Consumer Leasing

FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-0893]

Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed official staff interpretation.

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SUMMARY: The Board is publishing for comment proposed revisions to the

official staff commentary to Regulation M which implements the Consumer

Leasing Act. The Consumer Leasing Act requires lessors to provide

uniform cost and other disclosures about consumer lease transactions.

The Board is issuing this proposal to revise the commentary that

applies and interprets the requirements of Regulation M pursuant to the

Board's policy of periodically reviewing its regulations and official

interpretations. A proposal to revise Regulation M is published

elsewhere in today's issue of the Federal Register.

DATES: Comments must be received by November 17, 1995.

ADDRESSES: Comments should refer to Docket No. R-0893, and be mailed to

Mr. William W. Wiles, Secretary, Board of Governors of the Federal

Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC

20551. Comments also may be delivered to Room B-2222 of the Eccles

Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard

station in the Eccles Building courtyard on 20th Street, NW (between

Constitution Avenue and C Street) any time. Comments may be inspected

in Room MP-500 of the Martin Building between 9 a.m. and 5 p.m.

weekdays, except as provided in 12 CFR section 261.8 of the Board's

rules regarding the availability of information.

FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Obrea O. Poindexter,

or W. Kurt Schumacher, Staff Attorneys, Division of Consumer and

Community Affairs, Board of Governors of the Federal Reserve System,

Washington, DC 20551, at (202) 452-2412 or 452-3667; for the hearing

impaired only, contact Dorothea Thompson, Telecommunications Device for

the Deaf, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. General

The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, governs

consumer leasing transactions and is implemented by the Board's

Regulation M (12 CFR part 213). Effective May 13, 1982, an official

staff commentary (Supplement I-CL-1 to 12 CFR part 213) was published

to interpret the regulation. The commentary is designed to provide

guidance to lessors in applying the regulation to specific transactions

and is intended to be updated periodically to address significant

questions that arise. It is anticipated that the proposed revisions to

the Regulation M commentary will be adopted in final form in the Spring

of 1996 with compliance optional until October 1, 1996, the uniform

effective date for mandatory compliance.

II. The Review of Regulation M

The Board's Regulatory Planning and Review Program calls for the

periodic review of a regulation and its official interpretations with

four goals in mind: to clarify and simplify regulatory language; to

determine whether regulatory amendments are needed to address

technological and other developments; to reduce undue regulatory burden

on the industry; and to delete obsolete provisions. The official staff

commentary has never been

[[Page 48770]]

substantially revised or reviewed. The Board initially began a review

of Regulation M according to the goals of its review program in

November 1993, when it published an advance notice of proposed

rulemaking on Regulation M (58 FR 61035, November 19, 1993). In its

advance notice, the Board solicited comments generally on the

provisions of Regulation M and the CLA, including coverage, exempt

transactions, and general format and disclosure requirements. In

addition, the Board identified specific issues about disclosures of

early termination charges, broadcast media advertising of leases, and

segregation of leasing disclosures from other information. Most of the

seventy comment letters on the advanced notice addressed those issues.

The proposed revisions to the regulation are published elsewhere in

today's issue of the Federal Register.

III. Discussion of Proposed Revisions

The following discussion covers the proposed revisions to the

Regulation M commentary section-by-section. Most of the discussion

focuses on new comments and significant revisions to existing comments.

Introduction

Comments I-3, I-4, and I-6 are deleted as obsolete or unnecessary.

Section 213.1--Authority, Scope, Purpose, and Enforcement

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Current Proposed

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1-2....... Deleted as unnecessary.

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Section 213.2--Definitions

2(a) Definitions

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Current Proposed

------------------------------------------------------------------------

2(a)(2)-1.......................... 2(a)(2)-1 and -2.

2(a)(2)-2.......................... 2(a)(2)-3.

2(a)(3)-1 new.

2(a)(4)-1.......................... 2(a)(10)-1.

2(a)(4)-2.......................... 2(a)(10)-4.

2(a)(4)-3.......................... 2(a)(10)-2.

2(a)(6)-3 new.

2(a)(6)-3 through -6............... 2(a)(6)-4 through 7.

2(a)(7)-1.......................... 2(a)(9)-1.

2(a)(8)-1.......................... 2(a)(10)-3.

2(a)(9)-1.......................... 2(a)(12)-1.

2(a)(12)-1......................... 2(a)(14)-1.

2(a)(14)-1 through -6.............. 2(a)(15)-1 through -6.

2(a)(17)-1 incorporates list from

the regulatory definition of

security interest.

2(a)(15)-1 through -3.............. 2(a)(17)-2 through -4.

2(a)(17)-1 through -3.............. 2(a)(19)-1 through -4.

2(a)(17)-4 and -5.................. 2(a)(19)-5 and -6.

2(a)(18)-1 through -3.............. 2(a)(20)-1 through -3.

2(b)-1 and -2...................... Deleted.

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2(a)(2) Advertisement

Comment 2(a)(2)-1 would be revised to incorporate examples of

advertisements, currently in Sec. 213.2(a)(2).

2(a)(3) Agricultural Purpose

Proposed comment 2(a)(3)-1 incorporates the portion of current

Sec. 213.2(a)(3) and the statutory definition in section 103(s) of the

Truth in Lending Act which describes agricultural products.

2(a)(6) Consumer Lease

Comment 2(a)(6)-2 would be revised to provide additional guidance

on when a lease is deemed to exceed four months and, therefore, covered

under the act and regulation. An example has been added to clarify that

a month-to-month lease with a penalty for cancelling within the first

year is deemed to be a consumer lease subject to the act and

regulation.

Proposed comment 2(a)(6)-3 provides guidance on the total

contractual obligation for purposes of determining whether a lease is

covered under the regulation, and clarifies that the total contractual

obligation may be different from the total lease obligation which

applies only to open-end leases.

Comment 2(a)(6)-7, currently comment 2(a)(6)-6, would be revised to

add another example of a lease deemed incidental to a service. The

narrow list of exceptions in the existing commentary of leases

incidental to a service is exhaustive, rather than illustrative.

Questions have arisen about Regulation M coverage of cellular phones

leased in conjunction with obtaining cellular service. Cellular service

providers typically offer customers the opportunity to lease or

purchase cellular telephones when subscribing for cellular service. The

leasing of a cellular telephone is not incidental to obtaining cellular

service and is, thus, covered under the regulation.

2(a)(7) Estimated Lease Charge

Proposed comment 2(a)(7)-1 clarifies that a monthly or other

periodic payment paid at or before consummation is not included in the

calculation of the estimated lease charge, as it is reflected in the

total periodic payment disclosure. Any refundable charge such as a

security deposit would also not be included in the calculation.

2(a)(8) Gross Cost

Proposed comment 2(a)(8)-1 provides guidance in making the proposed

disclosure in Sec. 213.5(p). Amounts consisting of fees and other

charges paid out of pocket at consummation by the lessee are included

in the gross cost figure.

2(a)(10) Lessor

Proposed comment 2(a)(10)-1 incorporates the existing regulatory

definition of ``arrange for leasing of personal property'' (in

Sec. 213.2(a)(4) and provisions in the current commentary) into the

proposed commentary under the definition of lessor.

Section 213.4--General Disclosure Requirements

4(a) General requirements

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Current Proposed

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4(a)-1......... Revised to adopt ``legal obligation'' terminology of

Regulation Z.

4(a)-2......... Moved to proposed Sec. 213.4(f) of the regulation on

minor variations that may be disregarded in making

disclosures.

4(a)-3......... 4(a)(1)-1.

4(a)-5......... Deleted as no longer applicable.

4(a)(1)-1...... 4(a)-2 (deleted the word ``or format''); 4(a)-3.

4(a)(1)-2...... Deleted as no longer applicable.

4(a)(2)-1...... Deleted.

4(a)(2)-2...... 4(a)(1)-2.

4(a)(2)-3...... 4(a)(1)-3.

4(a)(2)-4...... 4(a)(1)-4.

4(a)(2)-5...... 4(a)(1)-5.

4(a)(2)-1 new.

4(a)(4)-1...... Deleted as unnecessary because of revised position in

proposed Sec. 213.4(a)(5).

4(a)(4)-2...... Deleted as unnecessary because of revised position in

proposed Sec. 213.4(a)(5).

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4(a)(2) Segregation of Certain Disclosures

Proposed comment 4(a)(2)-1 provides guidance in making the

segregated disclosures required by Sec. 213.4(a)(2).

4(b) Additional Information

Comment 4(b)-1 would be revised by deleting the second sentence.

4(d)(2) Open-End Purchase Option Lease

Comment 4(d)(2)-1, currently comment 4(d)-6, would be revised to

clarify that this paragraph only applies to open-end leases. No

substantive change is intended.

[[Page 48771]]

4(e) Effect of Subsequent Occurrence

Proposed comment 4(e)-3 incorporates the first sentence of footnote

1 of the regulation.

Section 213.5--Content of Disclosures

All of the comments in Sec. 213.4(g) would be redesignated

according to a new proposed Sec. 213.5.

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Current Proposed

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4(g)-1............................. Deleted as unnecessary.

4(g)-2............................. 5-1.

4(g)(1)-1.......................... Deleted as unnecessary.

4(g)(2)-1.......................... Deleted as unnecessary 5(b)-1 new

(incorporated from the

instructions to the model form in

the current appendix C-2).

4(g)(2)-2.......................... 5(b)-2 (incorporates current

comment 2(b)-2).

4(g)(2)-3.......................... 5(b)-3.

4(g)(3)-1 and -2................... 5(c)-1 and -2.

4(g)(4)-1.......................... 5(d)-1.

4(g)(5)-1.......................... 5(e)-1 and -2.

4(g)(5)-2.......................... Deleted as unnecessary.

4(g)(5)-3.......................... 5(e)-3 and -4.

4(g)(5)-4.......................... 5(e)-5.

4(g)(6)-1 and -2................... 5(f)-1 and -2.

5(f)-3 new.

4(g)(7)-1 through -3............... 5(g)-1 through -3.

4(g)(8)-1.......................... 5(h)-1.

4(g)(9)-1.......................... 5(i)-1.

4(g)(10)-1 through -5.............. 5(j)-1 through -5.

4(g)(11)-1 through -3.............. 5(k)-1 through -3.

4(g)(12)-1 through -3.............. 5(l)-1 through -3; the word

``capitalized'' in comment 2 is

deleted.

5(l)-4 new.

5(l)-5 new.

4(g)(14)-1 through -3.............. 5(n)-1 through -3.

4(g)(15)-1......................... 5(o)-1.

4(g)(15)-2......................... 5(o)(1)-1.

4(g)(15)-3......................... 5(o)(1)-2.

4(g)(15)-4......................... 5(o)-2.

4(g)(15)-5......................... 5(o)(2)-1.

4(g)(15)-6......................... 5(o)(2)-2; the word ``capitalized''

is deleted.

5(o)(2)-3 new.

5(p)-1 new.

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5(b) Total Amount Due at Lease Signing

Proposed comment 5(b)-1 incorporates a definition of ``capitalized

cost reduction'' from the instructions in current appendix C-1.

Comment 5(b)-2 would incorporate the first sentence of current

comment 2(b)-2.

5(d) Fees and Taxes

Comment 5(d)-1 is revised to provide guidance on taxes that should

be disclosed pursuant to this paragraph. If the tax is payable by the

lessor (such as a gas guzzler tax), but the tax is passed on to the

consumer and the existence of the tax is indicated in the consumer's

lease documents--for example on the lease agreement--or the sticker or

tag affixed to the personal property--then the tax should be disclosed

pursuant to this paragraph. However, if the existence of the tax is not

indicated, and the tax is absorbed by the lessor as a cost of doing

business, then the tax should not be disclosed under this section.

5(f) Insurance

Proposed comment 5(f)-3 is added to indicate that this paragraph

applies to voluntary and required insurance provided in connection with

a lease transaction.

5(l) Early Termination

Proposed comment 5(l)-4 provides guidance in disclosing a full

description of the method used to determine the amount of an early

termination charge. A full description of the complete early

termination method must be disclosed by lessors outside of the

segregated disclosures. However, given the complexity of the methods

involved, a lessor is permitted--in giving the ``full description'' of

its early termination method--to include a reference to the name of a

generally accepted method of computing the unamortized gross or

capitalized cost portion of its early termination charge. For example,

a lessor may state that the ``constant yield'' method would be utilized

in obtaining the unamortized portion of the gross cost, but the lessor

would also have to specify how that figure--and any other term or

figure--is used in computing the total early termination charge that

would be imposed upon the consumer. A lessor referring to a named

method in this manner must provide a written explanation of that method

if requested by the consumer.

Proposed comment 5(l)-5 provides guidance on what value such as the

fair market value or the wholesale value should be used when

calculating the required example of an early termination charge based

on termination at the end of the first year.

5(o) Liability at End of Lease Term Based on Estimated Value

The proposed regulation reformats this section, currently section

213.4(g)(15), for clarity. The commentary has been similarly

reformatted.

Proposed comment 5(o)(2)-3 states the intent of section 183(a) of

the CLA that lessors must pay the lessees' attorney's fees in all

actions brought by lessors under this subsection, even if those actions

are decided in favor of the lessee.

5(s) Statement Referencing Nonsegregated Disclosures

Proposed comment 5(s)-1 provides guidance in making the proposed

new disclosure referencing and alerting consumers to read CLA required

disclosures not included among the segregated disclosures. It is only

necessary to refer to the applicable items, thus, the lessor may delete

inapplicable items from the disclosure.

Section 213.6--Renegotiations, Extensions, and Assumptions

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Current Proposed

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4(h)-1...... 6-1.

4(h)-2...... First sentence moved to regulation; second sentence moved

to 6-1.

4(h)-3...... Moved to the regulation.

4(h)-4...... Moved to the regulation.

4(h)-5...... 6(b)-1.

6(b)-2 new.

4(h)-6...... 6-2.

4(h)-7...... Moved to the regulation.

4(h)-8...... Moved to the regulation.

4(h)-9...... Moved to the regulation.

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Section 213.6 of the proposed regulations contain the disclosure

rules governing leases that are renegotiated, extended or assumed

(currently in section 213.4(h) and the commentary). Many of the

commentary provisions have been moved to the regulation. For example,

the definitions of a renegotiation and an extension would be included

in the regulation. (This change parallels the approach under Regulation

Z for refinancings and assumptions, section 226.20.) Other commentary

provisions have been reformatted to conform to the proposed regulatory

changes.

Comment 6(b)-1, currently comment 4(h)-5, would be revised to

clarify that where a consumer lease is extended on a month-to-month

basis for more than 6 months, new disclosures are required at the

beginning of the seventh month, and also at the start of each seventh

month thereafter. This revision incorporates into the commentary a

longstanding interpretation originally issued under leasing provisions

that were a part of Regulation Z (Truth in Lending) prior to 1982.

Proposed comment 6(b)-2 also incorporates a longstanding

interpretation originally issued under the pre-1982 leasing provisions

in Regulation Z that disclosures for a consumer lease, as defined by

the

[[Page 48772]]

regulation, extended on a month-to-month basis for more than 6 months

should reflect the month-to-month nature of the transaction.

Section 213.8--Advertising

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Current Proposed

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5(a)-1............................. 8(a)-1.

5(a)-2............................. 8(a)-2.

5(b)-1............................. 8(c)-1.

5(b)-2............................. 8(c)-2.

5(c)-1............................. 8(b)-1.

8(b)-2 new.

5(c)-2............................. 8(d)(1)-1.

8(d)(2)-1 new.

5(d)-1............................. 8(e)-1.

8(e)-2 new.

8(f)-1 new.

8(f)(1)-2 new.

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8(b) Clear and Conspicuous Standard

Proposed 8(b)-2 provides that lease disclosures must appear on a

television screen for at least five seconds, which parallels the ``five

second rule'' adopted by the Federal Trade Commission.

8(e) Alternative Disclosures--Merchandise Tags

Proposed comment 8(e)-2 clarifies that merchandise tags are

generally considered a multiple item lease.

8(f) Alternative Disclosures--Television or Radio Advertisements

8(f)(1) Toll-Free Number or Print Advertisement

Proposed comment 8(f)(1)-1 clarifies that a newspaper circulated

nationally qualifies as a publication in general circulation.

Section 213.10 Relations to State Laws

Section 213.10 in the proposed regulation combines and simplifies

current Secs. 213.7 and 213.8. The comments to these sections have been

deleted as unnecessary.

Appendix A Model Forms

Under the proposed rule, the model forms are moved to appendix A.

Comment app. A-2 would be deleted. Minor revisions would be made to

other comments in this appendix. For example, comment app. A-1 would be

revised to indicate that changes to the headings, format, and the

content of the segregated disclosures should be minimal. Also the

definition of a closed-end lease in comment app. A-3 would be deleted

because a definition would be added in the regulation.

IV. Form of Comment Letters

As discussed above, comment letters should refer to Docket No. R-

0893. The Board requests that, when possible, comments be prepared

using a standard courier type-face with a type-size of 10 or 12

characters per inch. This will enable the Board to convert the text

into machine-readable form through electronic scanning, and will

facilitate automated retrieval of comments for review. Comments may

also be submitted on 3\1/2\ inch or 5 \1/4\ inch computer diskettes in

any IBM-compatible DOS-based format, but must be accompanied by an

original document in paper form.

List of Subjects in 12 CFR Part 213

Advertising, Federal Reserve System, Reporting and recordkeeping

requirements, Truth in lending.

For the reasons set forth in the preamble, 12 CFR part 213, as

proposed to be amended by a document published elsewhere in today's

issue of the Federal Register, is further proposed to be amended as

follows:

PART 213--CONSUMER LEASING (REGULATION M)

1. The authority citation for part 213 continues to read as

follows:

Authority: 15 U.S.C. 1604

2. Supplement I-CL-1 to Part 213--Official Staff Commentary to

Regulation M would be revised to read as follows:

Supplement I-CL-1 to Part 213--Official Staff Commentary to Regulation

M

Introduction

1. Official status. This commentary is the vehicle by which the

staff of the Division of Consumer and Community Affairs of the

Federal Reserve Board issues official staff interpretations of

Regulation M (12 CFR part 213). Good faith compliance with this

commentary affords protection from liability under section 130(f) of

the Truth in Lending Act (15 U.S.C. 1640). Section 130(f) protects

lessors from civil liability for any act done or omitted in good

faith in conformity with any interpretation issued by a duly

authorized official or employee of the Federal Reserve System.

2. Procedures for requesting interpretations. Under appendix C

of Regulation M, anyone may request an official staff

interpretation. Interpretations that are adopted will be

incorporated in this commentary following publication in the Federal

Register. No official staff interpretations are expected to be

issued other than by means of this commentary.

3. Comment designations. Each comment in the commentary is

identified by a number and the regulatory section or paragraph that

it interprets. The comments are designated with as much specificity

as possible according to the particular regulatory provision

addressed. For example, some of the comments to Sec. 213.4(a) are

further divided by subparagraph, such as comment 4(a)(1)-1 and

comment 4(a)(1)-2. In other cases, comments have more general

application and are designated, for example, as comment 4(a)-1. This

introduction may be cited as comments I-1 through I-3. An appendix

may be cited as comments app. A-1.

Section 213.1--Authority, Scope, Purpose, and Enforcement

1. Foreign applicability. Regulation M applies to all persons

(including branches of foreign banks or leasing companies located in

the United States) that offer consumer leases to residents

(including resident aliens) of any state as defined in

Sec. 213.2(a)(18). The regulation does not apply to a foreign branch

of a U.S. bank or leasing company leasing to a U.S. citizen residing

or visiting abroad or to a foreign national abroad.

Section 213.2--Definitions

2(a) Definitions

2(a)(2) Advertisement

1. Coverage. Only commercial messages that promote consumer

lease transactions requiring disclosures are advertisements.

Messages inviting, offering, or otherwise announcing generally to

prospective customers the availability of consumer leases, whether

in visual, oral, or print media, are covered by the definition. The

term includes the following:

i. Print media.

ii. Broadcast media, including radio and television messages.

iii. Catalogs and fliers.

iv. Direct mail literature.

v. Printed material on any interior or exterior sign or display,

in any window display, in any point-of-transaction literature or

price tag which is delivered or made available to a lessee or

prospective lessee in any manner whatsoever.

vi. Telephone solicitations.

2. Exceptions. The term does not include the following:

i. Direct personal contacts, such as follow-up letters, cost

estimates for individual lessees, or oral or written communications

relating to the negotiation of a specific transaction.

ii. Informational material distributed only to businesses.

iii. Notices required by federal or state law, if the law

mandates that specific information be displayed and only the

information so mandated is included in the notice.

iv. News articles, the use of which is controlled by the news

medium.

v. Market research or educational materials that do not solicit

business.

3. Persons covered. See the commentary to Sec. 213.8(a).

2(a)(3) Agricultural purpose

1. Agricultural products. Agricultural products include

horticultural, viticultural, and dairy products, livestock,

wildlife, poultry, bees, forest products, fish and shellfish, and

any products thereof, including processed and manufactured products,

and any and all products raised or produced on farms and any

processed or manufactured products thereof.

[[Page 48773]]

2(a)(6) Consumer lease

1. Primary purposes. A lessor must determine in each case if the

leased property will be used primarily for personal, family, or

household purposes. If some question exists as to the primary

purpose for a lease, the lessor is, of course, free to make the

disclosures, and the fact that disclosures are made in such

circumstances is not controlling on the question of whether the

transaction was exempt. The primary purpose of a lease is generally

determined before or at consummation and a lessor need not provide

Regulation M disclosures where there is a subsequent change in

primary usage.

2. Period of time. To be a consumer lease, the initial term of

the lease must be more than four months. Thus, a lease of personal

property for four months, three months or on a month-to-month or

week-to-week basis (even though the lease actually extends beyond

four months) is not a consumer lease and is not subject to the

disclosure requirements of the regulation. A lease with a penalty

for cancelling during the first four months is considered to have a

term of more than four months. A month-to-month or week-to-week

extension of a lease that was originally for four months or less is

not a consumer lease, even if the extension actually lasts for more

than four months. See the comments on Sec. 213.6(b) for guidance on

extensions of covered leases. To illustrate:

i. A month-to-month lease with a penalty for terminating before

one year, such as the forfeiture of a security deposit, is a

consumer lease covered by this definition.

ii. A three-month lease extended on a month-to-month basis and

terminated after one year is not a consumer lease covered by this

definition.

3. Total contractual obligation. The term total contractual

obligation includes all nonrefundable amounts a lessee is

contractually obligated to pay under a lease for the purpose of

determining whether the lease is covered by this regulation. The

total contractual obligation is not necessarily the same as the

total lease obligation defined in Sec. 213.2(a)(19).

4. Organization. A consumer lease does not include a lease made

to an organization, such as a corporation or a government agency or

instrumentality. A lease to an organization is outside the

requirements of the regulation even if the property is used (by an

employee, for example) primarily for personal, family or household

purposes. Likewise, a lease made to an organization is not a

consumer lease even if it is guaranteed by or subsequently assigned

to a natural person.

5. Credit sale. A lease that meets the definition of a credit

sale in Regulation Z, 12 CFR 226.2(a)(16), is not a consumer lease.

Regulation Z defines a credit sale, in part, as ``a bailment or

lease (unless terminable without penalty at any time by the

consumer) under which the consumer:

i. Agrees to pay as compensation for use a sum substantially

equivalent to, or in excess of, the total value of the property and

services involved; and

ii. Will become (or has the option to become), for no additional

consideration or for nominal consideration, the owner of the

property upon compliance with the agreement.''

6. Safe deposit boxes. A lease of a safe deposit box is not a

consumer lease for purposes of this regulation.

7. Leases of personal property incidental to a service. The

following leases of personal property are deemed incidental to a

service and are not consumer leases subject to the requirements of

the regulation:

i. Home entertainment systems requiring the consumer to lease

equipment that enables a television to receive the transmitted

programming.

ii. Burglar alarm systems requiring the installation of leased

equipment that triggers a telephone call when a home is burglarized.

iii. Propane gas service where the consumer is required to lease

a propane tank to receive the service.

2(a)(7) Estimated lease charge

1. Advance periodic payment and refundable charges. A first

monthly (or other periodic payment) paid at or before consummation

which is included in the total periodic payment disclosure and

refundable charges are not included in the calculation of the

estimated lease charge.

2(a)(8) Gross cost

1. Fees and other charges paid at lease signing. This figure

includes all nonrefundable fees and charges required to be paid

before or at lease signing as well as those fees and charges which

are capitalized over the lease term.

2(a)(9) Lessee

1. Guarantors. Guarantors are not lessees for purposes of the

regulation.

2(a)(10) Lessor

1. Arranger of a lease. To ``arrange'' for the lease of personal

property means to provide or offer to provide a lease which is or

will be extended by another person under a business or other

relationship pursuant to which the person arranging the lease (a)

receives or will receive a fee, compensation, or other consideration

for the service; or (b) has knowledge of the lease terms and

participates in the preparation of the contract documents required

in connection with the lease.

To illustrate:

i. An automobile dealer who, pursuant to a business

relationship, completes the necessary lease agreement before

forwarding it to the leasing company (to whom the obligation is

payable on its face) for execution is ``arranging'' for the lease.

ii. An automobile dealer who, receiving no fee for the service,

refers a customer to a leasing company that will prepare all

relevant contract documents is not ``arranging'' for the lease.

2. Consideration. The term ``other consideration'' used in the

definition of arranger in comment 2(a)(10)-1 refers to an actual

payment corresponding to a fee or similar compensation. It does not

refer to intangible benefits, such as the advantage of increased

business, which may flow from the relationship between the parties.

3. Assignees. An assignee may be a lessor for purposes of the

regulation in circumstances such as those described in Ford Motor

Credit Co. v. Cenance, 452 U.S. 155 (1981). In that case, the U.S.

Supreme Court held that an assignee was a creditor for purposes of

previous Regulation Z because of its substantial involvement in the

credit transaction.

4. Multiple lessors. See the commentary to Sec. 213.4(c).

2(a)(12) Organization

1. Coverage. The term includes joint ventures and persons

operating under a business name.

2(a)(14) Personal property

1. Coverage. Whether property is considered personal property

depends on state or other applicable law. For example, a mobile home

or houseboat may be considered personal property in one state but

real property in another.

2(a)(15) Realized value

1. General. Realized value is not a required disclosure. It

refers to the value of the property at early termination or at the

end of the lease term. It may be either the retail or wholesale

value. Realized value is relevant only to leases in which the

lessee's liability at early termination or at the end of the lease

term is the difference between the estimated value of the property

and its realized value.

2. Options. Subject to the contract and to state or other

applicable law, the lessor may choose any of the three methods for

calculating the realized value in determining the lessee's liability

at the end of the lease term or at early termination. If the lessor

sells the property prior to making that determination, the price

received for the property is the realized value. If the lessor does

not sell the property prior to making that determination, the lessor

may choose either the highest offer or the fair market value as the

realized value.

3. Exclusions. The realized value may exclude any amount

attributable to taxes.

4. Disposition charges. Disposition charges may not be

subtracted in determining the realized value. If the lessor charges

the lessee a fee to cover the disposition expenses, the fee must be

disclosed at consummation under Sec. 213.5(e). Disposition charges

may be estimated in accordance with Sec. 213.4(d), and this does not

prevent the lessor from collecting the actual disposition costs

incurred.

5. Offers. In determining the highest offer for disposition, the

lessor need not consider offers that an offeror has withdrawn or is

unable or unwilling to perform.

6. Appraisals. The lessor may obtain an appraisal of the leased

property to determine its realized value. Such an appraisal,

however, is not the one addressed in section 183(c) of the act and

Sec. 213.5(n); those provisions refer to the lessee's right to an

independent professional appraisal.

2(a)(17) Security interest and security

1. Coverage. The terms include, but are not limited to, security

interests under the Uniform Commercial Code, real property

mortgages, deeds of trust, and other consensual or confessed liens

whether or not recorded, mechanic's, materialman's, artisan's, and

other similar liens, vendor's liens in both real and personal

property, any

[[Page 48774]]

lien on property arising by operation of law, and any interest in a

lease when used to secure payment or performance of an obligation.

2. State or other applicable law. Other than those listed, only

interests that are security interests under state or other

applicable law are encompassed by the definition. For example, any

interest the lessor may have in the leased property falls within

this definition only if it is considered a security interest under

state or other applicable law.

3. Disclosable interests. For purposes of the regulation, a

security interest is an interest taken by the lessor to secure

performance of the lessee's obligation. For example, if a bank that

is not a lessor makes a loan to a leasing company and takes

assignments of consumer leases generated by that company to secure

the loan, the bank's security interest in the lessor's receivables

is not a security interest for purposes of this regulation.

4. Insurance. The lessor's right to insurance proceeds or

unearned insurance premiums is not a security interest for purposes

of this regulation.

2(a)(19) Total lease obligation

1. Disclosure. The total lease obligation is disclosed under

Sec. 213.5(o)(1). It is relevant only to open-end leases.

2. Periodic payments; disclosure distinguished. Certain items

that may be paid periodically are not part of the lessee's total

lease obligation. Therefore, the amount of the scheduled periodic

payments for purposes of calculating the total lease obligation may

be less than the amount of the periodic payments disclosed under

Sec. 213.5(c).

3. Periodic payments; inclusions. The total of scheduled

periodic payments under the lease for purposes of calculating the

total lease obligation is composed of the following items:

i. Any portion of the periodic payments attributable to

depreciation, cost of money, and profit.

ii. Taxes in some cases. See the commentary to Sec. 213.5(o)(1).

iii. The cost of mechanical breakdown protection contracts.

4. Periodic payments; exclusions. The total of scheduled

periodic payments under the lease for purposes of calculating the

total lease obligation does not include the following:

i. Any amount not paid periodically.

ii. Any portion of periodic payments attributable to official

fees, registration, certificate of title, or license fees.

iii. Taxes in some cases. See the commentary to

Sec. 213.5(o)(1).

iv. At the lessor's option, the capitalized cost of service

contracts and insurance premiums may be either included or excluded

from this calculation.

5. Initial payments. The following amounts are not included

among the payments at consummation when calculating the total lease

obligation:

i. Refundable security deposits.

ii. Official fees and charges disclosable under Sec. 213.5(d).

iii. Other charges disclosable under Sec. 213.5(e).

iv. The cost of a mechanical breakdown protection contract

purchased at consummation.

6. Estimated value. See the commentary to Sec. 213.4(d)

regarding the use of estimates and section 183(a) of the act

regarding the criteria for estimating the value of the leased

property at the end of the lease term.

2(a)(20) Value at consummation

1. Disclosure. The value at consummation is relevant only to

open-end leases and is disclosed and subtracted from the total lease

obligation under Sec. 213.5(o)(1).

2. Taxes. The value at consummation includes taxes paid by the

lessor in connection with the acquisition of leased property and

amortized over the lease term. See the commentary to

Sec. 213.5(o)(1).

3. Other amounts. The definition of the value at consummation

explicitly permits the lessor to include a profit or markup (without

separate itemization). The lessor may include costs of doing

business, such as insurance that the lessor purchases on its own

behalf. See the commentary to Sec. 213.5(f). The lessor may not

include in this amount other items (such as maintenance or extended

warranty insurance) that are purchased by the lessee.

Section 213.4--General Disclosure Requirements

4(a) General requirements

1. Basis of disclosures. The disclosures must reflect the terms

of the legal obligation between the parties. For example:

i. In a three-year lease with a one-year minimum term after

which there is no penalty for termination, disclosures should be

based on the full three-year term of the lease. The one-year minimum

term is only relevant to the early termination provisions of

Secs. 213.5(l), (m) and (n).

2. Clear and conspicuous standard. The clear and conspicuous

standard requires that disclosures be in a reasonably understandable

form. For example, while the regulation requires no mathematical

progression, the disclosures must be presented in a way that does

not obscure the relationship of the terms to each other. Appendix A

contains model forms that meet this standard, although lessors are

not required to use the forms. In addition, although no minimum

typesize is mandated, the disclosures must be legible, whether

typewritten, handwritten, or printed by computer.

3. Multipurpose disclosure forms. Lessors are not precluded from

using a multipurpose disclosure form that enables a lessor to

designate the specific disclosures applicable to a given

transaction, consistent with the requirement that disclosures be

clearly and conspicuously provided.

4. Number of transactions. Lessors have flexibility in handling

lease transactions that may be viewed as multiple transactions. For

example:

i. When a lessor leases two items to the same lessee on the same

day, the lessor may disclose the leases as either one or two lease

transactions.

ii. When a lessor sells insurance or other incidental services

in connection with a lease, the lessor may disclose in one of two

ways: a single lease transaction or a lease and a credit sale

transaction.

4(a)(1) Form of disclosures

1. Form of disclosures. In making disclosures lessors may cross-

reference rather than repeat items that are disclosed among the

segregated disclosures. In addition, when a required disclosure

consists of a total amount only, lessors need not separately itemize

each component part of the total charge. Similarly, if a required

disclosure must be separately itemized, a total amount is not

required.

2. Identification of parties. While disclosures must always be

made clearly and conspicuously, lessors are not required to use the

word ``lessor'' and ``lessee'' when identifying those parties.

3. Multiple lessors and multiple lessees. In transactions

involving multiple lessors and lessees, the disclosure statement

must identify all the lessors and lessees; however, Sec. 213.4(c)

permits a single lessor to make all the disclosures for a single

lessee.

4. Lease disclosures integrated in lease contract. Contract

terms or disclosures that are not required by the regulation may be

added to the disclosure statement so long as the required

disclosures are made together and the lessor adheres to the limits

of Sec. 213.4(b) governing the inclusion of additional information.

5. Lessee's signature. The regulation does not require the

lessee to sign the disclosure statement, whether disclosures are

separately provided or are part of the lease contract.

Nevertheless, for contract or evidentiary purposes, the lessor

may want a lessee to sign the disclosure statement or an

acknowledgement of receipt.

4(a)(2) Segregation of certain disclosures

1. Permissible related or additional information among

segregated disclosures. The disclosures required to be segregated

under this paragraph must contain only the information required or

permitted to be included among the segregated disclosures (see

Sec. 213.5 and its commentary for guidance on information required

or permitted in the segregated disclosures.) The segregated

disclosures in Sec. 213.4(a)(2) may be provided on a separate

document and other CLA disclosures provided in the lease contract,

so long as all disclosures are given at the same time.

4(b) Additional information

1. State law disclosures. If state law disclosures are not

inconsistent with the act and regulation under Sec. 213.10, in

accordance with the standard set forth in Sec. 213.4(b) for

providing additional information, the lessor may make those

disclosures along with the nonsegregated disclosures required under

the regulation.

4(c) Multiple lessors or lessees

1. Multiple lessors. If a lease transaction involves more than

one lessor, the lessors may choose which of them will make the

disclosures. All disclosures for the transaction must be given, even

if the lessor making the disclosures would not otherwise have been

obligated to make a particular disclosure.

[[Page 48775]]

4(d) Use of estimates

4(d)(1) Standard

1. Time of estimated disclosure. The lessor may use estimates to

make disclosures if necessary information is unknown or unavailable

at the time the disclosures are made. For example:

i. Section 213.5(d) requires the lessor to disclose the total

amount payable by the lessee during the lease term for official and

license fees, registration, certificate of title fees, or taxes. If

these amounts are subject to indeterminable increases or decreases

over the course of the lease, the lessor may estimate its

disclosures based on the rates or charges in effect at the time of

the disclosure.

2. Basis of estimates. Estimates must be made on the basis of

the best information reasonably available at the time disclosures

are made. The ``reasonably available'' standard requires that the

lessor, acting in good faith, exercise due diligence in obtaining

information. The lessor normally may rely on the representations of

other parties in obtaining information. For example, the lessor

might look to the consumer to determine the purpose for which leased

property will be used, to insurance companies for the cost of

insurance, or to an automobile manufacturer or dealer for the date

of delivery.

3. Estimated value of leased property at termination. When the

lessee's liability at the end of the lease term is based on the

estimated value of the leased property (see Sec. 213.5(o)), the

estimate must be reasonable and based on the best information

reasonably available to the lessor. That standard permits a lessor

to use a generally accepted trade publication listing estimated

current or future market prices for the leased property, rather than

investing in the most sophisticated computer equipment to determine

the estimated value at the end of the lease term. The lessor should

rely on other information, its experience, or reasonable belief, if

those sources provide the best information. For example:

i. An automobile lessor offering a three-year open-end lease

intends to assign a wholesale value to the vehicle at the end of the

lease term. The lessor may disclose as an estimate a wholesale value

derived from a generally accepted trade publication listing current

wholesale values, if the trade publication is the best information

available.

ii. Same facts as above, except that the lessor discloses an

estimated value derived by adjusting the value quoted in the trade

publication because, in its experience, the trade publication values

either understate or overstate the prices actually received in local

used-vehicle markets. The lessor may adjust estimated values quoted

in trade publications based on the lessor's experience or reasonable

belief that the values will be understated or overstated.

4. Retail or wholesale value. The lessor may choose either a

retail or a wholesale value in estimating the value of leased

property at termination, provided that choice is consistent with the

lessor's general practice or intention when determining the value of

the property at the end of the lease term.

5. Labelling estimates. Generally, only the disclosure for which

the exact information is unknown is labelled as an estimate.

Nevertheless, when several disclosures are affected because of the

unknown information, the lessor has the option of labelling as an

estimate either every affected disclosure or only the disclosure

primarily affected.

4(d)(2) Open-end purchase option lease

1. Understating the estimated value. In non-purchase-option

open-end leases, the lessor must not use a value lower than that

indicated by the best information available when disclosing the

estimated value of leased property at the end of the lease term

under Sec. 213.5(o).

4(e) Effect of subsequent occurrence

1. Subsequent occurrences. Examples of subsequent occurrences

include:

i. An agreement between the lessee and lessor to change from a

monthly to a weekly payment schedule.

ii. The addition of insurance or a security interest by the

lessor because the lessee has not performed obligations contracted

for in the lease.

iii. An increase in official fees or taxes.

iv. An increase in insurance premiums or coverage caused by a

change in the law.

v. Late delivery of an automobile caused by a strike.

2. Redisclosure. When a disclosure becomes inaccurate because of

a subsequent occurrence, the lessor need not make new disclosures

unless new disclosures are required under Sec. 213.6.

3. Lessee's failure to perform. The act is not violated if a

previously given disclosure becomes inaccurate when a lessee fails

to perform obligations under the contract and a lessor takes actions

that are necessary and proper in such circumstances to protect its

interest.

Section 213.5--Content of Disclosures

1. Other required disclosures. The disclosure statement must

include the date and identify the lessor and the lessee. See the

commentary to Sec. 213.4(a)(1). The lessor need only be identified

by name; an address may be provided but is not required.

5(b) Total amount due at lease signing

1. Capitalized cost reduction. Capitalized cost reduction is a

payment in the nature of a downpayment which reduces the amount of

the leased property to be amortized over the term of the lease.

2. Consummation. When a contractual relationship is created

between the lessor and the lessee is a matter to be determined under

state or other applicable law; the regulation does not make that

determination.

3. Fees payable upon delivery. This provision does not apply to

fees paid at delivery, when delivery occurs after consummation. For

example, the lessee agrees to pay registration fees, sales taxes,

and a delivery charge in one lump sum on the date the automobile is

delivered, sometime after consummation. None of these charges is an

initial payment under Sec. 213.5(b) because they are paid after

consummation of the lease. The registration fees and sales taxes are

disclosed under Sec. 213.5(d), and the delivery charge is disclosed

as an ``other charge'' under Sec. 213.5(e).

5(c) Payment schedule

1. Itemization not required. Although the model forms in

appendix A itemize the components of the periodic payments, a lessor

may but is not required to do so. Some of the components must be

disclosed separately if their disclosure is required by other

provisions of the regulation, such as official fees and lessee's

insurance.

2. Periodic payments. The phrase ``number, amount, and due dates

or periods of payments'' requires the disclosure of all payments

made periodically. The disclosed payments must include all amounts,

such as maintenance and insurance charges, that are paid

periodically. In addition, the lessor must disclose the total of the

periodic payments. In an open-end lease, however, the lessor may

disclose as the total of periodic payments the sum of the scheduled

periodic payments referred to in Sec. 213.2(a)(19). See the

commentary to Sec. 213.2(a)(19).

5(d) Fees and taxes

1. Taxes. Taxes that are included in the value at consummation

are not disclosed pursuant to this paragraph. See the commentary to

Sec. 213.2(a)(20). Taxes payable by the lessor that are separately

imposed on the consumer and thus noted in the lease documentation

must be disclosed under this paragraph. However, taxes payable by

the lessor and absorbed as a cost of doing business are not

disclosed under this paragraph.

5(e) Other charges

1. Coverage. Section 213.5(e) requires the disclosure of charges

that are anticipated by the parties as incident to the normal

operation of the lease agreement.

2. Excluded charges. This section does not require disclosure of

charges that are imposed when the lessee terminates early or fails

to abide by the lease agreement, such as charges for:

i. Late payment.

ii. Default.

iii. Early termination.

iv. Deferral of payments.

v. Extension of the lease.

3. Relationship to other provisions. The other charges mentioned

in Sec. 213.5(e) are charges that are not required to be disclosed

under another provision of Sec. 213.5.

4. Other charges. Examples of charges not disclosed under this

section include:

i. A delivery charge that is paid after consummation is

disclosed as an ``other charge.'' A delivery charge that is paid at

consummation, however, is disclosed as part of the total initial

charges under Sec. 213.5(b), not as an ``other charge.''

ii. Occasionally, the price of a mechanical breakdown protection

(MBP) contract is disclosed as an ``other charge.'' More often, the

price of MBP is reflected in the periodic payment disclosure under

Sec. 213.5(c), in which case it is not disclosed as an ``other

charge.'' In states where MBP is regarded as insurance, however, the

cost should be disclosed in accordance with Sec. 213.5(f), not as an

``other charge.'' See the commentary to Sec. 213.5(f).

[[Page 48776]]

5. Lessee's liabilities at the end of the lease term.

Liabilities that the lease imposes upon the lessee at the end of the

scheduled lease term and that must be disclosed under this section

include, but are not limited to, disposition and ``pick-up''

charges.

5(f) Insurance

1. Lessor's insurance. Insurance that is purchased by the lessor

primarily for its own benefit, and that is absorbed as a business

expense and not separately charged to the lessee, need not be

disclosed under this section even if it provides an incidental

benefit to the lessee.

2. Mechanical breakdown protection. Whether mechanical breakdown

protection (MBP) purchased in conjunction with a lease should be

treated as insurance is determined by state or other applicable law.

In states that do not treat MBP as insurance, the lessor need not

make Sec. 213.5(f) disclosures. The lessor may, however, disclose

the Sec. 213.5(f) information in such cases in accordance with the

additional information provision in Sec. 213.4(b).

3. Voluntary Insurance. Insurance not required but provided by

the lessor must be disclosed under this section.

5(g) Warranties or guarantees

1. Brief identification. The statement identifying warranties

may be brief and need not describe or list all warranties applicable

to specific parts such as for air conditioning, radio, or tires in

an automobile. For example, manufacturer's warranties may be

identified simply by a reference to the standard manufacturer's

warranty.

2. Warranty disclaimers. A disclaimer of warranties is not

required by the regulation, but the lessor may give a disclaimer as

additional information in accordance with Sec. 213.4(b).

3. State law. Whether an express warranty or guaranty exists is

determined by state or other law.

5(h) Maintenance responsibilities

1. Standards for wear and use. No disclosure is required for

lessors that do not set standards for wear and use (such as excess

mileage.) See the commentary to Sec. 213.5(o).

5(i) Security interest

1. Disclosable security interests. See Sec. 213.2(a)(17) and

accompanying commentary to determine what security interests must be

disclosed.

5(j) Penalties and other charges for delinquency

1. Collection costs. The automatic imposition of collection

costs or attorney fees upon default must be disclosed under

Sec. 213.5(j). Collection costs or attorney fees that are not

imposed automatically, but are contingent upon expenditure of

amounts in conjunction with a collection proceeding or upon the

employment of an attorney to effect collection, need not be

disclosed.

2. Charges for early termination. When default is a condition

for early termination of a lease, default charges must also be

disclosed under Sec. 213.5(l). The Sec. 213.5 (j) and (l)

disclosures may be combined. Examples of combined disclosures are

provided in the model lease disclosure forms in appendix A.

3. Simple-interest leases. In a simple-interest accounting

lease, the additional lease charge that accrues on the lease balance

when a periodic payment is made after the due date does not

constitute a penalty or other charge for late payment. Similarly,

continued accrual of the lease charge after termination of the lease

because the lessee fails to return the leased property does not

constitute a default charge. In either case, if the additional

charge accrues at a rate higher than the normal lease charge, the

lessor must disclose the amount of or the method of determining the

additional charge under Sec. 213.5(j).

4. Extension charges. Extension charges that exceed the lease

charge in a simple-interest accounting lease or that are added

separately are disclosed under Sec. 213.5(j).

5. Reasonableness of charges. Pursuant to section 183(b) of the

act, penalties or other charges for delinquency, default, or early

termination may be specified in the lease but only in an amount that

is reasonable in light of the anticipated or actual harm caused by

the delinquency, default, or early termination, the difficulties of

proof of loss, and the inconvenience or nonfeasibility of otherwise

obtaining an adequate remedy.

5(k) Purchase option

1. Mandatory disclosure of no purchase option. Although

generally the lessor need only make the specific required

disclosures that apply to a transaction, it must disclose

affirmatively that the lessee has no option to purchase the leased

property when the purchase option is inapplicable.

2. Existence of purchase option. Whether a purchase option

exists is determined by state or other applicable law. The lessee's

right to submit a bid to purchase property at termination of the

lease is not an option to purchase under Sec. 213.5(k) if the lessor

is not required to accept the lessee's bid and the lessee does not

receive preferential treatment.

3. Purchase option fees. A purchase option fee must be disclosed

under this paragraph unless the lessor discloses the fee under

Sec. 213.5(e) as an ``other charge.''

5(l) Early termination

1. Default. When default is also a condition for early

termination of a lease, default charges must be disclosed under this

paragraph. See the commentary to Sec. 213.5(j).

2. Lessee's liability at early termination. When the lessee is

liable for the difference between the unamortized cost and the

realized value at early termination, the amount or the method of

determining the amount of the difference must be disclosed under

this paragraph.

3. Reasonableness of charges. See the commentary to

Sec. 213.5(j).

4. Description of the method. A full description of the method

of determining any early termination charge is required by the act

and this regulation. Lessors should attempt to provide clear and

understandable descriptions to consumers of their early termination

charges. Descriptions that are full, accurate, and not intended to

be misleading are in compliance with the act and this regulation,

even if complex. (And, of course, the statute requires that the

early termination charges themselves be reasonable.) In providing a

full description of an early termination method, a lessor may use

the name of a generally accepted method of computing the unamortized

cost (also known as the ``adjusted lease balance'') portion of its

early termination charges. For example, a lessor may state that the

``constant yield'' method would be utilized in obtaining the

adjusted lease balance, but the lessor would have to specify how

that figure, and any other term or figure, is used in computing the

total early termination charge imposed upon the consumer.

Additionally, if a lessor refers to a named method in this manner,

the lessor would have to provide a written explanation of that

method if requested by the consumer.

5. Example. The figure used to calculate the early termination

example must be calculated in the same manner the residual value is

calculated for purposes of Sec. 213.5(r). Therefore, if a lessor

uses the fair market value to estimate the value of the property at

the end of the lease, the example must also be calculated using the

fair market value.

5(n) Right of appraisal

1. Disclosure inapplicable. When the lessee is liable at the end

of the lease term or at early termination for unreasonable wear or

use but not for the estimated value of the leased property, the

lessor need not disclose the lessee's right to an independent

appraisal. For example:

i. The automobile lessor may reasonably expect a lessee to

return an undented car with four good tires at the end of the lease

term. Even though it holds the lessee liable for the difference

between a dented car with bald tires and the value of a car in

reasonably good repair, the lessor is not required to disclose the

lessee's appraisal right.

2. Lessor's appraisal. The lessor may obtain an appraisal of the

leased property to determine its realized value. Such an appraisal,

however, is not the one addressed in section 183(c) of the act and

in Sec. 213.5(o) of the regulation, and the lessor still must

disclose the lessee's independent right to an appraisal under

Sec. 213.5(n).

3. Time restriction on appraisal. Neither the act nor the

regulation specifies any time period in which the lessee must

exercise the appraisal right. The lessor may require a lessee to

obtain the appraisal within a reasonable time after termination of

the lease. The regulation does not define what is a ``reasonable

time.''

5(o) Liability at end of lease term based on estimated value

1. Coverage. The disclosure under Sec. 213.5(o) limiting the

lessee's liability for the value of the leased property does not

apply at early termination.

2. Leases with a minimum term. If a lease has an alternative

minimum term, the Sec. 213.5(o) disclosures governing the liability

limitation are not applicable for the minimum term. See the

commentary to Sec. 213.4(a).

5(o)(1) Value at consummation and total lease obligation

1. Total lease obligation. The requirement that the total lease

obligation be itemized is satisfied by disclosing the three

components

[[Page 48777]]

in the definition of total lease obligation in Sec. 213.2(a)(19) with

their corresponding amounts. The lessor may cross-reference the

individual components disclosed in the segregated disclosures, as

done in the model forms in appendix A-1.

2. Taxes. Taxes included in the value at consummation are

included in the total lease obligation. Taxes not included in the

value at consummation may, but need not, be included in the total

lease obligation at the lessor's option. See the commentary to

Sec. 213.2(a)(20).

5(o)(2) Excess liability

1. Average payment allocable to a monthly period. The phrase

``average payment allocable to a monthly period'' is based on the

periodic payment used to compute the total lease obligation. See the

commentary to Sec. 213.2(a)(19).

2. Charges not subject to rebuttable presumption. The limitation

on liability applies only to liability that is based on the

estimated value of the property at the end of the lease term. The

lessor also may recover additional charges from the lessee at the

end of the lease term. Examples of such additional charges include:

i. Disposition charges.

ii. Excess mileage charges.

iii. Late payment and default charges.

iv. Amounts by which the unamortized cost exceeds the estimated

residual value that have accrued in simple interest accounting

leases because the lessee has made late payments.

3. Lessor's payment of attorney's fees. Section 183(a) of the

act requires that the lessor pay the lessee's attorney's fees in all

actions brought by the lessor under this paragraph, whether

successful or not.

5(p) Gross cost

1. Basis. The gross cost is the amount that the periodic and

other payments and terms of the lease are based upon, and is

intended to be used by consumers to compare a lease with similar

lease and non-lease transactions.

5(s) Statement referencing nonsegregated disclosures

1. Content. A lessor may delete inapplicable items, for example,

when the contract documents contain no information regarding a

purchase option.

Section 213.6--Renegotiations, Extensions and Assumptions

1. Coverage. Section 213.6 applies only to existing leases that

are covered by the requirements of the regulation. It therefore does

not apply to the renegotiation or extension of leases with an

initial term of four months or less, because such leases are not

covered by the definition of consumer lease in Sec. 213.2(a)(6).

Whether and when a lease is satisfied and replaced by a new lease is

determined by state or other applicable law.

2. Inapplicable disclosures. Disclosures that are inapplicable

to the terms of a renegotiation or extension need not be given. For

example:

i. If the term for which extension disclosures are given is one

month and the lessee will pay no official fees and taxes during that

month, no disclosure of those amounts is necessary.

ii. If a renegotiation involves no initial charges, no

disclosure of initial charges is necessary.

6(b) Extensions

1. Time of extension disclosures. If a consumer lease is

extended for a specified term greater than six months, at the time

the extension is agreed to, new disclosures are required. If the

lease is extended on a month-to-month basis and exceeds six months,

new disclosures are required at the commencement of the seventh

month, and at the commencement of each seventh month thereafter. If

a consumer lease is extended for several terms, one of which will

exceed six months beyond the originally scheduled termination date

of the lease, new disclosures are required at the commencement of

the term that will exceed 6 months beyond the originally scheduled

termination date.

2. Content of disclosures for month-to-month extensions. The

disclosures for a lease extended on a month-to-month basis for more

than six months should reflect the month-to-month nature of the

transaction.

Section 213.8--Advertising

8(a) General rule

1. Persons covered. All ``persons'' must comply with the

advertising provisions in this section, not just those that meet the

definition of lessor in Sec. 213.2(a)(10). Thus, automobile dealers,

merchants, and others who are not themselves lessors must comply

with the advertising provisions of the regulation if they advertise

consumer lease transactions. Pursuant to section 184(c) of the act,

the owner and personnel of the medium in which an advertisement

appears or through which it is disseminated, however, are not

subject to civil liability for violations under section 185(b) of

the act.

2. ``Usually and customarily.'' This paragraph does not prohibit

the advertising of a single item or the promotion of new leasing

programs, but prohibits the advertising of terms that are not and

will not be available. Thus, an advertisement may state terms that

will be offered for only a limited period or terms that will become

available at a future date.

8(b) Clear and conspicuous standard

1. Standard. Section 213.8 prescribes no specific rules for the

format of the necessary disclosures. The terms need not be printed

in a certain type size and need not appear in any particular place

in the advertisement.

2. Television advertisements. In lease television

advertisements, the lease disclosures required under paragraph 8(d)

or the alternate disclosures under paragraph 8(f)(1) must be visible

for at least five seconds to satisfy the requirements of this

paragraph.

8(c) Catalogs and multi-page advertisements

1. General rule. The multiple-page advertisements referred to in

this paragraph are advertisements consisting of a numbered series of

pages--for example, a supplement to a newspaper. A mailing comprised

of several separate flyers or pieces of promotional material in a

single envelope is not a single multiple-page advertisement.

2. Cross-references. A multiple-page advertisement is a single

advertisement (requiring only one set of lease disclosures) if it

contains a table, chart, or schedule clearly stating sufficient

information for the reader to determine the disclosures required

under Sec. 213.8(d)(2) (i) through (vi). If one of the triggering

terms listed in Sec. 213.8(d)(1) appears on another page of the

catalog or other multiple-page advertisement, that page must clearly

refer to the specific page where the table, chart, or schedule

begins.

8(d)(1) Triggering terms

1. Triggering terms. When triggering terms appear in lease

advertisements, the additional terms enumerated in Sec. 213.8(d)(2)

(i) through (vi) must also appear. An example of one or more typical

leases with a statement of all the terms applicable to each may be

used. The additional terms must be disclosed even if the triggering

term is not stated explicitly, but is readily determinable from the

advertisement. For example, if an advertisement states a five-year

lease term with monthly payments, the number of required payments--a

triggering term--is readily apparent.

8(d)(2) Additional terms

1. Lease transaction. An advertisement must clearly and

conspicuously disclose that the transaction is a lease.

8(e) Alternative disclosures--merchandise tags

1. Alternative disclosure rule. This section provides a method

for using merchandise tags without including all the required

disclosures on the tags. As an alternative to this disclosure

method, a merchandise tag may state all the necessary terms on one

or both sides of the tag. If the terms are on both sides of the tag,

both sides must be accessible to the consumer.

2. Multiple item leases. Multiple item leases which utilize

merchandise tags requiring additional disclosures may use the

alternate disclosure rule.

8(f) Alternative disclosures--television or radio advertisements

8(f)(1) Toll-free number or print advertisement

1. Publication in general circulation. A referral to a written

advertisement appearing in a newspaper circulated nationally, for

example, The Wall Street Journal, meets the general circulation

requirement in Sec. 213.8(f)(1)(ii).

2. Toll-free number, local or collect calls. In complying with

the disclosure requirement of this paragraph, generally a lessor

must provide a toll-free number for nonlocal calls made from an area

code other than the one used in the lessor's dialing area.

Alternatively, a lessor may provide any telephone number that allows

a consumer to call for information and reverse the phone charges.

Section 213.9--Record Retention

1. Manner of retaining evidence. A lessor must retain evidence

of having performed required actions and of having made required

disclosures. Such records may be retained on microfilm, microfiche,

computer, or by any

[[Page 48778]]

other method designed to reproduce records accurately, as well as paper

form. The lessor need retain only enough information to reconstruct

the required disclosures or other records.

Appendix A--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. The content, format, and headings

for the segregated disclosures must be substantially similar to

those contained in the model forms, therefore, any changes in the

segregated disclosures should be minimal. Generally, lessors may

make certain changes in the format or content of the forms and may

delete any disclosures that are inapplicable to a transaction

without losing the act's protection from liability. The changes to

the model forms may not be so extensive as to affect the substance

and the clarity of the forms.

2. Examples of acceptable changes.

i. Using the first person, instead of the second person, in

referring to the lessee.

ii. Using ``lessee,'' ``lessor,'' or names instead of pronouns.

iii. Rearranging the sequence of the nonsegregated disclosures.

iv. Incorporating certain state ``plain English'' requirements.

v. Deleting inapplicable disclosures by whiting out, blocking

out, filling in ``N/A'' (not applicable) or ``0,'' crossing out,

leaving blanks, checking a box for applicable items, or circling

applicable items. (This should permit use of multi-purpose standard

forms.)

vi. Adding language or symbols to indicate estimates.

3. Model closed-end or net vehicle lease disclosure. Model A-2

is designed for a closed-end or net lease of a vehicle. Item 9(c) is

included for those closed-end leases in which the lessee's liability

at early termination is based on the vehicle's estimated value. (See

section 213.5(n))

4. Model furniture lease disclosures. Model A-3 is a closed-end

lease disclosure statement designed for a typical furniture lease.

It does not include a disclosure of the appraisal right at early

termination that is required under Sec. 213.5(n) because few closed-

end furniture leases base the lessee's liability at early

termination on the estimated value of the leased property. Of

course, the disclosure should be added, if it is applicable.

By order of the Board of Governors of the Federal Reserve

System, acting through the Secretary of the Board under delegated

authority.

William W. Wiles,

Secretary of the Board.

[FR Doc. 95-23049 Filed 9-19-95; 8:45 am]

BILLING CODE 6210-01-P