[Congressional Record Volume 142, Number 74 (Thursday, May 23, 1996)]
[Extensions of Remarks]
[Pages E885-E887]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E885]]



                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                         Thursday, May 23, 1996

  Mr. LaFALCE. Mr. Speaker, I am today introducing legislation to 
provide consumers with the information they need to make informed 
decisions about automobile leases. My bill, the consumer Automobile 
Leasing Act of 1996 would update and strengthen current Federal 
requirements for automobile lease disclosure and advertising under 
chapter 5 of the Truth in Lending Act.
  Automobile leasing is a growing phenomenon that is supplanting 
traditional new car sales and dominating automobile advertising. It is 
the automobile industry's answer to the growing affordability gap 
between rising new car prices and stagnating family incomes.
  A decade ago consumer leases represented less than 5 percent of all 
new car transactions. Today, more than 30 percent of all new automobile 
transactions involve leases. By the year 2000, some auto industry 
experts predict, leases will constitute over half of all new car 
transactions and a significant portion of used care transactions.
  This rapid growth in automobile leases has generated a concomitant 
increase in lease advertising. The Center for consumer Affairs at the 
University of Wisconsin reported last year that its 6-year study of 
advertising in the Milwaukee market showed that lease advertising had 
grown from a relatively infrequent occurrence to the most commonly 
advertised consumer transaction in that market. Automobile leases now 
figure as prominently as, if not more prominently than, traditional 
automobile sales transactions in advertising in the Washington, DC 
market and in my congressional district in western New York. Leasing 
clearly has become a reasonable alternative to buying a new automobile 
not just for luxury car buyers, but also for middle-class families, for 
retirees on fixed incomes and even for college students. And lease 
advertising now seeks to appeal to all these markets.
  Automobile leases can be beneficial for consumers, particularly in 
providing more manageable monthly automobile payments and lower 
maintenance costs. Unfortunately, it is often very difficult for 
consumers to understand the terms of auto leases and to know whether 
they actually save money with a lease. As the National Center for Study 
of Responsive Law commented to the Federal Reserve board last year, 
current lease promotions may deceive consumers into believing that they 
are getting a better deal with a lease than a credit purchase, when 
this may not be true.

                      I. the nature of the problem

  Part of the problem comes from the complexity of lease transactions. 
As a special task force of the State attorneys general reported to the 
Federal Reserve Board in November, most consumers are not yet familiar 
with lease transactions. The task force cited the way in which the 
automobile industry has chosen to structure lease transactions, both 
the terms used and their application in contracts and advertising, as 
making leases far more complex than the traditional sales situation. 
This complexity creates enormous opportunity for misrepresentation and 
  Problems also stem from inadequacies in current laws and regulations 
governing lease disclosure and advertising, particularly at the Federal 
level. The Consumer Leasing Act was enacted as chapter 5 of the Truth 
in Lending Act in 1976, long before Congress could have anticipated the 
current upsurge in automobile leases. Federal regulations governing 
lease disclosure and advertising have not been revised or updated in 
any significant way since their issuance by the Federal Reserve Board 
in 1981. This creates serious problems even on technical grounds. The 
dollar amount of the leases covered by the act, for example, is 
inadequate and will permit increasing numbers of auto leases to escape 
Federal regulation. Civil penalties under the act also are woefully 
inadequate to deter violations by automobile dealers and leasing 
companies when viewed in comparison to potential profits.
  The inadequacies of current law and regulation present additional 
problems in practice. These laws and regulations offer no consistent 
standards governing clear and conspicuous disclosure for either lease 
contracts or advertising. They permit disclosure far too late, usually 
at the time a lease is signed, and sometimes even after a vehicle has 
been ordered and the consumer has paid a deposit or other fee. They 
offer no clear standards for nontraditional advertising, for example, 
in commercial mailings, toll-free telephone numbers or on the Internet. 
They permit lease advertising to mix terms and costs of leases and 
installment credit sales, which may easily confuse and mislead 
consumers. And they permit so-called come-on promotions that have 
little relevance to the terms actually offered to consumers or the 
vehicle models actually available.
  One of the most serious omissions of current regulations is the lack 
of any requirement to disclose the annual interest rate implicit in 
lease transactions. The lease interest rate has been described by State 
Attorneys General, the Consumer Federal of America, the American 
Association of Retired Persons [AARP] and other organizations as the 
critical factor in the lease equation. Together with the lease term, 
the capitalized cost of the automobile and the vehicle residual value, 
it is one of the four variables that determine the consumer's monthly 
lease payment. To allow leasing companies to hide one of these key 
variables, as most now do, the attorneys general commented, is to 
invite abuse. Not requiring disclosure of a lease interest rate, they 
noted, is tantamount to the hiding of valuable information from 
  In Canada, lease annual interest rates will soon be a required 
disclosure item in all provinces. A national working group of 
provincial and Federal officials recently agreed that lessors should be 
required to disclose a lease rate as an annual percentage rate. Last 
July, the National Conference of Commissioners on Uniform State Laws 
released a study urging uniform State consumer leasing laws and 
recommending required disclosure of lease interest rates to allow 
comparison shopping by consumers. This same requirement is needed in 
Federal law. Without disclosure of a lease rate, according to the 
consumer Federation, consumers have no way of computing the real cost 
of a lease.
  All of these problems in automobile leasing are compounded by lease 
documents that hide critical disclosures among technical lease terms 
and that confuse consumers with legal jargon, imprecise terms and 
byzantine payment and penalty formulas. Key consumer information such 
as the price of the leased automobile, is not clearly disclosed or is 
hidden in broader cost amounts. Fees paid as part of the vehicle 
capitalized cost or the payment required at lease signing may not be 
identified and itemized. And major costs after the lease is signed, 
such as vehicle delivery charges and lease-end disposition fees, are 
obscured or hidden to such a degree that the Federal Trade Commission 
says many consumers are unaware of their existence.
  But it is in the area of lease advertising that, in my view, the 
problems and abuses of current automobile leasing are most evident. You 
only have to turn on the television or open the advertising sections of 
any local and regional newspaper to find advertisements that 
routinely feature deceptively low monthly lease rates or other 
attractive aspects of a lease while obscuring or omitting required 
information about the costs and restrictions of the lease; scroll 
consumer information quickly across the television screen or in mouse 
sized type in print advertisements to make it difficult for consumers 
to see or read; highlight no or zero downpayment amounts without 
stating the substantial charges and fees a consumer may actually have 
to pay upon signing the lease; and combine disclosure for numerous 
vehicle models in confusing tiny print or mix the payment amounts, 
downpayments, interest rates, and other items for leases with those of 
credit installment transactions.

  The Federal Trade Commission summarized these problems earlier this 
year in detailed comments to the Federal Reserve Board:

       Many lease advertisements today may fall short of the 
     ``clear and conspicuous'' standard. Currently many television 
     and some print advertisements boldly promote certain 
     attractive lease terms and regulate the required lease 
     disclosure to fine print or a location that is both 
     inconspicuous and barely visible. Some television 
     advertisements use background music or flashing images that 
     further obscure the required disclosures. Television 
     advertisements may also flash the disclosures on the screen 
     for only two or three seconds or scroll so quickly that 
     consumers are unable to read this important information.

  These common practices make it extremely difficult for consumers to 
understand the terms

[[Page E886]]

of advertised leases and virtually impossible for consumers to make 
knowledgeable comparisons between lease offerings. In their comments 
last year, the attorneys general expressed concern that automobile 
lease advertisements have, for several years, generally failed to 
adequately disclose material information consumers need to make 
informed decisions. The Federal Trade Commission echoed this sentiment, 
stating that current misleading advertisements may significantly hinder 
comparison lease shopping, in direct contradiction of the purposes of 
the Consumer Leasing Act.
  Clearly, current lease advertising provides no standardized format or 
uniform disclosures to permit consumers to make an intelligent and 
informed choice between leasing and buying an automobile or even to 
make comparisons among comparable leases offered by different dealers.
  Given the confusion created by lease advertising and the complexity 
of the leases themselves, it is not surprising that reports of 
deceptive or abusing leasing practices are increasing. The State 
attorneys general report a dramatic increase in the number of consumer 
leasing complaints received by our offices. Local consumer affairs 
agencies in areas as diverse as San Jose, CA; Montgomery County, MD; 
and Penellas County, FL, all have reported auto leasing as the area in 
which consumer complaints have increased most significantly in recent 
years. Public agencies and consumer organizations all point to the 
inadequacy of information available to consumers, as well as growing 
pressures on auto dealers to maximize profits through leasing, as 
creating an enormous potential for abuse of consumers and as 
emphasizing the need for increased consumer protection.

                    ii. overview of the legislation

  The legislation I am introducing today offers a comprehensive 
approach to the problems of automobile lease disclosure both in lease 
documents and in advertising. Indeed, the bill is the first 
legislation, that I am aware of, to propose comprehensive revision of 
the Consumer Leasing Act since the act was passed 20 years ago.
  In general terms, the legislation amends the Consumer Leasing Act to 
implement many of the changes in lease disclosure and advertising 
recommended last year by the attorneys general task force. It 
incorporates technical changes requested by the Federal Reserve Board. 
It seeks to apply to all forms of lease advertising recent Federal 
Trade Commission standards for clear and conspicuous disclosure, as 
well as the FTC's proposed equal prominence standard for lease 
advertising. And it proposes required disclosure of a lease interest 
rate and other changes to enhance lease disclosure and advertising 
advocated by the Consumer Federation and other consumer organizations.
  More specifically, my legislation would modify and update the 
disclosure requirements in current law to provide consumers with more 
visible, more complete, and more relevant information in lease 
documents about the terms and costs of auto leases. It would create a 
special requirement for automobile leases, modeled on proposals 
recently implemented by the leasing subsidiary of Ford Motor Co., that 
require the highlighted disclosure of key consumer costs and consumer 
notices or warnings at the beginning of the lease document. And it 
requires that consumers receive required disclosure before the lease 
signing in situations where an automobile must be ordered and the 
consumer is required to pay a deposit or incurs any other form of 
financial or legal obligation.
  However, it is in the area of lease advertising that my legislation 
would make the most far-reaching changes. It clarifies the clear and 
conspicuous disclosure requirement in current law by incorporating the 
more specific reasonably understandable standards used by the Federal 
Trade Commission in the 900 number rule and in other industry 
advertising orders. It extends disclosure requirements to 
advertisements on the Internet. It requires all lease advertisements to 
disclose a lease rate computed as an annual percentage rate. It 
requires that disclosures in foreign language advertisements be made in 
the language primarily used in the advertisement. And it would permit 
television advertisers to use the alternative toll-free telephone 
disclosure option in current law for radio advertisements and clarify 
disclosure standards for toll-free telephone advertising.

  The bill also addresses the more abusive advertising practices that 
are clearly intended to confuse or deceive consumers. It would prohibit 
lease advertisers from claiming that no down payment is required when, 
in fact, significant fees and charges are required to be paid at lease 
signing. It requires that transactions be clearly identified as a lease 
at least as prominently as any featured lease term or payment. It would 
prohibit the mixing of the terms of leases and installment credit 
transactions in the same advertisement. And it would prevent lessors 
from advertising lease terms that are offered only to select consumers 
or advertising lease terms for vehicle models they do not have in 
sufficient quantities to meet reasonably anticipated consumer demand.
  Finally, the bill introduces a new initiative for print 
advertisements which would move auto lease advertising toward a uniform 
pricing approach that encourages comparison shopping by consumers. The 
proposal creates a special lease box requirement for printed lease 
advertisements that simplifies the disclosures required for lessors, 
makes disclosures more visible and understandable to consumers and 
provides greater uniformity in terminology and cost disclosures. It 
would make disclosed costs more relevant to lease terms offered to 
consumers by requiring that advertised costs represent average costs of 
comparable vehicles leased by the advertising dealer with option 
packages most commonly requested by consumers. And it would require 
that key factors used to calculate monthly lease payments--the lease 
terms, vehicle residual value, and excess mileage limits--be 
standardized to reflect standard industry practices in order to 
minimize their manipulation to produce artificially low monthly payment 
amounts in lease advertisements.
  The proposal would standardize the information disclosed for 
comparable automobile models and highlight actual differences in 
vehicle capitalized costs, up front payments and lease interest rates 
among advertised lease options. The bill acknowledges that this is only 
one approach to introducing uniform pricing and disclosure to 
automobile leasing. It directs the Federal Reserve Board to study 
additional or alternative approaches for standardizing the terms and 
cost disclosures of auto leases and to propose appropriate initiatives 
that would permit more direct comparison of the base costs of competing 
lease transactions.
  Mr. Speaker, in all these provisions I have tried to incorporate 
proposals that balance the consumers right to know all relevant 
information about the terms and costs of automobile leases with the 
need to minimize the burdens of disclosure for automobile dealers and 
advertisers. I have also sought to incorporate the best ideas of public 
agencies and consumer organizations that have studied the problems of 
consumer leasing, as well as the recommendations of the automobile 
leasing industry. I do not claim that the proposals in my bill are the 
only solutions to the problems addressed, nor even necessarily the best 
approaches. But I believe they will help us to begin a necessary dialog 
on this important issue.

                            iii. conclusion

  My purpose in this bill is to encourage broader understanding of the 
growing importance of automobile leasing, of the increasing problems in 
leasing practices and lease advertising, and of the various solutions 
that are being discussed by public officials in this country and in 
Canada. And my intent is to encourage as comprehensive a debate as 
possible in Congress on the complex and timely consumer issues raised 
by automobile leasing.
  My legislation also responds to changes in current auto leasing 
requirements that were incorporated by the majority in last year's bank 
regulatory relief legislation. A broad manager's amendment put forward 
during full committee consideration of this legislation struck some of 
the more positive initiatives proposed in earlier legislation by Mr. 
Bereuter. The amendment replaced these initiatives with provisions 
designed to create a safe harbor for disclosures made by auto lessors 
and to limit significantly the civil liability of automobile leasing 
companies for false disclosures relating to numerous key disclosures 
for consumers, including descriptions of the property to be leased, 
additional fees and charges, lease-end liabilities and purchase 
options. These changes were proposed without congressional hearings and 
were approved without any oral or written presentation or discussion.
  The growing importance of automobile leasing requires that changes in 
lease disclosure and advertising be given broad and careful 
consideration by Congress and not become just another hidden giveaway 
to special interests. In adopting the original Consumer Leasing Act 20 
years ago, Congress recognized that applying any lesser standard than 
full and complete disclosure to automobile leasing is an invitation to 
abuse and deception. The same considerations should govern what we do 
  The legislation I am introducing simply requires that consumers be 
given full information about lease transactions in a manner which is 
understandable and which allows them to make intelligent purchasing 
decisions. The experiences of the State attorneys general, local 
consumer affairs offices and consumer organizations suggest that 
current relations and the methods used by lessors to comply with them, 
to quote the attorneys general statement, often make it impossible for 
consumers to make such decisions.
  I urge the Congress to initiate broad hearings designed to 
incorporate all points of view

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on issues related to automobile leasing, and I urge my colleagues to 
give careful consideration to the changes and initiatives proposed in 
this legislation.