[Congressional Record Volume 144, Number 144 (Monday, October 12, 1998)]
[Extensions of Remarks]
[Pages E2091-E2093]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E2091]]



                AUTOMOBILE LEASE ADVERTISING ACT OF 1998

                                 ______
                                 

                               speech of

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Sunday, October 11, 1998

  Mr. LaFALCE. Mr. Speaker, automobile leasing is a growing phenomenon 
that is supplanting traditional new car sales and dominating automobile 
advertising. A decade ago consumer leases represented less than 5 
percent of all new car transactions. Today, more than a third of all 
new automobile transactions involve leases. By the year 2000, auto 
industry experts predict, leases will constitute over half of all new 
car transactions and a significant portion of used car transactions.
  This rapid growth in automobile leases has generated a concomitant 
increase in lease advertising. Leases now figure more prominently than 
traditional auto sales in advertising in my Congressional district in 
Western New York, in the Washington, D.C. market and, I suspect, in 
most major markets across the country.
  While automobile leases can be beneficial for many consumers, current 
advertising practices make it virtually impossible for consumers to 
make intelligent, informed choices between leasing and buying options, 
or even among competing lease options. Unlike other major household 
purchases, consumers have little or no basis to evaluate comparable 
lease opportunities. Therefore, I am today introducing legislation that 
will reform the advertising of auto leases and permit consumers to 
comparison shop. My legislation, the ``Automobile Lease Advertising Act 
of 1998'', amends the Consumer Leasing Act of 1976 to provide consumers 
with more consistent, relevant and timely information about auto lease 
terms and costs. It does not dictate how leases must be structured or 
transacted, but only requires that dealers provide more relevant and 
understandable information about the terms of advertised leases.


                  I. THE PROBLEMS IN LEASE ADVERTISING

  Auto leases are, by their nature, far more complex and confusing than 
traditional auto sales. Lease advertising, rather than clarifying and 
simplifying lease terms, instead tends to confuse and obfuscate. 
Advertisements feature only the most attractive lease terms while 
hiding or omitting significant consumer costs and liabilities. Key 
elements of leases--the vehicle capitalized cost, residual value and 
lease interest rate--lack standardization and are easily manipulated to 
hide actual costs. Detailed information on actual lease terms is 
generally unavailable to consumers until they are in the dealership and 
engaged in lease negotiations. And, even then, key cost disclosures 
required by Federal law are typically not provided until just before 
lease signing.
  The entire process provides information far too late to permit 
consumers to make intelligent choices between leasing and buying an 
automobile or between competing lease opportunities.
  As a special task force of State Attorneys General commented to the 
Federal Reserve Board in 1995, current lease disclosure standards tend 
to ``sanction the hiding of valuable information from consumers.''
  It is lease advertising that poses the greatest potential for 
confusing and deceiving consumers. The problems of lease advertising 
are visible every day--in television advertisements that boldly promote 
attractive monthly lease payments while scrolling other costs and 
conditions illegibly across TV screens, print advertisements that hide 
important lease terms in confusing tiny print, and advertisements 
generally that fail to disclose substantial consumer costs and 
liabilities. While one of the worst advertising practices--highlighting 
``no downpayment'' when significant upfront payments are in fact 
required--is less common in lease advertising as a result of recent 
enforcement actions by the Federal Trade Commission and State Attorneys 
General, other abusive practices continue. Many advertisements feature 
low, ``come on'' monthly lease payments that are artificially reduced 
through a number of common devices. The advertisement of extended or 
irregular lease terms, rather than the 24- or 36-month terms typically 
offered consumers, can misleadingly lower monthly payment amounts. 
Substantial required downpayments, typically hidden in small print, can 
produce the same result. Mileage allowances that are considerably below 
what most drivers require or accept can inflate vehicle residual values 
and also reduce monthly payments, while hiding substantial lease-end 
excess mileage charges. Advertisers often employ all of these devices.

  Clearly anything goes in lease advertising under the current system. 
Advertisers have one purpose in mind and one purpose only--getting 
customers into the dealership where they can potentially be influenced 
into signing any lease terms. There is no desire to adequately inform 
or educate consumers. The primary purpose of lease advertising is to 
bait consumers with misleading or incomplete information that minimizes 
real costs and makes it virtually impossible to compare alternative 
deals on comparable vehicles.
  In their comments to the Federal Reserve the State 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 echoes this sentiment, stating that current 
``misleading advertisements may significantly hinder comparison lease 
shopping, in direct contradiction of the purposes of the Consumer 
Leasing Act.''


                 II. THE PROVISIONS OF THE LEGISLATION

  The legislation I am introducing today addresses these problems by 
requiring that more relevant and uniform information be provided in 
lease advertisements and that more detailed information on actual lease 
terms be made available earlier in the lease process. These changes 
would empower consumers by providing more of the information they need 
to compare lease options and make intelligent decisions.
  My legislation does this in a number of ways. First, lease 
advertisers that include a monthly lease payment would have to include 
a calculation of the payment using a formula that includes several 
fixed lease terms. These are relatively standard terms found in 
consumer leases, but often manipulated for purposes of advertising: a 
lease term of 24 months, no downpayment or capitalized cost reduction 
requirement, and a mileage allowance of 12,000 miles per year (or 
24,000 miles for a 24-month lease). This eliminates some of the 
artificial differences between advertised lease payments, emphasizing 
more basic cost differences between competing leases. Advertisers could 
also included a different monthly payment amount in an advertisement 
for the same vehicle, as long as it is not featured more prominently 
than the required information, and provided they also identify the 
varying lease terms--a required downpayment, a longer lease term, 
etc.--that explain the difference between the two payment amounts.
  This change would provide a relatively uniform monthly payment amount 
that makes it easier for consumers to compare advertised leased 
payments for similar, comparably-priced vehicles. It would also help 
inform consumers of the potential options available in auto leases, of 
how changes in key terms will affect monthly payments and of the 
potential costs and penalties that may be hidden in otherwise 
attractive lease payments. This proposal would encourage the type of 
advertisement used recently by a Chevrolet dealer in my district that 
featured six vehicle models on a chart with monthly payments for each 
vehicle based on a uniform lease term, no required downpayment and 
12,000-mile annual mileage allowances. Additional columns on the chart 
showed how this payment would change with a higher downpayment or a 
longer lease term. A final column on the chart provided the alternative 
purchase price for each vehicle. This is an excellent example of 
advertising that educates rather than confuses consumers.
  Second, my bill would require that automobile dealers post in a 
conspicuous location in their dealership a listing of all customer 
incentives available to consumers on vehicle models they offer. This 
would include special interest and lease rates, cash rebates, special 
vehicle residual amounts, regional promotions and other special offers 
available for both lease and purchase transactions by auto 
manufacturers, banks, leasing companies and local dealers. This is 
public information that consumers typically do not have and which often 
is offered only within the context of back-room deals. This proposals 
would allow interested consumers to see and compare all the potential 
incentives available on different vehicle models to see where they can 
find the best deals and to help them decide between leasing and buying 
a vehicle.
  Third, my bill also requires automobile dealers that advertise 
monthly lease payments, or

[[Page E2092]]

participate in national or regional promotions that feature lease 
payments, to make available to the public, upon request, a brief, 
written summary (which should, I expect, be not more than one brief 
page) of the essential lease terms and costs used in computing the 
advertised lease payment. Since the dealer has sought to benefit by 
publicizing the monthly lease payment, it follows that interested 
consumers should be able to see the other relevant terms used to 
calculate that payment. This would provide consumers with more detailed 
information earlier in the lease process and give them a more equal 
position in lease negotiations. And it would give consumers more 
detailed information that they could take to other dealerships to 
compare available lease options.
  This proposal would achieve in auto leasing the same basic principles 
identified in recent House and Senate hearings regarding the reform and 
simplification of RESPA mortgage disclosure requirements--making it 
easier for consumers to comparison shop by providing more detailed 
information earlier in the sales process.
  Fourth, the bill would incorporate in current law several important 
changes in lease advertising advocated by the Federal Reserve Board and 
the Federal Trade Commission. It includes Federal Reserve proposals to 
increase the maximum contractual obligation amount of leases subject to 
disclosure and advertising requirements of the Consumer Leasing Act to 
accommodate the higher cost leases routinely offered in today's 
marketplace. It would clarify the ``clear and conspicuous'' disclosure 
requirement in current law with more detailed ``reasonably 
understandable'' standards implemented by the Federal Trade Commission 
in its 900 Number rule and other industry advertising orders. It 
includes a Federal Reserve proposal to expand the simplified 800-Number 
disclosure option in current law to television as well as radio 
advertisements. It strengthens the FTC's authority to enforce lease 
advertising requirements by seeking civil penalties in federal court. 
And it would codify the prohibition, enunciated in recent FTC 
enforcement actions, against advertising that no downpayment is 
required on a lease when substantial undisclosed payments are required 
at lease signing.
  Finally, my bill would clarify that the requirements of the Consumer 
Leasing Act apply not just to television, radio and newspaper 
advertising, but to all potential lease advertising in publications, 
videotapes, toll-free telephone numbers, newsletters and commercial 
mailing and fliers. It would also bring the Consumer Leasing Act into 
the electronic age by extending disclosure requirements to advertising 
on the internet and in computer programs.


                            III. CONCLUSION

  Other than purchasing a home, buying or leasing an automobile is one 
of the most important consumer transactions for most American 
households. It shouldn't be a confusing or an intimidating experience. 
Consumers have a right to know all the relevant costs and details 
before signing a lease. And they deserve to have adequate information 
to comparison shop for auto leases in the same way they shop for a 
mortgage or for any major consumer purchase.
  My legislation would empower consumers by requiring that they be 
given more consistent and detailed information about auto leases in a 
manner that is timely and that allows them to make careful comparisons 
and intelligent decisions. It does not dictate how leases must be 
structured or transacted, only that dealers make available more 
relevant information about the costs and terms used in a lease. This 
simply extends the principles of truth in advertising to the automobile 
leasing process.
  I believe this is important and needed legislation that can transform 
the entire auto leasing process in ways that will benefit both 
consumers and automobile dealers. I urge my colleagues to give careful 
consideration to the changes and initiatives proposed in this 
legislation.

           Consumer Automobile Lease Advertising Act of 1998

       Sponsor: Rep. John J. LaFalce (NY).
       Bill Number: H.R.  ; Introduced October 10, 1998 and 
     referred to the Committee on Banking and Financial Services.


                       Section-by-Section Summary

                         Section 1. Short title

       Consumer Automobile Lease Advertising Act of 1998

                           Section 2. Purpose

       To amend the Consumer Leasing Act of 1976 (Chapter 5 of the 
     Consumer Credit Protection Act--``Truth in Lending Act'') to 
     simplify and standardize automobile lease advertising in 
     order to provide consumers with more relevant and easily 
     understood information regarding the terms and costs of lease 
     offerings earlier in the leasing process and permit consumers 
     to compare lease and purchase options and comparison shop 
     among lease opportunities.

                 Section 3. Applicable consumer leases

       Increases the total contractual obligation of leases that 
     are subject to the consumer disclosure and advertising 
     requirements of the Consumer Leasing Act to $50,000 (from 
     $25,000 set in 1976) to accommodate the higher cost lease 
     transactions now routinely offered. Requires annual 
     adjustment of the maximum obligation amount to reflect 
     changes in the consumer price index.

                Section 4. Automobile lease advertising

       Clarifies and Updates Current Lease Advertising Disclosure 
     Requirements
       Requires that lease transactions be clearly identified as a 
     lease in both the audio and video portions of television 
     advertisements in addition to print advertisements.
       Clarifies that disclosure requirements apply to all lease 
     advertising, including television, radio, videotapes, toll-
     free telephone numbers, publications, newsletters and 
     commercial mailings and fliers.
       Extends disclosure requirements and standards to 
     advertisements in computer programs and in web pages on the 
     Internet.

                Section 5. Alternative lease disclosures

       Permits television advertisements to use the simplified 
     disclosure option in current law for radio advertisements, 
     thereby permitting an advertiser, in lieu of making all 
     required disclosures in an advertisement, to prominently 
     identify a toll-free 800 number in the advertisement that 
     permits consumers to obtain all required disclosures by 
     telephone.
       Requires that alternative disclosures by toll-free 
     telephone numbers be in a format that permits information to 
     be repeated, that is free of marketing information and that 
     permits consumers to request the information in writing and 
     by mail.

             Section 6. Advertisement for automobile lease

                          Prohibited practices

       Prohibits a lessor from advertising that no downpayment is 
     required when the lessor requires a capitalized cost 
     reduction payment, acquisition fee, vehicle trade-in or other 
     significant up-front payment to be made at lease signing that 
     is not refundable to the lessee.
       Prohibits lessor from advertising payment amounts or other 
     lease terms that they do not routinely or customarily offer 
     or make available to consumers, that they do not intend to 
     make available generally to customers as part of any 
     promotion, or that they customarily offer or make available 
     only to selected or preferred customers.

                    Advertised lease payment amounts

       Requires that any lease advertisement that includes a 
     monthly lease payment amount for a vehicle model include a 
     calculation of the monthly payment amount using a formula 
     established in regulation by the Federal Reserve Board that 
     includes the following lease terms:
       Vehicle Price: the vehicle capitalized cost without 
     adjustment for any down payment, capitalized cost reduction, 
     vehicle trade-in or other required payment by the lessee at 
     or before lease signing;
       Lease Term: a lease term of 24 months; and
       Mileage Allowance: a mileage allowance of 12,000 miles for 
     each year of the two-year lease term (or 24,000 miles) before 
     excess mileage charges may be imposed.
       Requires that a lease advertisement that states a monthly 
     payment amount also include a clear and conspicuous statement 
     that the payment amount applies to a lease with a 24-month 
     term, with no required downpayment and with an annual mileage 
     allowance of 12,000 miles.
       Permits an advertiser or dealer to advertise additional 
     lease payment amounts for a vehicle model that are different 
     from the payment amount required to be advertised, provided 
     that any additional payment amount does not appear more 
     prominently than the required payment amount and the 
     advertisement includes additional disclosures that explain 
     the difference between the payment amounts.

             Section 7. Availability of written information

       Requires that an automobile dealer that advertises a 
     monthly lease payment amount, or participates in any national 
     or regional promotion that includes an advertised monthly 
     lease payment amount, make available to consumers at the 
     dealdership a brief written summary of the essential costs 
     and terms associated with the advertised lease.
       Requires an automobile dealer that offers consumer leases 
     to post in a conspicuous location in the dealershipo a 
     listing by vehicle model of all customer incentives, 
     including special interest or lease rates, rebates, vehicle 
     residual values, regional programs and other special offers 
     and promotions that are available for both lease and purchase 
     transactions.

              Section 8. Clear and conspicuous disclosure

       Clarifies the ``clear and conspicuous'' requirement in 
     current law for required disclosures in automobile lease 
     advertisements by incorporating more specific ``reasonably 
     understandable'' standards used by the Federal Trade 
     Commission in the 900 Number Rule and other industry 
     advertising orders. Under these standards, any required 
     disclosures that appear in writing in print and video 
     advertisements, must be sufficient tpye size, shade, contrast 
     and prominence to be readily noticeable, readable and 
     comprehensible to an ordinary consumer; in the audio portions 
     of television, radio and videotape advertisements, must be 
     delivered in a volume, cadence and location, and for 
     sufficient duration, as to be readily noticeable, hearable 
     and comprehensible to an ordinary consumer; in advertisements 
     on the internet,

[[Page E2093]]

     must appear in a type size, contrast, prominence and location 
     as to be readily readable and comprehensible to users and 
     separated from marketing and promotional information.
       Requires that nothing contrary to, inconsistent with or in 
     mitigation of any required disclosures be used in any 
     advertisement and that no audio, video or print technique be 
     used that will obscure or detract from the communication of 
     any required disclosures.

                 Section 9. Administrative enforcement

       The section clarifies that a violation of the lease 
     advertising sections of the Leasing Act are to be considered 
     unfair and deceptive acts or practices under the FTC Act, 
     thus providing the FTC with the same enforcement authority it 
     currently exercises in enforcing violations of its trade 
     regulation rules. This would permit the FTC to bring court 
     actions for civil penalties in the first instance (rather 
     than the FTC having to first place violators under consent 
     agreements in order to enforce these agreemetns).

                      Section 10. Civil liability

       Increases the maximum potential liability of a lessor for 
     punitive damages in civil actions for violations of the 
     Consumer Leasing Act from $1,000 to $10,000.

                        Section 11. Regulations

       Directs the Federal Reserve Board to issue regulations to 
     implement the changes made by the Act within 6 months of the 
     date of enactment.
       Directs the Board to issue regulations and staff 
     commentary, as necessary, to update and clarify the 
     requirements of the Consumer Leasing Act as amended by the 
     Act and to facilitate compliance with or prevent 
     circumvention of any amendment made by the Act.

     

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