[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]]
CONSUMER AUTOMOBILE LEASING ACT OF 1996
______
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
abuse.
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
consumers.
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
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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
today.
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.
____________________