n e o f
w h ic h w ill e x c e e d 6 m o n t h s b e y o n d th e
o r ig in a lly s c h e d u le d t e r m in a t io n d a t e o f
th e l e a s e , n e w d i s c l o s u r e s a re r e q u ir e d
at th e c o m m e n c e m e n t o f th e te r m th a t
w ill e x c e e d 6 m o n t h s b e y o n d t h e
o r ig in a lly s c h e d u le d t e r m in a t io n d a t e .
6. In a p p lica b le d isclo su res.
D is c lo s u r e s th a t a r e i n a p p lic a b le t o t h e
te r m s o f a r e n e g o t ia tio n o r e x t e n s i o n
n e e d n o t b e g iv e n . F or e x a m p le :
• If th e term fo r w h ic h e x t e n s i o n
d i s c l o s u r e s a r e g iv e n is 1 m o n th a n d th e
l e s s e e w i l l p a y n o o f f ic ia l f e e s a n d t a x e s
d u r in g t h a t m o n th , n o d i s c l o s u r e o f
t h o s e a m o u n t s is n e c e s s a r y .
• If a r e n e g o t i a t i o n i n v o l v e s n o in itia l
c h a r g e s , n o d i s c l o s u r e o f in itia l c h a r g e s
is n e c e s s a r y .
7. C ourt p ro c e e d in g s. N o d i s c l o s u r e s
a r e r e q u ir e d if a r e n e g o t ia t io n or
e x t e n s i o n r e s u l t s fro m a n a g r e e m e n t
i n v o lv in g a c o u r t p r o c e e d in g .
8. D eferra ls. N o d i s c l o s u r e s a re
r e q u ir e d i f o n e o r m o r e p a y m e n t s a r e
d e f e r r e d w h e t h e r o r n o t a f e e is c h a r g e d .
9. A ssu m p tio n s. N o d i s c l o s u r e s a r e
r e q u ir e d w h e n a c o n s u m e r l e a s e is
a s s u m e d b y a n o th e r p e r s o n , w h e t h e r o r
n o t a n a s s u m p t io n fe e is c h a r g e d .
R e fe re n c e s
S ta tu te : S e c t i o n s 1 0 2 (b ), 1 2 1 ,1 2 2 ,1 2 4 ,
182, a n d 1 83.
O th er se c tio n s: § § 2 1 3 .2 , 21 3 .5 , a n d
2 1 3 .7 a n d A p p e n d i x C.
P re v io u s regu lation : 5 § 2 2 6 .8 a n d
2 2 6 .1 5 .
1961 ch a n g es: A lt h o u g h r e o r g a n iz e d ,
th e d i s c l o s u r e r e q u ir e m e n ts a r e
s u b s t a n t i a l ly th e s a m e a s th e p r e v io u s
r e q u ir e m e n ts . T h e s o l e a m e n d m e n t
im p le m e n t s § 121 o f t h e T r u th in L e n d in g
A c t p e r t a in in g to m u ltip le le s s o r s a n d
le s s e e s .
S ectio n 213.5—A d v e rtisin g
5(a) G e n e ra ) rule.
1. P e rso n s co ve re d . A ll “ p e r s o n s ”
m u s t c o m p l y w it h th e a d v e r t is in g
p r o v i s i o n s in t h is s e c t io n , n o t ju st t h o s e
th a t m e e t t h e d e f in it io n o f l e s s o r in
§ 2 1 3 .2 (a )(8 ). T h u s , a u t o m o b ile d e a le r s ,
m e r c h a n ts, a n d o th e r s w h o are n o t
t h e m s e l v e s l e s s o r s m u s t c o m p ly w it h
th e a d v e r t i s i n g p r o v is io n s o f th e
r e g u la t io n if t h e y a d v e r t i s e c o n s u m e r
le a s e tr a n s a c tio n s . T h e o w n e r a n d
p e r s o n n e l o f th e m e d iu m in w h ic h a n
a d v e r t i s e m e n t a p p e a r s or th r o u g h w h i c h
it is d i s s e m i n a t e d , h o w e v e r , a r e n o t
s u b j e c t to c i v il l ia b ilit y fo r v io l a t i o n s
u n d e r s e c t i o n 1 8 4 (b ) o f th e a c t.
2. “U su a lly a n d c u sto m a rily . " S e c t i o n
2 1 3 .5 (a ) i s n o t i n t e n d e d to p r o h ib it th e
a d v e r t is in g o f a s in g le ite m or th e
p r o m o tio n o f n e w l e a s in g p r o g r a m s, b u t
to b a r t h e a d v e r t is in g o f te r m s th a t a r e
n o t a n d w a ll n o t b e a v a i l a b l e . T h u s , a n
a d v e r t i s m e n t m a y s t a t e te r m s th a t w ill
b e o f fe r e d fo r o n ly a lim it e d p e r io d or
te r m s th a t w i l l b e c o m e a v a i l a b l e a t a
fu tu r e d a t e .
- 9 -
Statute: Sections 105(a) and 184.
5(b) Catalogs and multipage
advertisements.
Other sections: § 213.2(a) (2) and (6).
1. Genera! rule. The multiple-page
Previous regulation: $ 226.10 (a), (b).
advertisements to which §213.5(b) refers (g). and (h).
are advertisements consisting of a
1981 changes: None.
numbered series of pages— for example,
Section 213.6—Preservation and
a supplement to a newspaper. A mailing Inspection of Evidence of Compliance
comprised of several separate flyers or
1. Preservation methods. Lessors must
pieces of promotional material in a
retain evidence that they performed
single envelope is not a single multiplerequired actions as well as made
page advertisement.
required disclosures. Adequate evidence
2. Cross-references. A multiple-page
advertisement is a single advertisement of compliance does not require actual
paper copies of disclosure statements or
(requiring only one set of lease
other business records. The evidence
disclosures) if it contains a table, chart,
may be retained on microfilm,
or schedule clearly stating sufficient
microfiche, or by any other method
information for the reader to determine
the disclosures required under § 213.5(c) designed to reproduce records
accurately (including computer
(1) through (5). If one of the triggering
programs). The lessor need retain only
terms listed in § 213.5(c) appears on
enough information to reconstruct the
another page of the catalog or multiplerequired disclosures or other records.
page advertisement, that page must
clearly refer to the specific page where
References
the table, chart, or schedule begins.
Statute: Section 105(a)
5(c) Terms that require additional
Previous regulation: § 228.6(i)
information.
1981 changes: A uniform 2-year
1. Clear and conspicuous standard.
record-retention rule replaces the
Section 213.5(c) prescribes no specific
previous requirement that records be
rules for the format of the necessary
retained through at least one compliance
disclosures. The terms need not be
examination.
printed in a certain type size and need
not appear in any particular place in the Section 213.7—Inconsistent State
Requirements
advertisement
2. Triggering terms. Whenever certain
1. Procedures. Only states (through
triggering terms appear in lease
their authorized officials) may request
advertisements, the additional terms
and receive determinations on
enumerated in § 213.5(c) (1) through (5)
inconsistency. The procedures for
must also appear. An example of one or requesting a Board determination on
more typical leases with a statement of
inconsistency are contained in
all the terms applicable to each may be
Appendix B.
2. Inconsistent state disclosures. A
used. The additional terms must be
disclosed even if the triggering term is
lessor that chooses to make inconsistent
not stated explicitly, but is readily
state disclosures must do so in the
determinable from the advertisement.
manner prescribed by § 213.4(b).
For example, if an advertisement states
References
a 5-year lease term with monthly
Statute: Sections 111(a)(1) and 186(a).
payments, the number of required
Other sections: §§ 213.2(a)(16) and
payments— a triggering term—is readily
213.4(b) and Appendix B.
apparent.
Previous regulation: § 226.6(b)(3).
5(d) Multiple-item leases;
1981 changes: None.
merchandise tags.
1.
Merchandise tags. Section 213.5(d) Section 213.8—Exemption of Certain
provides a method for using
State-Regulated Transactions
merchandise tags without including all
1. Classes eligible. The state
the required disclosures on the tags. As
determines the classes of transactions
an alternative to this dosclosure method,
for its exemption and makes its
a merchandise tag may state all the
necessary terms on one or both sides of application for those classes. Classes
might be. for example, all automobile
the tag. If the terms are on both sides of
leases or all leases in which the lessor is
the tag, both sides must be accessible to
a bank.
the consumer.
2. Substantial similarity. The
"substantially similar" standard
. References
i
requires that state statutory or
regulatory provisions and state
interpretations of those provisions must
be generally the same as the federal act
and the regulation. A state will be
eligible for an exemption even if its law
covers classes of transactions not
covered by the federal law. For
example, i f a state's law covers leases
for agrucultural purposes, this will not
prevent the Board from granting an
exemption for consumer leases, even
though leases for agricultural purposes
are not covered by the federal law.
3.
Adequate enforcement. 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).
Other sections: §§ 213.2(a)(16) and
213.4(b) and Appendix A.
Previous regulation: § 226.6(b)(3).
1981 changes: None.
Appendix A—Procedures and Criteria
for State Exemptions
References
Statute: Section 186(b).
Other sections: § 213.8.
Previous regulation: § 226.80
(Supplement VI, Section I).
1981 changes: None.
Appendix B—Procedures and Criteria
for Board Determination Regarding
Preemption
References:
Statute: Section 186(a).
Other sections: § 213.7.
Previous regulation: § 226.80
(Supplement VI, Section U).
1981 changes: None.
Appendix C—Model Forms
1. Permissible changes. Although use
of the model forms is not required,
lessors using them properly will be
deemed to be in 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 mode! forms
may not be so extensive as to affect the
10
s u b s t a n c e , c la r it y , o r m e a n in g f u l
s e q u e n c e o f th e fo r m s . E x a m p le s o f
a c c e p t a b l e c h a n g e s in c lu d e :
• U s in g th e first p e r s o n , in s t e a d o f th e
s e c o n d p e r s o n , in r e fe r r in g to th e l e s s e e .
• U s in g “ l e s s e e . ” “ le s s o r ," or n a m e s
in s t e a d o f p r o n o u n s .
• R e a r r a n g in g th e s e q u e n c e o f th e
d is c lo s u r e s .
• I n c o r p o r a tin g c e r t a in s t a t e “p la in
E n g lis h " r e q u ir e m e n ts .
• D e le t in g i n a p p lic a b le d i s c l o s u r e s b y
w h itin g o u t, b lo c k in g o u t, fillin g in
“N / A " (n o t a p p lic a b le ) o r "O ," c r o s s in g
o u t, le a v in g b la n k s , c h e c k in g a b o x fo r
a p p lic a b le it e m s , o r c ir c lin g a p p lic a b le
ite m s . (T h is s h o u ld p e r m it u s e o f m u lti
p u r p o s e s t a n d a r d fo r m s .)
• A d d in g la n g u a g e or s y m b o ls to
in d ic a te e s t i m a t e s .
Mode! open-end or finance vehicle
lease disclosures. M o d e l C - l is d e s ig n e d
2.
for a n o p e n - e n d o r f in a n c e l e a s e o f a
v e h ic le . A n o p e n - e n d or f in a n c e l e a s e is
o n e in w h ic h th e l e s s e e ’s lia b ilit y at th e
e n d o f t h e l e a s e term is b a s e d o n th e
d iff e r e n c e b e t w e e n th e e s t im a t e d v a lu e
o f th e l e a s e d p r o p e r ty a n d its r e a liz e d
v a lu e . S e c t io n 2 1 3 .4 (g )(1 5 )(i) r e q u ir e s
d is c lo s u r e o f a n it e m iz e d to ta l l e a s e
o b lig a t io n fo r s u c h l e a s e s . T o f a c ilit a t e
th is d is c lo s u r e , M o d e l C - l d i v i d e s th e
in itia l c h a r g e s (ite m 3) in to t w o
c a t e g o r ie s : T h o s e th a t a r e in c lu d e d in
th e t o ta l l e a s e o b lig a tio n a n d t h o s e th a t
a re n o t, T h e a m o u n t o f th e m o n t h ly
p a y m e n t (ite m 4) is s im ila r ly d iv id e d .
T h is fo r m a t p e r m its th e c o m p o n e n t s o f
th e to ta l l e a s e o b lig a t io n (ite m 1 1 ) to b e
d i s c l o s e d s im p ly b y c r o s s - r e f e r e n c e to
th e p r e v io u s ite m s . S e e th e c o m m e n t a r y
to § 2 1 3 .2 (a )(1 7 ). T h e in c lu s io n o f t a x e s
in th e b a s i c m o n th ly p a y m e n t d i s c l o s u r e
( m e n t io n e d in th e in s t r u c t io n s to it e m
4 (a )) is n o t m a n d a t o r y in a ll c a s e s . S e e
th e c o m m e n t a r y to § 2 1 3 .4 (g )(1 5 ).
Model closed-end or net vehicle
lease disclosures. M o d e l C - 2 is d e s i g n e d
3.
fo r a c l o s e d - e n d or n e t l e a s e o f a
v e h i c l e . A c l o s e d - e n d or n e t l e a s e is o n e
in w h ic h th e l e s s e e ’s lia b ilit y a t t h e e n d
o f th e l e a s e term is not b a s e d o n t h e
d if f e r e n c e b e t w e e n th e e s t i m a t e d v a lu e
o f th e l e a s e d p r o p e r ty a n d its r e a l i z e d
v a lu e . Ite m 1 3 (c ) is in c lu d e d fo r t h o s e
c lo s e d - e n d v e h i c l e l e a s e s in w h i c h th e
l e s s e e ’s lia b ilit y a t e a r ly t e r m in a t io n is
b a s e d o n th e v e h i c l e ’s e s t im a t e d v a l u e .
S e e § 2 1 3 .4 (g )(1 4 ).
4. Model furniture lease disclosures.
M o d e l C - 3 is a c l o s e d - e n d l e a s e
d is c l o s u r e s t a t e m e n t d e s i g n e d fo r a
«
t y p ic a l f u r n itu r e l e a s e . It d o e s n o t
in c lu d e a d i s c l o s u r e o f th e a p p r a is a l
righ t at e a r l y t e r m in a t io n th a t is
r e q u ir e d u n d e r § 2 1 3 .4 (g )(1 4 ) b e c a u s e
f e w c l o s e d - e n d fu r n itu r e l e a s e s b a s e th e
l e s s e e ' s l i a b i li t y a t e a r ly t e r m in a t io n o n
th e e s t i m a t e d v a l u e o f d ie l e a s e d
p r o p e r ty . T h e d i s c l o s u r e m a y b e a d d e d ,
if it is a p p l i c a b le , w it h o u t l o s s o f th e
fo r m ’s p r o t e c t io n fro m c i v il l ia b ilit y .
References
Statute: $ § 1 0 5 ,1 3 0 , a n d 1 8 5 .
Previous regulation: § § 2 2 6 ,1 5 0 1 ,
226 .1 5 0 2 , a n d 2 2 6 .1 5 0 3 .
1961 ch an ges: R e f e r e n c e s in th e
in s t r u c t io n s to th e p r e v io u s r e g u la t io n s
h a v e b e e n d e le te d .
A p p e n d ix D — F e d e r a l E n f o r c e m e n t
A g e n c ie s
References
Statute: § 1 0 8 .
Previous regulation: A p p e n d i x
Board of G overn ors o f the F ederal R eserv e
System , M ay 6 .1 9 8 2 .
William W. Wiles,
Secretary o f the Board.
[F F D o c 82-12ST7 PBed J-12-B 2: *4 5 am ]
BILLING C O O t STW -O t-M
i
1
\
E.
1981 ch an ges: N o n e .
@FedFRASER