[Congressional Record (Bound Edition), Volume 146 (2000), Part 7]
[Extensions of Remarks]
[Pages 9425-9427]
[From the U.S. Government Publishing Office, www.gpo.gov]



     CONSUMER AUTOMOBILE LEASE ADVERTISING IMPROVEMENT ACT OF 2000

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                         Thursday, May 25, 2000

  Mr. LaFALCE. Mr. Speaker, I am introducing today legislation to amend 
current federal law to provide consumers with more relevant, complete 
and timely information about the terms and costs of automobile leases. 
My legislation, the ``Consumer Automobile Lease Advertising Improvement 
Act of 2000'', seeks to empower consumers by providing them with the 
information they need to evaluate lease offers, to comparison shop for 
the best lease deals and to make informed consumer choices.
  This legislation has been endorsed by the Consumer Federation of 
America and the American Automobile Association. It also incorporates 
important changes in current law that have been proposed by the Federal 
Trade Commission, the Federal Reserve Board and by numerous State 
Attorneys General.
  My legislation responds to the dramatic increase over the past decade 
in the role of leasing in the market for new and used automobiles. 
Leasing has clearly changed the way Americans approach their second 
most important consumer transaction--the family car. Automobile leases 
now account for over one in every three new car transactions, over half 
of all transactions for higher cost luxury automobiles, and also for a 
large and growing percentage of used car transactions.
  While leases can be advantageous for many consumers--offering lower 
monthly payments, manageable down payments and lower maintenance costs 
and typical financing arrangements--they can also involve considerable 
risks and hidden costs. Consumer Reports magazine has consistently 
warned consumers that a lease is ``not the simple transaction it's made 
out to appear'' and can often result with consumers ``paying thousands 
of dollars more'' than necessary. The confusing terms and complex 
calculations in auto leases create numerous opportunities for deception 
and fraud. According to the National Consumer Law Center, ``no area of 
fraud over the last decade has been more endemic and widespread than 
that involving auto leases.'' Last year the National Association of 
Consumer Agency Administrators listed auto leases among the ``top ten 
complaints'' expressed by consumers to local consumer protection 
agencies.


                    Consumers' Right to Information

  While government can not, and should not, seek to dictate the way 
auto leases are structured, calculated or sold to the public, I believe 
it does have a responsibility to assure that consumers receive relevant 
and accurate information about lease terms and obligations. The 
consumers ``right to know'', as embodied in the Truth In Lending Act 
and other Federal statutes, clearly requires that consumers have 
something approaching a level playing field when attempting to compare 
lease and purchase options and when trying to negotiate the best lease 
deal. As the Comptroller of the Currency, John D. Hawke, Jr., commented 
recently, ``consumers must have information to make wise choices in 
today's complex financial world.''
  Two problems, in particular, need to be addressed. First, under 
current industry practices and federal disclosure guidelines consumers 
do not have a right to know some of the most important and necessary 
information for evaluating a lease offer. They do not have a right to 
know the applicable lease interest rate, or so-called ``money factor.'' 
They don't have a right to know what consumer incentives are available 
from manufacturers, lenders and dealerships. They do not have a right 
to know the residual value of the vehicle they wish to lease in advance 
of receiving the actual deal. In short, they have very little basis on 
which to evaluate or compare lease offers.
  This is information that every automobile dealer has at their 
fingertips, but it's not available to consumers. It is available in 
industry publications, it is available on computer programs provided by 
manufacturers, banks and

[[Page 9426]]

finance companies, and it is often written on large boards in the back 
offices of dealerships or on a single sheet of paper in the desk drawer 
of the lease manager. Yet, this information is typically withheld from 
consumers.
  Unfortunately, federal law requires only that relevant information 
about lease terms and costs be fully disclosed to the consumers at the 
time of lease signing, after they have agreed to the terms of a lease. 
By then it is too late to negotiate a better deal and it is clearly too 
late to comparison shop with other lease offers. As a special task 
force of State Attorneys General commented to the Federal Reserve Board 
several years ago, current lease disclosure standards tend to 
``sanction the hiding of valuable information from consumers.''
  The second problem centers on the fact that lease advertisements 
provide little of the information consumers need to understand and 
compare various lease offers and to avoid the unnecessary hassle and 
manipulation than can occur at many dealerships. The problem of lease 
advertising is visible every day--in television advertisements that 
boldly promote attractive monthly lease payments while scrolling other 
costs and conditions illegibly across TV screens, in print 
advertisements that hide important lease terms in virtually unreadable 
print, and in advertising generally that fail to disclose substantial 
consumer costs and liabilities. These ads are virtually impossible to 
read or understand and offer no basis whatsoever for making thoughtful 
shopping comparisons.
  Many lease advertisements attempt to confuse consumers by not 
distinguishing between lease and purchase offers or by merging the 
terms of both transactions in unreadable print. Others feature 
attractive lease payments that apply only to a single vehicle, to 
previously-driven ``loaner'' cars or to other vehicles whose lease 
terms are not representative of the lease the dealer will generally 
offer to the public for vehicle of the same model:
  Many lease advertisements also feature low, ``come on'' monthly lease 
payment that are artificially reduced through a number of common 
devices. The advertisement of extended or irregular lease terms, such 
as 28 months or 42 months, rather than 24 or 36-month terms typically 
offered consumers, can misleadingly lower monthly payments amounts. 
Substantial required down payments, typically hidden in small print, 
can produce the same result. Mileage allowances that are considerably 
below the mileage that most drivers require or accept can inflate 
vehicle residual values and also reduce monthly payments, while hiding 
substantial lease-end excess mileage charges. Many lease advertisers 
typically employ all of these devices.
  Clearly anything goes in lease advertising under the current system. 
Left to their own devices, lease advertisers have one purpose in mind 
and one purpose only--getting customers into the dealership where they 
can be misinformed and manipulated into accepting almost any available 
lease deal. 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 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.''


                     Provisions of the Legislation

  The legislation I am introducing today addresses these problems by 
requiring that move relevant and uniform information be provided in 
lease advertisements and that information on key leasing terms be made 
available to consumers far earlier in the lease process. It would do 
this in a number of ways. First, lease advertisers that highlight 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) a lease term of 24 months, 
(b) no required down payment or capitalized cost reduction, and (c) a 
mileage allowance of 12,000 miles per year (b) no required down payment 
or capitalized cost reduction, and (c) a mileage allowance of 12,000 
miles per year (or other allowance that the Federal Reserve determines 
as more reflective of typical automobile usage.)
  While seemingly minor, this change would eliminate much of the 
artificial differences between advertised lease payment amounts, thus 
highlighting 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 also that 
they identify the varying lease terms--a required down payment, a 
longer lease term, etc.--that explain the difference between the two 
payment amounts in print equal in size to the monthly payment. This 
change would provide a relatively uniform monthly payment amount that 
makes it easier for consumers to compare advertised lease 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.
  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 public 
information that can be invaluable in helping consumers make an 
informed choice among competing vehicle makes and models and in 
deciding whether to lease or purchase the vehicle they've selected.
  Third, my bill would also require that automobile dealers make 
available, both in a conspicuous location within the dealership and to 
individual consumers upon request, a written statement for each vehicle 
model that is available for lease that describes the key lease terms 
used in calculating payments under the leases--specifically, the 
rebates and other incentives available on leases for such models, the 
lease interest rate or money factor, and the vehicle residual value. 
``By knowing the money factor and residual value'', Consumer Reports 
has emphasized, consumers will ``be better able to compare lease 
deals.'' Disclosure of the money factor, in particular, was emphasized 
in comments by the Attorneys General Task Force ``as a mater of the 
consumer's basic right to know.''
  Fourth, the bill amends current advertising standards to require that 
advertisers clearly identify advertised payments as applying to lease 
transactions and that highlighted lease terms that apply only to a 
single vehicle, or only to a limited number of vehicles, be clearly and 
conspicuously identified in advertisements.
  Fifth, 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 that are 
subject to Federal disclosure and advertising requirements to $50,000 
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 
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 highlights that no down payment is required on 
a lease when, in fact, 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 
in computer programs and internet web sites.


                       Truth in Lease Advertising

  Mr. Speaker, 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 any major consumer purchase.
  By introducing this legislation I am simply trying to extend the 
principle of ``truth in advertising'' to the auto leasing process. My 
legislation does not dictate how leases must be

[[Page 9427]]

structured or transacted, but requires only that dealers make available 
to consumers the relevant information about costs and terms they use to 
calculate a lease. For an industry that puts so much emphasis on the 
operation of free markets, I find it hard to believe that automobile 
manufacturers and dealers can oppose providing consumers with the 
information they need to make informed marketplace decisions.
  I believe this is important and needed legislation that can transform 
the entire auto leasing process in ways the will benefit both consumers 
and automobile dealers. I urge my colleagues to give careful 
consideration to the changes and initiatives I have proposed in this 
legislation.

                          ____________________