[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Proposed Rules]
[Pages 48752-48769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23048]




[[Page 48751]]

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Part II





Federal Reserve System





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12 CFR Part 213



Consumer Leasing; Proposed Rules

  Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / 
Proposed Rules   

[[Page 48752]]


FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-0892]


Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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

SUMMARY: The Board is issuing this proposal to revise Regulation M, 
which implements the Consumer Leasing Act. The act requires lessors to 
provide uniform cost and other disclosures about consumer lease 
transactions. The Board has reviewed Regulation M, pursuant to its 
policy of periodically reviewing its regulations, and proposes 
revisions to simplify and clarify its provisions to carry out more 
effectively the purposes of the act. The proposal contains several 
substantive revisions, for example: additional disclosure requirements 
about early termination charges, disclosure of the gross cost of 
leases, the residual value, and the estimated lease charge; a 
requirement that certain leasing disclosures be segregated from other 
information; and pursuant to a statutory change, new advertising 
provisions for radio and television. The proposal also simplifies the 
language and format of the regulation, deleting obsolete provisions and 
eliminating the footnotes or moving them to the Official Staff 
Commentary. A proposal to revise the commentary is being 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-0892, 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 H. 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. Background on the Consumer Leasing Act and Regulation M

    The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted 
into law in 1976 as an amendment to the Truth in Lending Act (TILA), 15 
U.S.C. 1601 et seq. The Board was given rulewriting authority, and its 
Regulation M (12 CFR part 213) implements the CLA. An official staff 
commentary that interprets the regulation has also been published 
(Supplement I-CL-1 to 12 CFR 213).
    The CLA generally applies to consumer leases of personal property 
involving $25,000 or less and a term of more than four months. An 
automobile lease is the most common type of consumer lease covered by 
the CLA. Like the credit provisions of the TILA, the CLA requires 
lessors to provide uniform cost and other disclosures in consumer lease 
transactions and lease advertising. Prior to entering into a lease 
agreement, lessors must give consumers 15 to 20 disclosures, including 
the amount of initial charges to be paid, an identification of leased 
property, a payment schedule, the responsibilities for maintaining the 
leased property, and the liability for terminating a lease early. The 
law also regulates balloon payments by limiting liability at the end of 
a lease term to no more than three times the monthly payment.

II. The Review of Regulation M

    The Board's Regulatory Planning and Review Program calls for the 
periodic review of a regulation 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. Regulation M has not been substantially revised or 
reviewed since it was first issued. The Board began a review of 
Regulation M in November 1993 by publishing an advance notice of 
proposed rulemaking (58 FR 61035, November 19, 1993). While comment was 
solicited generally on the provisions of Regulation M and the CLA, the 
Board identified three specific issues on which comment was desired: 
(1) Disclosure of early termination charges, (2) broadcast media 
advertising of leases, and (3) segregation of leasing disclosures from 
other information.
    The Board received 70 comment letters on the advance notice of 
proposed rulemaking. Most commented only on the three issues addressed 
in the advance notice. Based on its review and on the comments 
received, the Board now proposes revisions to Regulation M. While 
several revisions would make substantive changes to the regulation, 
including new disclosure requirements, the proposal leaves many 
provisions substantively unchanged. In addition to seeking comment on 
the proposed regulatory changes, the Board again solicits views on 
whether specific legislative revisions to the CLA may also be 
warranted. For example, several commenters on the advance notice 
suggested that CLA coverage be expanded to cover leases that exceed the 
current $25,000 total contractual obligation limitation.
    The proposal simplifies the language and format of the regulation 
to state the requirements more clearly. Footnotes have been either 
moved to the staff commentary or deleted as unnecessary. Obsolete 
provisions have been deleted and explanatory material transferred to 
the commentary. In addition to comments on the proposed changes, the 
Board requests specific suggestions for other revisions that would 
facilitate compliance without causing an adverse impact on consumer 
protections.
    Although the regulation applies to all consumer leases covered by 
the CLA (for example, automobile leases and furniture leases), much of 
the focus of the review has been on automobile leasing. The Board 
solicits specific comment on whether any of the proposed rules are more 
appropriately limited to automobile lease transactions.
    It is anticipated that proposed revisions to Regulation M 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.

III. Discussion of Proposed Revisions

    The following discussion covers the proposed revisions section-by-
section. In many cases, the proposed changes would simplify or clarify 
the current text, with no substantive change intended. Captions have 
been added to each paragraph, to conform with current Board style; the 
addition or wording of captions alone is not meant as a substantive 
change in the meaning of the paragraph itself. The entire proposed 
regulation and its appendices have been printed in full. 

[[Page 48753]]


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

1(b) Scope and Purpose

    This paragraph is revised to add a sentence about the scope of the 
law and to more closely parallel the purpose clause in Sec. 102 of the 
TILA, 15 U.S.C. 1601.

1(d) Issuance of Staff Interpretations.

    Current paragraph 1(d) has been moved to appendix C.

Section 213.2--Definitions

2(a) Definitions

    Most of the definitions remain unchanged and are not discussed 
below. The current definitions of ``Period'' and ``Real Property'' in 
paragraphs (a) (10) and (13) respectively have been deleted as 
unnecessary. Definitions of ``gross cost,'' ``estimated lease charge,'' 
``residual value,'' and of a ``closed-'' and an ``open-end lease'' are 
added.
    The following definitions are redesignated as indicated below:

------------------------------------------------------------------------
              Current                              Proposed             
------------------------------------------------------------------------
``Arrange for lease of personal      moved to comment 2(a)(10)-1.       
 property'' in 2(a)(4).                                                 
``Board'' in 2(a)(5)...............  moved to section 2(a)(4).          
``Lessee'' in 2(a)(7)..............  moved to section 2(a)(9).          
``Lessor'' in 2(a)(8)..............  moved to section 2(a)(10).         
``Organization'' in 2(a)(9)........  moved to section 2(a)(12).         
``Person'' in 2(a)(11).............  moved to section 2(a)(13).         
``Personal property'' in 2(a)(12)..  moved to section 2(a)(14).         
``Realized value'' in 2(a)(14).....  moved to section 2(a)(15).         
``Security interest'' in 2(a)(15)..  moved to section 2(a)(17).         
Examples of security interests in    moved to comment 2(a)(17)-1.       
 2(a)(15).                                                              
``State'' in 2(a)(16)..............  moved to section 2(a)(18).         
``Total lease obligation'' in        moved to section 2(a)(19).         
 2(a)(17).                                                              
``Value at consummation'' in         moved to section 2(a)(20).         
 2(a)(18).                                                              
------------------------------------------------------------------------

2(a)(2) Advertisement

    The definition of ``advertisement'' is simplified and the examples 
moved to the commentary as part of proposed comment 2(a)(2)-1. The 
simplified language is consistent with other consumer regulations. The 
definition of an advertisement is broad; it covers commercial messages 
in any medium that directly or indirectly promote a consumer lease 
transaction. No substantive change in the definition is intended by the 
proposed revision.

2(a)(3) Agricultural Purpose

    For simplicity, the portion of this statutory definition which 
describes agricultural products is moved to the commentary as proposed 
comment 2(a)(3)-1.

2(a)(5) Closed-End Lease

    The proposal adds a definition of a closed-end lease, modeled after 
the definition of closed-end credit in Regulation Z (12 CFR 
Sec. 226.2(a)(10)). The term covers any lease that does not fall within 
the definition of an open-end lease. In closed-end leases, sometimes 
referred to as ``walk-away'' leases, the lessee is not responsible for 
the residual value of the leased property at the end of the lease term.

2(a)(6) Consumer Lease

    The rule of construction, currently in Sec. 213.2(b)(1), has been 
moved to this paragraph.

2(a)(7) Estimated Lease Charge

    The proposal adds a definition of ``estimated lease charge'' to 
provide guidance in making the proposed disclosure in Sec. 213.5(q). 
The estimated lease charge would reflect the total dollar amount of the 
cost of the lease attributable to interest and other charges (whether 
paid upfront or during the term of the lease). The Board believes that 
such a disclosure together with a statement indicating what the figure 
represents and the formula for calculating the estimated lease charge 
(as provided in Sec. 213.5(q)) would further assist the consumer in 
comparing leases. A first 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

    The proposal adds a definition of ``gross cost'' to provide 
guidance in making the proposed disclosure in Sec. 213.5(p) for closed-
end lease transactions. The Board proposes to define gross cost as the 
total dollar amount of all items included in the value of a lease at 
consummation. This figure would include the base price of the leased 
property and any other items added to that price--such as a lessor's 
markup, taxes, service agreements, insurance, and any outstanding 
balance from a prior lease that is included in a new lease--prior to 
being offset by any downpayment or trade-in by the consumer. Amounts 
consisting of fees and other charges paid out-of-pocket at consummation 
by the lessee are also included in the gross cost figure. The gross 
cost is the amount upon which the periodic and other payments and terms 
of the lease are based. The Board solicits comment on this definition.

2(a)(10) Lessor

    The proposal deletes the phrase ``in the ordinary course of 
business,'' as it may not be very helpful in determining whether a 
person must comply with the CLA. In its place, a numerical test is set 
forth. Under this test, a person who leases, offers, or arranges to 
lease personal property more than five times in the preceding calendar 
year is subject to the CLA and Regulation M. If a person did not meet 
this numerical test in the preceding calendar year, the test is applied 
to the current year. The Board solicits comment on the proposed 
numerical test.

2(a)(11) Open-End Lease

    The proposal adds a definition of ``open-end lease.'' The Board 
believes the definition will provide useful guidance given that certain 
disclosures are only relevant to open-end leases, those in 
Sec. 213.5(m), and (o), and Sec. 213.8(d)(2)(vi).

2(a)(16) Residual Value

    The proposal adds a definition of ``residual value'' to provide 
guidance in making the proposed disclosure in Sec. 213.5(r) for closed-
end lease transactions. The residual value of leased property is the 
amount determined at consummation to be the value of the leased 
property at the end of the lease term.

2(b) Rules of Construction

    This section is deleted from the regulation. Current paragraph 
2(b)(1) is moved to paragraph 2(a)(6) of this section. Paragraphs 
(b)(2) and (b)(3) of this section are deleted as unnecessary.

Section 213.3--Exempt Transactions

    No changes have been proposed to this section.

Section 213.4--General disclosure requirements

4(a) General Requirements

    Paragraph (a) contains general rules about the disclosures required 
under Sec. 213.5, including the form, content, and timing of 
disclosures. The major revision is the proposed requirement that 
certain disclosures be segregated from other information. Several 
existing format rules have been eliminated as unnecessary because of 
the proposed segregation requirement. Other 

[[Page 48754]]
provisions would be simplified and clarified to ease compliance.

4(a)(1) Form of Disclosures

    The general disclosure requirements are found in section 182 of the 
CLA. Clear and conspicuous lease disclosures must be given prior to 
consummation of a lease on a dated written statement that identifies 
the lessor and lessee. Generally, all the disclosures must be made 
together on a separate statement or in the lease contract to be signed 
by the lessee. Under the proposal, the segregated disclosures in 
Sec. 213.4(a)(2), discussed below, may be provided on a separate 
document and other CLA disclosures provided in the lease contract, as 
long as all disclosures are given to a consumer at the same time.
    Where the disclosures are included in the lease contract, the 
regulation currently requires that the disclosures be provided above 
the lessee's signature. Under the proposal, this specific requirement 
is deleted as unnecessary. However, lessors must continue to ensure 
that the disclosures are given to lessees before the lessee becomes 
obligated on the lease transaction. To provide evidence of compliance, 
disclosures may still be placed above the lessee's signature where 
disclosures are included in a lease agreement. Alternatively, lessors 
may include instructions alerting a lessee to read the disclosures 
prior to signing the lease or could provide a signature line or an 
acknowledgement of receipt for the lessee on the disclosure statement.
    To satisfy the statutory standard that disclosures be made clearly 
and conspicuously, the regulation currently requires that disclosures 
be made on the same page and in a meaningful sequence--the grouping 
together of related disclosures. The regulation also imposes type-size 
requirements on numerical disclosures. In light of the proposal to 
segregate certain disclosures, discussed below, the meaningful sequence 
and the same page rule, and type-size disclosure requirements are 
deleted as unnecessary.
    Nonsegregated disclosures need not be on the same page but they 
should be grouped together. Disclosures should also be presented in a 
way that does not obscure the relationship of the terms to each other.

4(a)(2) Segregation of Certain Disclosures

    The CLA does not require the segregation of the required leasing 
disclosures from other information given to the consumer in a lease 
transaction. There is some concern that the absence of a requirement 
that the consumer leasing disclosures be segregated from general 
contract or other terms limits the effectiveness of these disclosures 
in meeting one of the goals of the CLA--to assure clear, conspicuous, 
and meaningful disclosure of lease terms to consumers.
    Lease contracts can be long, detailed, and complex and often 
contain leasing disclosures interspersed among contract provisions. 
Consumers generally have little time to review their lease contracts 
before signing them. The Board believes a requirement that certain of 
the mandated disclosures be segregated would highlight these 
disclosures and thereby enhance consumers' ability to understand lease 
terms and thus make more informed choices.
    In its advance notice of proposed rulemaking, the Board 
specifically requested comment on whether a segregation requirement 
should be imposed. Thirty of the seventy commenters addressed the 
issue. Twenty-six commenters favored some form of disclosure 
segregation. The other four commenters believed that any consumer 
benefit associated with isolating certain disclosures would not 
outweigh the costs to lessors of revising forms, or that a segregated 
disclosure requirement would require a statutory change.
    Under section 105(a) of the TILA, which includes the CLA, the Board 
has the authority to prescribe regulations containing ``such 
classifications, differentiations, or other provisions, and may provide 
for such adjustments and exceptions for any class of transactions, as 
in the judgment of the Board are necessary or proper to effectuate the 
purpose of this title, to prevent circumvention or evasion thereof, or 
to facilitate compliance therewith.'' Pursuant to this authority, the 
Board proposes that certain disclosures be segregated from other 
disclosures and information. As discussed previously, lessors may 
include the segregated disclosures in their lease contracts, but would 
be required to separate them from other information. Alternatively, 
lessors may provide the segregated disclosures to consumers on a 
separate document. The content, format, and headings for these 
disclosures should be substantially similar to those contained in the 
model forms in appendix A of the regulation. To ensure uniformity, no 
additional information may be included among the segregated 
disclosures, except as permitted under any future provision found in 
the official staff commentary to Regulation M.
    The following disclosures (some of which are new) would be 
segregated from other information:
     Gross cost of the lease (new)--Sec. 213.5(p).
     Total payment due at lease signing, subdivided into an 
itemization of the costs to be paid at lease signing, and an 
itemization of the means of paying these costs (this type of 
itemization would be new)--Sec. 213.5(b).
     Total of periodic payments and payment schedule--
Sec. 213.5(c).
     Total of other charges payable to lessor--Sec. 213.5(e).
     Residual value (new)--Sec. 213.5(r).
     Statement concerning the consumer's right to purchase the 
leased property at the end of the lease term--Sec. 213.5(k)(1).
     Estimated lease charge (new)--Sec. 213.5(q).
     Statement that a substantial charge may be imposed for 
terminating a lease early and an example of an early termination charge 
(new)--Sec. 213.5(l)(2).
     Statement concerning lessee's possible wear and use 
liability, including liability for excessive mileage (new in part)--
Sec. 213.5(h)(3).
     Statement that the consumer should refer to lease 
documents for nonsegregated CLA-required information (new)--
Sec. 213.5(s).
     In an open-end lease, the value of the property at 
consummation, the total lease obligation, and the difference between 
them--Sec. 213.5(o)(1).
    The remaining disclosures required by Regulation M and the CLA 
would continue to be provided in a nonsegregated format (typically, 
together with the other terms and conditions that comprise the lease 
agreement). Comment is solicited on whether any items should be 
excluded from, or others added to, the segregated disclosures.
    Regulation M currently contains model forms for open-end leases, 
for closed-end leases, and for furniture leases. These forms have been 
revised to reflect how the segregated disclosures would appear. The 
model forms are in appendix A.

4(a)(5) Language of Disclosures

    Current paragraph 4(a)(4) states that lease disclosures must be 
provided in English, except in the Commonwealth of Puerto Rico. The 
proposal revises this position. Lessors would be permitted to give 
disclosures in another language as long as disclosures in English are 
given to a lessee who requests them. The Board believes that a more 
permissive rule could promote the delivery of more meaningful 
disclosures to consumers. 

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4(b) Additional Information

    Current paragraph 4(b) permits additional information to be 
included with any disclosures required by the regulation. The proposal 
would permit additional information only with the nonsegregated CLA 
leasing disclosures, provided the information does not detract from 
those disclosures.
    Current paragraphs 4(b) (1) and (2) have been deleted as 
unnecessary. Pursuant to section 186(a) of the CLA and Regulation M, 
proposed Sec. 213.10, if information required by state law is 
inconsistent with the requirements of the act or regulation, the state 
law is preempted.

4(c) Multiple Lessors or Lessees

    Paragraph (c) provides that when a transaction involves multiple 
lessors, one lessor may make the disclosures on behalf of all of them. 
The phrase ``and the one that discloses shall be the one chosen by the 
lessors'' is deleted as unnecessary. No substantive change is intended.

4(d) Use of Estimates

    Current paragraph 4(d), which implements section 182 of the CLA on 
the use of estimated disclosures, is proposed (4)(d)(1) and (2).

4(e) Effect of Subsequent Occurrence

    Paragraph 4(e) provides that generally when an event occurs after 
disclosures have been delivered which makes a disclosure inaccurate, 
the inaccuracy does not constitute a violation of the act. This 
paragraph clarifies that this rule applies to events occurring after 
consummation of a lease. The first sentence of footnote 1 of the 
current regulation, which contains a specific example of a subsequent 
occurrence, has been incorporated into the staff commentary in comment 
4(e)-3. The second sentence of the footnote is deleted as unnecessary 
guidance under this regulation.

4(f) Minor Variations

    Current paragraph 4(f) allows lessors to disregard February 29 in a 
leap year when making disclosures. Proposed paragraph (f) incorporates 
into the regulation all rules on minor variations that may be 
disregarded in making disclosures, thus provisions currently contained 
in comment 4(a)-2 of the commentary have been moved to this paragraph. 
No substantive change is intended.

Section 213.5--Content of Disclosures

    Section 213.4(g) is proposed Sec. 213.5. Several new disclosures 
have been added under paragraphs (b), (h)(3), (l)(2), and (p) through 
(s). Paragraphs which have not been changed, or which contain no 
substantive changes, have been redesignated as follows:

------------------------------------------------------------------------
              Current                              Proposed             
------------------------------------------------------------------------
Paragraph 4(g)(1)..................  redesignated as 5(a).              
Paragraph 4(g)(3)..................  redesignated as 5(c).              
Paragraph 4(g)(4)..................  redesignated as 5(d).              
Paragraph 4(g)(5)..................  redesignated as 5(e).              
Paragraph 4(g)(6)..................  redesignated as 5(f).              
Paragraph 4(g)(7)..................  redesignated as 5(g).              
Paragraph 4(g)(9)..................  redesignated as 5(i).              
Paragraph 4(g)(11).................  redesignated as 5(k).              
Paragraph 4(g)(13).................  redesignated as 5(m).              
Paragraph 4(g)(15).................  redesignated as 5(o).              
------------------------------------------------------------------------

5(b) Total Amount Due at Lease Signing

    Paragraph 5(b), currently Sec. 213.4(g)(2), requires lessors to 
disclose to consumers the total amount of any payment due at the 
consummation of a lease. The payment may include a security deposit, a 
trade-in allowance or a downpayment (the ``capitalized cost 
reduction''), a first periodic payment in advance, and fees such as 
delivery charges. Under the current regulation, these charges must be 
itemized by type but need not be itemized by amount. The Board is 
proposing several changes to this paragraph. The language has been 
revised to clarify that a total amount of payments due at lease signing 
is required. The Board proposes to require that amounts paid at lease 
signing be itemized by amount as well as by type. The Board believes 
that these lease costs should be more completely and uniformly 
disclosed, and requiring itemization by type and amount would ensure 
this result. Under the proposal, the type and amount of each charge due 
at consummation is included among the segregated disclosures under the 
subheading ``itemized costs.'' Also, to enhance consumer understanding 
of what payments are made and how they are allocated--particularly the 
amount agreed upon as the trade-in allowance of property being provided 
by the lessee--the lessor should disclose the net trade-in allowance, 
any rebate, payments in cash, and any other credits under the 
subheading ``means of paying itemized costs.'' (See the model forms in 
appendix A for format.) The Board believes that standardization of the 
terminology to be used and the full itemization of the initial costs 
and means of payment will provide consumer benefit without imposing 
substantial compliance costs on lessors.

5(h) Maintenance Responsibilities

    Paragraph 5(h), currently Sec. 213.4(g)(8), requires disclosures 
about maintaining or servicing leased property. Lessors currently must 
identify the party responsible for maintaining or servicing the leased 
property, along with a description of the responsibility, and as 
applicable, a statement of reasonable wear and use standards. For 
example, an automobile lease may state that a consumer will be liable 
for excessive wear and use if the vehicle is returned with little tread 
on the tires, with rust, dents or broken parts or accessories, or if 
the vehicle is driven over a certain number of miles.
    Some of the consumer representatives commenting on the Board's 
advance notice expressed concerns about excess wear and use standards. 
Generally, they suggested that lessors should have to describe, in 
detail, the standard applied and the penalties that would be charged. 
They also called for the development of standardized measurements of 
excess wear and use. One commenter suggested that the Board prohibit 
charges for excess wear and use beyond actual repair costs. In 
addition, the Board's Consumer Advisory Council and others have advised 
the Board that highlighting information about excessive mileage charges 
is important.
    Although the Board receives very few consumer complaints about 
leasing, it has over the years received complaints about reasonable 
wear and use standards. Consumers sometimes do not realize that lessors 
may impose strict standards for what they consider normal use of lease 
property, particularly leased automobiles, and that these standards may 
vary depending on the lessor. While issues concerning excessive wear 
and use liability are generally a matter of contract between a lessee 
and lessor, the Board believes that a disclosure notice about the 
possibility that a charge may be imposed at the end of the lease term 
for excessive wear and use of leased property, based on the standards 
imposed by the lessor, may heighten a consumer's awareness about 
maintenance responsibilities without any substantial compliance costs 
on lessors. Therefore, the Board proposes to add a disclosure 
requirement in paragraph 5(h)(3), to be included among the segregated 
disclosures, that ``you may be charged for excessive wear and use based 
on the lessor's standard for normal use.'' In a vehicle lease 
transaction, any applicable charge for excessive mileage must also be 
included. The Board solicits comment on the proposed new disclosure, 
including the required language.

5(j) Penalties and Other Charges for Delinquency

    The Board proposes to add that any penalty or charge shall be 
reasonable, to reflect the requirement found in section 

[[Page 48756]]
183(b) of the CLA. No substantive change is intended.

5(l) Early Termination

    Paragraph 5(l), currently Sec. 213.4(g)(12), requires a disclosure 
about charges for terminating a lease early. The Board proposes 
additional disclosure requirements, in Sec. 213.5(l)(2), that would be 
included among the segregated disclosures. Lessors would have to 
include a statement alerting consumers about charges for terminating a 
lease early, including an example of an early termination penalty based 
on an assumed termination of the lease at the end of the first year.
    The CLA requires lessors to disclose the conditions under which the 
lessee or lessor may terminate the lease before the end of the lease 
term and the amount or method of determining a penalty or other charge 
for early termination. Lessors typically disclose the method of 
determining an early termination charge and such a disclosure is often 
complex.
    In its advance notice of proposed rulemaking, the Board solicited 
comment on whether the disclosure of early termination charges could be 
revised to more easily inform consumers about these charges. The Board 
also solicited comment on whether the disclosure of the name of the 
lessor's early termination method along with a representative example 
of a lease termination charge should be considered, as well as any 
other disclosure alternative. The notice mentioned a U.S. Court of 
Appeals case, Lundquist v. Security Pacific Automotive Financial 
Services Corp., 993 F.2d 11 (2d Cir.), cert. denied, 62 U.S.L.W. 3320 
(U.S. Nov. 1, 1993), that has caused lessors concern. In that case, the 
court held a lessor liable for violating the ``reasonably 
understandable'' standard for disclosure under Regulation M; the lessor 
had an early termination formula that the court found to be overly 
complex and beyond the understanding of the average consumer. Many 
lessors say that, given the complexity of modern automobile lease 
transactions, it is difficult to describe every part of an early 
termination formula in terms clearly understandable to consumers. In 
particular, lessors state that the various methods used to determine 
the ``unamortized capitalized cost'' portion of their early termination 
formulas are inherently complex and cannot be reduced to a disclosure 
that is easily understandable.
    In responding to the Board's request for comment on this issue, 
many lessor representatives favored allowing a reference to the name of 
the method employed to determine the unamortized capitalized cost 
portion of the early termination formula instead of requiring a 
detailed description of that method. Some suggested that the Board also 
define the most common amortization methods currently used (such as the 
``actuarial'' or the ``constant yield'' methods) to provide for 
uniformity. They believed that through education and exposure to the 
names of the most commonly used methods, consumers would eventually 
become aware of their advantages and disadvantages. Opponents believed 
that merely providing the name of the method would not be useful and 
would make it difficult or impossible for consumers to compute the 
amount of an early termination charge. Some consumer advocates said 
that in using complex methods and highly complicated descriptions in 
determining early termination charges, lessors preclude consumers from 
determining whether the charges themselves are reasonable. (The CLA 
specifies that charges for early termination must be ``reasonable.'') 
Other commenters, including both lessors and consumer representatives, 
favored a full description of all aspects of a lessor's early 
termination method, along with an example of how that method would 
work. In addition, some commenters suggested a general statement 
warning the consumer of the possibility of a substantial charge for 
early termination.
    Based on the comments received and upon further analysis, the Board 
proposes to require that, along with an example of an early termination 
charge, a statement be given by lessors among the segregated 
disclosures that ``you may have to pay a substantial charge if you end 
this lease early,'' that ``the actual charge will vary depending on 
when the lease is terminated,'' and that ``other charges such as for 
excessive wear and use may also be imposed.'' The Board believes these 
highlighted disclosures would serve to better inform consumers about 
the consequences if they were to terminate their leases early.
    The Board believes that the CLA mandates full disclosure of a 
lessor's method of determining an early termination charge, even if it 
is complex. Therefore, in addition to the above statement and example, 
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 (also known as the ``adjusted 
lease balance'') 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 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. Additionally, if a lessor refers to a named 
method in this manner, it would have to provide a written explanation 
of that method if requested by the consumer. While lessors should 
attempt to provide clear and understandable explanations of their early 
termination provisions to consumers, explanations that are full, 
accurate, and not intended to be misleading are in compliance with CLA 
and Regulation M disclosure requirements. (And, of course, the statute 
requires that the early termination charges themselves must be 
``reasonable.'') These positions are codified in the proposed revisions 
to the Official Staff Commentary to Regulation M.
    Finally, regarding the selection of an assumed termination period 
for the early termination example, several approaches were considered 
by the Board. The proposed example is based on an assumption that the 
consumer terminates the lease near the beginning of the lease term--at 
the end of the first year. This approach provides a ``worst case'' 
scenario. Early termination charges are typically highest at the 
beginning of the lease term. The example could have been based on an 
assumption that the consumer terminates the lease towards the end of 
the lease--such as the end of the third year for a four-year lease, and 
at the end of the second year for a three-year lease. The last year of 
a lease is the period when many early terminations occur. An example 
could have been based on an assumed early termination occurring for 
instance, at the 50 percent mark of the lease term. Arguably, this 
approach could allow an easier comparison of early termination examples 
among leases, in contrast to the first two approaches where the assumed 
early termination would not occur at proportionately equivalent points 
in leases of different lengths.
    While there is some merit to each alternative (and there are 
others), the Board is proposing an early termination example based on 
the assumption that the lease terminates at the end of the first year, 
which illustrates to 

[[Page 48757]]
consumers how substantial the charge could be if the lease is 
terminated very early during the lease term. The figure used to 
calculate the 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 of the leased property to 
estimate the value of the property at the end of the lease, the early 
termination example must also be calculated using the fair market 
value. Comment is solicited on the proposed example including whether 
using an assumed termination period other than the one proposed would 
be more appropriate.

5(n) Right of Appraisal

    Paragraph 5(n), currently Sec. 213.4(g)(14), requires disclosure of 
the right to an appraisal of leased property. Generally this provision 
is applicable to open-end leases, but it also applies to closed-end 
leases. Language is revised for clarity and accuracy, for example, the 
term ``realized value'' replaces ``estimated value.'' No substantive 
change is intended.

5(p) Gross Cost

    The Board proposes to require disclosure of the gross cost among 
the segregated disclosures. This disclosure is applicable only to 
closed-end leases; proposed Sec. 213.5(o), currently Sec. 213.4(g)(15), 
requires the disclosure of the ``value at consummation'' in open-end 
leases. Federal law does not currently require disclosure of 
information on the base price of the leased property in closed-end 
leases. Because this figure usually is not given, consumers may assume 
that the lease is based on the manufacturer's suggested retail price, 
or on the negotiated sales price (if the parties initially contemplated 
that the consumer would finance or purchase the property). However, the 
starting price of the leased property may actually be significantly 
higher than either of these figures.
    Sixteen of the seventy commenters on the advance notice favored a 
``capitalized cost'' disclosure. They included representatives of both 
the leasing industry and consumer groups. Several trade associations 
representing a large segment of the industry have recently asked their 
members to voluntarily disclose this item. In addition, a few lessors 
have been disclosing this figure for some time.
    Pursuant to its authority under section 105(a) of the TILA, the 
Board proposes to require disclosure of the ``gross cost'' in closed-
end lease transactions, using that term, in order to further effectuate 
the purposes of the law. The Board believes such a disclosure (together 
with a brief description such as ``the agreed upon acquisition value of 
the vehicle including but not limited to items such as taxes, fees, 
service contracts, and insurance'') would further the CLA's goal that 
cost disclosures enable consumers to draw comparisons between leases 
and, where appropriate, between leases and credit transactions. The 
gross cost would include the agreed upon price of the leased property 
and any other items added to that price--such as a lessor's markup, 
taxes, fees, extended warranties, insurance, and any outstanding 
balance from a prior lease that is included in a new lease--prior to 
being offset by any downpayment or trade-in by the consumer. 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. The 
gross cost would be readily available to lessors from worksheets they 
utilize in setting the terms and conditions of the lease. However, as 
discussed in 5(q) below, the inclusion of a gross cost figure in the 
segregated disclosures in some cases could invite consumers to make 
misleading comparisons of leasing and financing options. The Board 
solicits specific comment on this disclosure and its definition.

5(q) Estimated Lease Charge

    Pursuant to its authority under section 105(a) of the TILA, the 
Board proposes to require disclosure of the estimated lease charge 
among the segregated disclosures to further effectuate the CLA's goal 
of enabling consumers to comparison shop. This figure would show the 
total dollar amount of the ``financing'' costs that will be charged to 
the consumer over the lease term, including the amount attributable to 
interest, or the ``time-price differential.'' Although this figure is 
similar in concept to the finance charge required to be disclosed in 
consumer credit transactions subject to the TILA, it is not identical 
to a finance charge. As proposed, the lease charge would include items 
such as use taxes, registration and other fees, and insurance--items 
that are (under certain circumstances, at least) excluded from the 
finance charge. Therefore, the lease charge would not typically be an 
appropriate tool to make comparisons between lease and financing 
transactions.
    The Board currently does not propose to exclude any of the fees and 
charges in the lease transaction from the estimated lease charge. 
However, comment is solicited on whether and how this disclosure could 
be made more comparable to the finance charge under the TILA. For 
example, the Board requests comment on whether insurance charges--which 
typically are not included directly in the finance charge--or charges 
payable in a comparable cash transaction (such as automobile 
registration fees)--should be excluded from the estimated lease charge.
    When consumers are comparing different lease transactions with the 
same gross costs and durations (for example, three-year auto leases 
from two different dealers with the same gross cost but different 
monthly payments and purchase option prices), the estimated lease 
charge could be used to compare the transactions. However, as discussed 
below, an estimated lease charge disclosure would not be useful in 
comparing different leases where the gross costs or durations differ 
substantially.
    Lease rate. Some commenters on the advance notice--including a 
number of consumer representatives and several small depository 
institutions--recommended that the Board require lessors to disclose 
the interest rate implicit in a lease transaction. Some recommended 
that this lease rate reflect an annual percentage rate concept--that 
is, a uniformly calculated rate that would include both interest and 
other charges imposed in connection with the lease transaction. These 
commenters suggested that the true cost of leasing would not be known 
to consumers without a lease rate disclosure. They noted that if the 
gross or capitalized cost and residual value of leased property are to 
be disclosed to consumers, the lease rate would be the only missing 
component necessary to determine the full cost of a lease. Commenters 
opposed to an interest rate disclosure noted that it would not 
necessarily reflect the ``true cost'' of leasing, as lessors might 
simply be able to manipulate the residual value in order to show a 
lower interest rate.
    As noted by some commenters, the lease rate is the only key 
information about the cost of leasing property that would not be 
disclosed to consumers under the Board's proposed rule. Showing a lease 
rate seems important if consumers are to consider adequately the choice 
between leases involving different gross costs or leases of different 
durations. For example, if the same automobile could be leased for 
either three or five years, and the lessor applies the same rate in 
either case, the two transactions would have 

[[Page 48758]]
significantly different estimated lease charges (based on one lease 
incurring interest charges for two years more than the other), yet they 
would have the same annual lease rate.
    A lease rate is clearly defined only in leases that have a fixed 
dollar purchase option. In that case, a lease rate would be based on a 
standard formula using the same information as in the estimated lease 
charge: gross cost, total payment due at lease signing (less a first 
monthly or other periodic payment and any refundable charges), total of 
monthly payments, total of other charges payable to the lessor, and the 
purchase option price. In view of some commenters' concerns that the 
residual value could be manipulated to show a misleading lease rate, 
the Board would not contemplate requiring a lease rate in leases that 
do not have a dollar purchase price option.
    Unlike the estimated lease charge, the lease rate disclosure may be 
of use to consumers in comparing a lease with a credit transaction. 
However, the lease rate may be of less use in cases when the fees 
reflected in that rate differ substantially from the fees reflected in 
the APR under the TILA. For example, leases typically include insurance 
charges; these are included in the estimated lease charge, and the 
Board would contemplate them being included in a lease rate disclosure 
as well. If a lease and a credit transaction had the same annualized 
rate, but the lease rate included insurance charges that are not 
included in the credit transaction, the consumer would be misled if he 
or she simply compared the two rates. In the instance where insurance 
was not a factor and other fees were similar in amount, however, such a 
comparison could prove to be of use to consumers in analyzing the costs 
of these alternative transactions. The Board solicits comment on 
whether and how a lease rate could be made more comparable to an APR to 
facilitate such comparisons.
    If the disclosure of a lease rate were not required, the inclusion 
of a gross cost figure (which is prominently displayed in the 
disclosure statement) could, in some instances, invite misleading 
comparisons between competing leases or between a lease and a financed 
purchase. For example, assume a consumer and an auto dealer negotiate a 
$17,000 purchase price and a 9 percent APR to finance a car. The dealer 
then suggests that the consumer consider leasing the car instead. 
Assuming that potential lessees are likely to attach significance to 
the gross cost of the leased car, the dealer could agree to base the 
monthly lease payments on a gross cost figure of $17,000. The dealer 
could then apply a higher interest rate of 14 percent to calculate the 
monthly payments, and this rate would not be disclosed to the consumer. 
Even using this 14 percent interest rate, the monthly payments on the 
lease may be less than the monthly payments if the car were financed. 
The consumer might prefer the financing alternative if he or she 
realized that the implicit interest rate on the lease was 14 percent. 
However, absent a lease rate disclosure, the consumer could conclude 
that the lease was a better deal. On the other hand, since the dollar 
amount of the increase attributable to the lessor's use of a higher 
interest rate would be reflected in the estimated lease charge, this 
could be sufficient to inform the consumer. In addition, there may be 
competitive and operational pressures upon lessors that could prevent 
them from artificially decreasing the gross cost, such as limits on 
dealer markups in interest rates. Thus any deception that would be 
associated with disclosure of a low gross cost may be minimal.
    While an annualized lease rate may improve comparison shopping 
between leases, some believe that the disclosure of the estimated lease 
charge would be sufficient for these purposes (assuming that consumers 
comparison shop items with similar gross costs and lease durations), 
and thus the disclosure of a lease rate would be unnecessary. Moreover, 
disclosure of a uniform lease rate disclosure may significantly 
increase the cost of complying with the requirements of the CLA and 
Regulation M, and this burden may outweigh any benefit to consumers of 
such a disclosure.
    In light of the above discussion, the Board has not proposed 
requiring the disclosure of a lease rate. However, comment is solicited 
on this matter, including the advantages and disadvantages of such a 
disclosure to consumers. In the event that the Board were to require 
disclosure of a lease rate, the Board further solicits comment on 
whether the rate should be defined in such a way as to make it more 
comparable to the APR in a credit transaction (such as by excluding 
insurance charges from the calculation in certain circumstances). The 
Board also solicits comment on whether the gross cost (and therefore 
the estimated lease charge) figures should be de-emphasized or removed 
from the required disclosures to avoid potential manipulation of these 
figures in order to mislead consumers; or whether in commenters' views, 
this type of manipulation would not arise. Finally, the Board solicits 
comments on how and whether the costs of imposing a lease rate 
disclosure would outweigh the consumer benefit of having such a rate 
disclosed.

5(s) Statement Referencing Nonsegregated Disclosures

    It is important that the value of the nonsegregated CLA disclosures 
not be diminished. Therefore, the Board proposes to add a statement 
among the segregated disclosures to alert consumers to other CLA-
required disclosures (not contained among the segregated disclosures) 
that they should read in the lease documents. The disclosures include 
information about conditions for and the amount or method of 
determining early termination charges, charges for delinquency, default 
or late payments, maintenance responsibilities, any purchase option 
prior to the end of the lease term, insurance, total taxes and official 
fees, warranties, liability at the end of the lease term, and any 
security interest in the leased property.

Section 213.6--Renegotiations, Extensions, and Assumptions

    Section 213.6 contains all the redisclosure rules governing leases 
that are renegotiated, extended, or assumed, including the exceptions, 
which currently are generally contained in Sec. 213.4(h). The section 
has been rearranged and revised for clarity. For example, rules on 
assumptions in the current staff commentary have been moved to this 
section. Proposed Sec. 213.6(d) retains the substance of the exceptions 
found in the current regulation, but has been rephrased. Several 
exceptions located in the current commentary under current comments 3, 
7, and 8 to Sec. 213.4(h) have also been moved to proposed 
Sec. 213.6(d).

Section 213.7--Reserved

    Section 213.7 has been reserved. Section 213.7 in the current 
regulation has been moved to Sec. 213.10.

Section 213.8--Advertising

    Section 213.5 in the current regulation is proposed Sec. 213.8. 
Some of the language of the existing provisions have been revised for 
simplicity.
    Under the CLA, if a lease advertisement states certain cost 
information (such as the amount of a monthly lease payment) as many as 
six additional disclosures must be clearly and conspicuously given. The 
Board proposes to make several clarifications and substantive revisions 
in this section that it believes will ease the compliance concerns of 
lessors while providing 

[[Page 48759]]
uniform and more meaningful information to consumers and furthering the 
CLA mandate that disclosures in advertisements be clearly and 
conspicuously displayed.

8(b) Clear and Conspicuous Standard

    For clarity and simplicity, the Board proposes to state the clear 
and conspicuous standard in this section in one place; currently in 
Sec. 213.5 references to the clear and conspicuous standard are made in 
several places.
    Several representatives of state attorneys general and others have 
questioned the way advertisements of automobile leases display the 
required Regulation M disclosures. Lessors sometimes conspicuously 
advertise low or no downpayments when, in much smaller print, other 
upfront charges such as an acquisition fee, a security deposit, or the 
first monthly lease payment may be given. Some leasing representatives 
have expressed concern about their possible exposure to liability due 
to the potential for differing state interpretations of what is clear 
and conspicuous. The Board is therefore proposing that a reference in 
an advertisement to any component of the total amount of payments due 
at consummation, such as the downpayment (or that there is no 
downpayment), may not be more prominently displayed in the 
advertisement than the required disclosure in Sec. 213.8(d)(2)(ii) of 
the total amount of payments due at lease signing. The Board believes 
this rule would address some of the concerns about lease advertisements 
without adding significant burdens on lessors or interfering with the 
effective marketing of their products. The proposed rule would not 
control what terms are to be advertised, but only that components of 
the total amount due at lease signing could not be emphasized without 
giving equal prominence to the disclosure of the total amount due 
itself. It should be noted that lessors can advertise lease 
transactions without including any CLA disclosures. Disclosures are 
only required when certain ``trigger'' terms are included in the 
advertisement, for example, a payment amount.

8(c) Catalogs and Multi-Page Advertisements

    Section 8(c), currently Sec. 213.5(b), has been simplified. No 
substantive change is intended.

8(d) Advertisement of Terms That Require Additional Disclosure

    Section 8(d) incorporates current Sec. 213.5(c). The introductory 
language of current Sec. 213.5(c) is simplified. No substantive change 
is intended.
    Currently, some advertisements do not provide a total of payments 
required at or before consummation, but instead give an itemization of 
each charge due at that time. In paragraph 8(d)(2)(ii), the Board 
proposes to clarify that the CLA requires only that the total of 
payments due by the consumer before or at lease signing be stated in an 
advertisement in which a trigger term has been used. (The language of 
the statute is somewhat ambiguous on this point.) Lessors may provide 
an itemized list of the payments due by lease signing but would not be 
required to under the proposed rule. Full disclosure of these initial 
fees by type and amount are among the required disclosures given to 
consumers who actually enter into lease transactions.
    In paragraph 8(d)(2)(iv), the Board proposes to clarify that 
disclosing the method for determining the purchase price is limited to 
instances where the lessee has the option to purchase the leased 
property prior to the end of the lease. Language is added to the second 
sentence of this paragraph, consistent with the specific disclosure 
requirements in Sec. 213.5(k), which the Board believes is consistent 
with congressional intent to provide the price of the leased property 
if the option to purchase is available at the end of the term.
    Current Sec. 213.5(c)(5) contains two requirements. Under the first 
requirement, lessors must disclose the amount of ``any liabilities'' 
that the lessee may be required to pay at the end of the term. To 
remove any ambiguity as to the applicability of this provision to both 
open- and closed-end leases, the Board proposes to incorporate this 
portion of the current paragraph in paragraph 8(d)(2)(v). For example, 
charges for excessive wear and use (such as an excessive mileage 
charge) on an automobile lease under both open- and closed-end leases 
would have to be disclosed in advertisements under this proposed 
provision.
    Under the second requirement in current Sec. 213.5(c)(5), lessors 
must disclose whether the lessee is liable for any difference between 
the estimated value of the leased property and its realized value at 
the end of the lease, applies only to open-end leases. The Board has 
moved this requirement to Sec. 213.8(d)(2)(vi).

8(e) Alternative Disclosures--Merchandise Tags

    Section 213.8(e) broadens current Sec. 213.5(d) by allowing the use 
of triggering terms on merchandise tags, for items normally used in 
multiple-item leases, without providing full advertising disclosures on 
the tag itself.

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

    Section Sec. 213.8(f) implements amendments to section 184 of the 
CLA made by section 336 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160). 
Section 336 amended the CLA to provide an alternative disclosure scheme 
for radio lease advertisements in order to reduce the amount of 
information in such advertisements.
    Before the statutory revisions, if any of the trigger terms (such 
as a payment amount) were used in any type of lease advertisement, as 
many as six additional disclosures had to be given. These disclosures 
include statements specifying (1) whether or not the lessee has the 
option to purchase the leased property, and at what price and time, (2) 
the amount or method of determining the amount of any liabilities the 
lease imposes at the end of the term, and (3) that the consumer is 
liable for the difference between the estimated value of the leased 
property and its realized value at the end of the term, if such 
liability exists.
    Under the statutory amendments, in radio advertisements, lessors 
are permitted to substitute a reference to a toll-free telephone number 
or to a specified print advertisement for the disclosures about the 
purchase option and the end-of-term liability. If consumers call the 
toll-free number, they must receive all the required disclosures (not 
simply the ones omitted from the radio advertisement) orally, or in 
writing if requested by the consumer. Alternatively, all of the 
disclosures could be provided in a publication in general circulation 
in the community served by the radio station.
    Although the statutory amendment is limited to radio 
advertisements, the legislative history takes note of the Board's 
Regulation M review and states that, after public comment, the Board 
should consider extending the new radio advertising provisions to 
television and print advertisements. It stated that television 
advertisements, for example, ``raise complex questions regarding the 
content prominence, and duration of disclosures necessary to simplify 
the process and to convey more meaningful information to consumers.'' 
The Board believes that television lease advertisements have time 
constraints similar to those on radio; given these constraints, it is 
generally agreed that consumers cannot comprehend all the disclosure 
information provided 

[[Page 48760]]
currently. It is not clear that similar concerns exist with print 
advertisements. Therefore, in Sec. 213.8(f), pursuant to its authority 
under section 105(a) of the TILA, the Board is proposing to apply the 
new statutory disclosure alternative to lease advertisements in both 
radio and television broadcasts to effectuate the purpose of the CLA 
and to facilitate compliance. The Board specifically solicits comment 
on this matter and on whether similar constraints exist for print 
advertisements that would warrant their inclusion in any final rule.
    When a television or radio advertisement includes any of the 
trigger terms in Sec. 213.8(d)(1), the alternative disclosure rules 
allow lessors to comply with Sec. 213.8(d)(2) by combining certain 
required disclosures with a referral to either a toll-free number or a 
written advertisement. Required information in Sec. 213.8(d)(2)(i)-
(iii) must be stated in the television or radio advertisement along 
with the alternative disclosures in Sec. 213.8(f)(1). The remaining 
disclosures in Sec. 213.8(d)(2)(iv)-(vi), are not required to be 
disclosed. However, all the required disclosures in Sec. 213.8(d)(2) 
must be given to consumers through the toll-free number or in a written 
advertisement appearing in a publication of general circulation in the 
community served by the media station on which the advertisement is 
broadcast.
    The Board solicits comment on its approach in implementing section 
336 of the Riegle Community Development and Regulatory Improvement Act.

Section 213.9--Record Retention

    Section 213.9, currently Sec. 213.6, has been revised for 
simplicity. The language ``or action is required to be taken'' has been 
added to cover circumstances requiring action by a lessor other than 
providing disclosures. The language in current Sec. 213.6(b) is 
eliminated as unnecessary. The caption ``Preservation and Inspection of 
Evidence of Compliance'' has been changed to ``Record Retention'' to 
conform with usage in other of the Board's regulations.

Section 213.10--Relation to State Laws

    Section 213.10 combines and simplifies current Secs. 213.7 and 
213.8. No substantive changes are intended. Information about 
procedures and criteria for preemption or exemption determinations is 
removed.
Appendix A--Model Forms
    To simplify the regulation, the written information contained in 
the current appendix about the procedures and criteria for an exemption 
determination has been removed. Such information would be available 
from the Board upon request.
    Model forms, currently in appendix C of the regulation, have been 
moved to this appendix and revised to illustrate the new segregated 
disclosure scheme required by Sec. 213.4(a)(2). Instructions to the 
current model forms have been deleted as repetitive of the regulation 
and unnecessary. The Board solicits comment on whether any additional 
model forms or model clauses are warranted (such as for single or 
``lump sum'' payment leases). Specific comment is also solicited on 
whether the open-end lease model form is needed and to what extent such 
leases are being offered.
Appendix B--Federal Enforcement Agencies
    The list of federal agencies that enforce the CLA for particular 
classes of businesses is moved from appendix D to this appendix. To 
simplify the regulation, the written information contained in the 
current appendix about the procedures and criteria for a preemption 
determination has been removed. Such information would be available 
from the Board upon request.
Appendix C--Issuance of Staff Interpretations
    Current paragraph Sec. 213.1(d) is moved to this appendix. Model 
forms have been moved to proposed appendix A.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-0892. 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.

V. Regulatory Flexibility Analysis

    The Board's Office of the Secretary has prepared a preliminary 
regulatory analysis of the proposal. A copy of the analysis may be 
obtained from Publication Services, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, at (202) 452-3245.
    Concerning the impact on small firms, the Board believes that most 
consumer leasing subject to Regulation M is undertaken by large firms. 
Therefore, elements of revised Regulation M that might increase burden 
on lessors should not have much impact, if any, on small firms. There 
is evidence from other regulations of economies of scale (that is, cost 
conditions that lead to higher average costs at small firms than large 
firms) in start-up costs for new regulations or for changes in 
regulations. Thus, implementation of proposed revisions to Regulation M 
could be disproportionately costly to small firms, to the extent that 
they engage in covered consumer leasing.
    Provisions of the CLA are similar to those of the credit provisions 
of the TILA, and available evidence suggests also the existence of 
economies of scale in on-going costs for Truth in Lending. Since the 
requirements of the existing regulation and the proposed revised 
regulation do not differ by size of firm, small firms would possibly 
continue to face relatively higher costs under the proposed revised 
rule.
    It appears, however, that few, if any, firms that provide consumer 
leases are small firms. Moreover, evidence on scale economies for other 
regulations indicates that scale economies are exhausted at relatively 
low levels of output. Therefore, it is unlikely that the proposed 
revisions would cause any firms in the industry to incur 
disproportionately higher costs because of their size.

VI. Paperwork Reduction Act

    In accordance with section 3507 of the Paperwork Reduction Act of 
1980 (44 U.S.C. 35; 5 CFR 1320.13), the Board reviewed the proposed 
rule under the authority delegated to the Board by the Office of 
Management and Budget. Comments on the collections of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0202), Washington, DC 20503, with copies of 
such comments to be sent to Mary M. McLaughlin, Federal Reserve Board 
Clearance Officer, Division of Research and Statistics, Mail Stop 97, 
Board of Governors of the Federal Reserve System, Washington, DC 20551.
    The third-party disclosure requirements contained in 12 CFR 213.5 
will aid consumers in understanding leases they negotiate. The 
respondents are for-profit institutions, including small businesses. 
Because the notices are not provided to the Federal Reserve, no issue 
of confidentiality under the Freedom of Information Act arises.
    Institutions are not required to respond to this collection of 
information unless it displays a currently valid OMB control number. 
The OMB control 

[[Page 48761]]
number is 7100-0202. OMB has deemed that inclusion of the OMB control 
number in this preamble satisfies this requirement.
    The Board estimates that the annual burden for state member banks 
will increase from 9,272 hours to 10,786 hours. The Board estimates 
that the average length of time to disclose the costs and terms to a 
consumer will increase from fifteen minutes to seventeen minutes. The 
Board also estimates that the average length of time to prepare basic 
lease information for inclusion in all advertisements will decrease 
from thirty minutes to twenty-five minutes.
    The Board has found that few state member banks engage in consumer 
leasing and that while the prevalence of leasing has increased in 
recent years, it has not increased substantially among state member 
banks. It also has been found that among state member banks that engage 
in consumer leasing, only a very few advertise consumer leases. For 
estimates of the annual burden imposed on other institutions that 
engage in consumer leasing, please contact their regulator.

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, the Board proposes to 
amend 12 CFR part 213 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. The table of contents to part 213 is revised to read as follows:

Sec.
213.1  Authority, scope, purpose, and enforcement.
213.2  Definitions.
213.3  Exempt transactions.
213.4  General disclosure requirements.
213.5  Content of disclosures.
213.6  Renegotiations, extensions, and assumptions.
213.7  [Reserved].
213.8  Advertising.
213.9  Record retention.
213.10  Relation to State laws.
Appendix A to Part 213--Model Forms
Appendix B to Part 213--Federal Enforcement Agencies
Appendix C to Part 213--Issuance of Staff Interpretations
Supplement I-CL-1 to Part 213--Official Staff Commentary to 
Regulation M

    3. Part 213 would be amended as follows:
    a. Sections 213.1 through 213.6 are revised;
    b. Section 213.7 is removed and reserved;
    c. Section 213.8 is revised;
    d. Sections 213.9 and 213.10 are added;
    e. Appendices A through C are revised; and
    f. Appendix D is removed.
    The revisions and additions read as follows:


Sec. 213.1  Authority, scope, purpose, and enforcement.

    (a) Authority. The regulation in this part, known as Regulation M, 
is issued by the Board of Governors of the Federal Reserve System to 
implement the consumer leasing provisions of the Truth in Lending Act, 
which is Title I of the Consumer Credit Protection Act, as amended (15 
U.S.C. 1601 et seq.).
    (b) Scope and purpose. This part applies to all persons who are 
lessors of consumer leases as defined in Sec. 213.2(a) (6) and (10). 
The purpose of this part is:
    (1) To ensure that lessees of personal property receive meaningful 
disclosures that enable them to compare lease terms with other leases 
and with credit transactions, where appropriate;
    (2) To limit the amount of balloon payments in consumer lease 
transactions; and
    (3) To provide for the accurate disclosure of lease terms in 
advertising.
    (c) Enforcement and liability. Section 108 of the act contains the 
administrative enforcement provisions. Sections 112, 130, 131, and 185 
of the act contain the liability provisions for failing to comply with 
the requirements of the act and this part.


Sec. 213.2  Definitions.

    (a) Definitions. For the purposes of this part the following 
definitions apply:
    (1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
    (2) Advertisement means a commercial message in any medium that 
directly or indirectly promotes a consumer lease transaction.
    (3) Agricultural purpose means a purpose related to the production, 
harvest, exhibition, marketing, transportation, processing, or 
manufacture of agricultural products including but not limited to the 
acquisition of personal property and services used primarily in 
farming.
    (4) Board refers to the Board of Governors of the Federal Reserve 
System.
    (5) Closed-end lease means a consumer lease other than an open-end 
lease as defined in this section.
    (6) Consumer lease means a contract in the form of a bailment or 
lease for the use of personal property by a natural person primarily 
for personal, family, or household purposes, for a period exceeding 
four months and for a total contractual obligation not exceeding 
$25,000, whether or not the lessee has the option to purchase or 
otherwise become the owner of the property at the expiration of the 
lease. It does not include a lease that meets the definition of a 
credit sale in Regulation Z, 12 CFR 226.2(a). It also does not include 
a lease for agricultural, business, or commercial purposes or a lease 
made to an organization. Unless the context indicates otherwise in this 
part, ``lease'' shall be construed to mean ``consumer lease.''
    (7) Estimated lease charge means the estimated total dollar amount 
of the cost of the lease attributable to interest and other charges 
regardless of when such charges are paid, as calculated under 
Sec. 213.5(q).
    (8) Gross cost means the total dollar amount of all items included 
in the value of a lease at consummation, including but not limited to 
the base price of the leased property and any other items added to that 
price, such as any markup by the lessor, taxes, insurance, service 
agreements, and any outstanding balance from a prior lease that is 
included in the new lease.
    (9) Lessee means a natural person who leases or who is offered a 
consumer lease.
    (10) Lessor means a person who regularly leases, offers to lease, 
or arranges for the lease of personal property under a consumer lease. 
A person who leased, offered, or arranged to lease personal property 
more than five times in the preceding calendar year is subject to the 
act and this part; if a person did not meet this numerical test in the 
preceding calendar year, the numerical test is applied to the current 
year.
    (11) Open-end lease means a consumer lease in which the lessee's 
liability at the end of the lease term is based on the difference 
between the estimated value of the leased property and its realized 
value.
    (12) Organization means a corporation, trust, estate, partnership, 
cooperative, association, or government entity or instrumentality.
    (13) Person means a natural person or an organization.
    (14) Personal property means any property that is not real property 
under the law of the state where the property is located at the time it 
is offered or made available for lease.
    (15) Realized value means:
    (i) The price received by the lessor for the leased property at 
disposition; 

[[Page 48762]]

    (ii) The highest offer for disposition; or
    (iii) The fair market value at the end of the lease term.
    (16) Residual value means the amount determined at consummation to 
be the value of the leased property at the end of the lease term.
    (17) Security interest and security mean any interest in property 
that secures the payment or performance of an obligation.
    (18) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.
    (19) Total lease obligation applicable to an open-end lease, means 
the total of:
    (i) The scheduled periodic payments under the lease;
    (ii) Any nonrefundable cash payment required of the lessee or 
agreed upon by the lessor and lessee including any trade-in allowance 
made at consummation; and
    (iii) The estimated value of the leased property at the end of the 
lease term.
    (20) Value at consummation means the cost to the lessor of the 
leased property including, if applicable, any increase or markup by the 
lessor prior to consummation.
    (b) [Reserved]


Sec. 213.3  Exempt transactions.

    This part does not apply to consumer lease transactions of personal 
property which are incident to the lease of real property and which 
provide that:
    (a) The lessee has no liability for the value of the property at 
the end of the lease term except for abnormal wear and use; and
    (b) The lessee has no option to purchase the leased property.


Sec. 213.4  General disclosure requirements.

    (a) General requirements. A lessor shall make the disclosures 
required by Sec. 213.5, as applicable. The disclosures shall be made 
clearly and conspicuously in writing, and in accordance with this 
section.
    (1) Form of disclosures. Except as provided in paragraph (a)(4) of 
this section, the disclosures required by Sec. 213.5 shall be given to 
the lessee together on a dated statement that identifies the lessor and 
the lessee. All the disclosures may be made either on a separate 
statement that identifies the consumer lease transaction or on the 
contract or other document evidencing the lease transaction. As an 
alternative, the disclosures required under paragraph (a)(2) of this 
section to be segregated from other information may be provided on a 
separate statement that identifies the lease transaction and other 
required disclosures provided in the lease contract.
    (2) Segregation of certain disclosures. The following disclosures 
shall be segregated from other information and shall contain only 
permissible related or additional information: the disclosures required 
by Sec. 213.5(b), (c), (e), (h)(3), (k)(1), (l)(2), (o)(1) and (p) 
through (s). The content, format, and headings for these disclosures 
shall be provided in a manner substantially similar to the applicable 
model form in appendix A of this part.
    (3) Timing of disclosures. A lessor shall provide disclosures to 
the lessee prior to the consummation of a consumer lease.
    (4) Multiple leased items. In a lease of multiple items, the 
description required by Sec. 213.5(a) may be given on a separate 
statement that is incorporated by reference in the disclosure statement 
required by paragraph (a)(1) of this section.
    (5) Language of disclosures. The disclosures required by Sec. 213.5 
may be made in a language other than English, provided that the 
disclosures are made available in English upon the lessee's request.
    (b) Additional information. Additional information may be provided 
with the disclosures that are not required by paragraph (a)(2) of this 
section to be segregated from other information. The additional 
information shall not be stated, used, or placed so as to mislead or 
confuse the lessee or contradict, obscure, or detract attention from 
any disclosures required by this part.
    (c) Multiple lessors or lessees. When a transaction involves more 
than one lessor, the disclosures required by this part may be made by 
one lessor on behalf of all of the lessors. When a lease involves more 
than one lessee, the disclosures may be provided to any lessee who is 
primarily liable on the lease.
    (d) Use of estimates--(1) Standard. At the time disclosures are 
made, if an amount or other item required to be disclosed, or needed to 
determine a required disclosure, is unknown or is not available to the 
lessor and the lessor has made a reasonable effort to ascertain the 
information, the lessor may use an estimate, provided that the estimate 
is reasonable, is clearly identified as an estimate, is based on the 
best information available to the lessor, and is not used to circumvent 
or evade the disclosure requirements of this part.
    (2) Open-end purchase option lease. Notwithstanding that an 
estimate shall be based on the best information available, a lessor is 
not precluded in an open-end lease with a purchase-option from 
understating the estimated value of the leased property at the end of 
the term in computing the total lease obligation required by 
Sec. 213.5(o)(1).
    (e) Effect of subsequent occurrence. If information required to be 
disclosed becomes inaccurate because of an event occurring after 
consummation of a lease, the inaccuracy is not a violation of this 
part.
    (f) Minor variations. A lessor may disregard the effects of the 
following in making calculations and disclosures:
    (1) That payments must be collected in whole cents;
    (2) That dates of scheduled payments may be different because the 
scheduled date is not a business day;
    (3) That months have different numbers of days; and
    (4) That February 29 occurs in a leap year.


Sec. 213.5  Content of disclosures.

    For a consumer lease subject to this part, the lessor shall 
disclose the following information, as applicable:
    (a) Description of property. A brief description of the leased 
property sufficient to identify the property to the lessee and lessor.
    (b) Total amount due at lease signing. The total amount to be paid 
by the lessee prior to or at consummation of the lease, using the term 
``total amount due at lease signing.'' The lessor shall itemize each 
payment by type and amount, including any refundable security deposit, 
advance monthly or periodic payment, and any downpayment (capitalized 
cost reduction), and shall disclose the means of payment, including any 
trade-in allowance, payments in cash, or rebates, in a format 
substantially similar to that contained in the model forms in appendix 
A of this part.
    (c) Payment schedule. The number, amount, and due dates or periods 
of payments scheduled under the lease, and the total amount of the 
periodic payments.
    (d) Fees and taxes. The total dollar amount for all official and 
license fees, registration, title, or taxes required to be paid by the 
lessee in connection with the lease.
    (e) Other charges. The total amount of other charges payable by the 
lessee to the lessor, itemized by type and amount, that are not 
included in the periodic payments. This total includes the amount of 
any liability the lease imposes upon the lessee at the end of the term, 
but excludes the potential difference between the estimated and 
realized values referred to in paragraph (m) of this section. 

[[Page 48763]]

    (f) Insurance. A brief identification of insurance associated with 
the consumer lease including:
    (1) If provided or paid for by the lessor, the types and amounts of 
coverage and cost to the lessee; or
    (2) If not provided or paid for by the lessor, the types and 
amounts of coverage required of the lessee.
    (g) Warranties or guarantees. A statement identifying all express 
warranties and guarantees available to the lessee made by the 
manufacturer or lessor with respect to the leased property.
    (h) Maintenance responsibilities. The following are required:
    (1) A statement identifying the party responsible for maintaining 
or servicing the leased property together with a brief description of 
the responsibility;
    (2) A statement of standards for wear and use, which must be 
reasonable, if the lessor sets such standards; and
    (3) A notice regarding wear and use which shall be substantially 
similar to the following: ``wear and use: you may be charged for 
excessive wear and use based on the lessor's standard for normal use.'' 
In a vehicle lease transaction, the notice shall also specify any 
charge for excess mileage.
    (i) Security interest. A description of any security interest, 
other than a security deposit disclosed under paragraph (b) of this 
section, held or to be retained by the lessor and a clear 
identification of the property to which the security interest relates.
    (j) Penalties and other charges for delinquency. The amount or the 
method of determining the amount of any penalty or other charge for 
delinquency, default, or late payments, which must be reasonable.
    (k) Purchase option. A statement of whether or not the lessee has 
the option to purchase the leased property and:
    (1) If at the end of the lease term, the purchase price; and
    (2) If prior to the end of the lease term, the purchase price or 
the method for determining the price and when the lessee may exercise 
this option.
    (l) Early termination--(1) Conditions and disclosure of charges. A 
statement of the conditions under which the lessee or lessor may 
terminate the lease prior to the end of the lease term and the amount 
or the description of the method of determining the amount of any 
penalty or other charge for early termination, which must be 
reasonable.
    (2) Notice and example. A notice about any charge for terminating a 
consumer lease early, and an example of a charge for terminating a 
lease at the end of the first year, which shall be substantially 
similar to the following: ``You may have to pay a substantial charge if 
you end this lease early. For example, if you terminate this lease at 
the end of the first year, you may owe the lessor [amount]. The actual 
charge will vary depending on when the lease is terminated. Other 
charges such as for excessive wear and use may also be imposed.''
    (m) Liability between estimated and realized values. A statement 
that the lessee is liable for the difference between the estimated 
value of the leased property and its realized value at early 
termination or at the end of the lease term, if such liability exists.
    (n) Right of appraisal. If the lessee's liability at early 
termination or at the end of the lease term is based on the realized 
value of the leased property, a statement that the lessee may obtain at 
the lessee's expense, a professional appraisal, by an independent third 
party agreed to by the lessee and the lessor, of the value that could 
be realized at sale of the leased property. The appraisal shall be 
final and binding on the parties.
    (o) Liability at end of lease term based on estimated value. If the 
lessee's liability at the end of the lease term is based on the 
estimated value of the leased property:
    (1) Value at consummation and total lease obligation. The value of 
the property at consummation, the itemized total lease obligation at 
the end of the lease term, and the difference between them;
    (2) Excess liability. A statement about the rebuttable presumption 
that the estimated value of the leased property at the end of the lease 
term is unreasonable and not in good faith to the extent that it 
exceeds the realized value by more than three times the average payment 
allocable to a monthly period; and that the lessor cannot collect the 
excess amount unless the lessor brings a successful action in court in 
which the lessor pays the lessee's attorney's fees;
    (3) Exception for unreasonable wear. A statement that the provision 
regarding the rebuttable presumption and attorney's fees does not apply 
to the extent the excess of the estimated value over the realized value 
is due to unreasonable or excessive wear or use; and
    (4) Mutually agreeable final adjustment. A statement that the 
requirements of this paragraph (o) do not preclude a willing lessee 
from making any mutually agreeable final adjustment regarding such 
excess liability.
    (p) Gross cost. In a closed-end consumer lease, the gross cost, 
using that term, with a brief description such as ``the agreed upon 
acquisition value of the vehicle including but not limited to items 
such as taxes, fees, service contracts, and insurance.''
    (q) Estimated lease charge. The estimated lease charge.
    (1) Closed-end lease. In a closed-end lease, the estimated lease 
charge is calculated by subtracting the gross cost from the sum of the 
total payment due at lease signing (less a first periodic payment and 
any refundable charges), the total of periodic payments, the total of 
other charges payable to the lessor and the price the leased property 
may be purchased for at the end of the lease term. Where there is no 
purchase option, the residual value shall be used in the calculation.
    (2) Open-end lease. In an open-end lease, the estimated lease 
charge is calculated in the same manner set forth in paragraph (q)(1) 
of this section, except that the initial value of the leased property, 
the value at consummation, is substituted for the gross cost, and the 
estimated value of the leased property substitutes for the residual 
value, to the extent there is any difference.
    (r) Residual value. In a closed-end consumer lease, the residual 
value.
    (s) Statement referencing nonsegregated disclosures. A statement 
that the lessee should refer to the lease documents for information on: 
conditions for and the amount or method of determining early 
termination charges; charges for delinquency, default, or late 
payments; maintenance responsibilities; any purchase option prior to 
the end of the lease term; insurance; total taxes and official fees 
paid; warranties; liability at the end of the lease term; and any 
security interest.


Sec. 213.6  Renegotiations, extensions, and assumptions.

    (a) Renegotiations. A renegotiation occurs when a consumer lease 
subject to this regulation is satisfied and replaced by a new lease 
undertaken by the same consumer. A renegotiation is a new lease 
requiring new disclosures, except as provided in paragraph (d) of this 
section.
    (b) Extensions. An extension is the continuation of an existing 
consumer lease beyond the originally scheduled termination date that is 
agreed to by the lessor and the lessee, except when the continuation is 
the result of a renegotiation. An extension that exceeds six months is 
a new lease requiring new disclosures, except as provided in paragraph 
(d) of this section.
    (c) Assumptions. New disclosures are not required when a consumer 
lease is 

[[Page 48764]]
assumed by another person, whether or not an assumption fee is charged.
    (d) Exceptions. New disclosures under this part shall not be 
required for the following, even if they meet the definition of a 
renegotiation or an extension:
    (1) The addition, deletion, or substitution of leased property in a 
multiple-item lease, provided the average payment is not changed by 
more than 25 percent;
    (2) A lease that is extended for not more than six months on a 
month-to-month basis or otherwise;
    (3) A reduction in the lease charge;
    (4) A substitution of leased property with property that has a 
substantially equivalent or greater economic value, provided no other 
lease terms are changed;
    (5) An agreement involving a court proceeding; or
    (6) The deferment of one or more payments, whether or not a fee is 
charged.


Sec. 213.7  [Reserved]


Sec. 213.8  Advertising

    (a) General rule. No advertisement for a consumer lease may state 
that a specific lease of property at specific amounts or terms is 
available unless the lessor usually and customarily leases or will 
lease the property at those amounts or terms.
    (b) Clear and conspicuous standard. Disclosures required by this 
section shall be made clearly and conspicuously. Any reference to a 
charge that is a part of the total of payments required prior to or at 
consummation under Sec. 213.8(d)(2)(ii), such as the amount of any 
downpayment (or that no downpayment is required), shall not be more 
prominent than the disclosure of the total amount required to be paid 
by the lessee prior to or at consummation of the lease.
    (c) Catalogs and multi-page advertisements. If a catalog or other 
multi-page advertisement provides a table or schedule of the 
disclosures required by this section for the leased property being 
advertised, the catalog or multi-page advertisement shall be considered 
a single advertisement if, whenever any lease term not accompanied by 
all the required disclosures is located elsewhere, it refers to the 
page or pages on which the table or schedule appears.
    (d) Advertisement of terms that require additional disclosure.--(1) 
Triggering terms. An advertisement that states any of the following 
items shall contain the disclosures required by paragraph (d)(2) of 
this section, except as provided in paragraphs (e) and (f) of this 
section:
    (i) The amount of any payment;
    (ii) The number of required payments; or
    (iii) A statement of any downpayment or other payment required at 
consummation, or that no payment is required.
    (2) Additional terms. An advertisement containing any item under 
paragraph (d)(1) of this section shall state the following items:
    (i) That the transaction advertised is a lease;
    (ii) The total amount required to be paid by the lessee prior to or 
at consummation of the lease, or that no payment is required;
    (iii) The number, amounts, due dates or periods of scheduled 
payments, and the total of payments under the lease;
    (iv) A statement of whether or not the lessee has the option to 
purchase the leased property and at what price and time. The method of 
determining the price may be substituted for the price in disclosing 
that the lessee has the option to purchase the leased property prior to 
the end of the lease;
    (v) A statement of the amount or method of determining the amount 
of any liabilities the lease imposes on the lessee at the end of the 
term; and
    (vi) A statement that the lessee will be liable for any difference 
between the estimated value of the leased property and its realized 
value at the end of the lease term, if the lessee has such liability.
    (e) Alternative disclosures--merchandise tags. A merchandise tag 
setting forth information listed under paragraph (d)(1) of this section 
need not contain the disclosures required by paragraph (d)(2) of this 
section, provided the tag refers to a sign or display prominently 
posted in the lessor's showroom. The sign or display shall contain a 
table or schedule of the information required to be disclosed by 
paragraph (d)(2) of this section.
    (f) Alternative disclosures--television or radio advertisements.--
(1) Toll-free number or print advertisement. An advertisement made 
through television or radio containing any information listed in 
paragraph (d)(1) of this section complies with paragraph (d)(2) of this 
section if the advertisement states the information required by 
paragraphs (d)(2)(i)-(iii) of this section; and:
    (i) Lists a toll-free telephone number established in accordance 
with paragraph (f)(2) of this section that may be used by consumers to 
obtain the information required by paragraph (d)(2) of this section; or
    (ii) Refers to a written advertisement appearing in a publication 
of general circulation in the community served by the media station on 
which the advertisement is broadcast, including the name and the date 
of the publication, published beginning three days before and ending 
ten days after the broadcast. The written advertisement shall include 
the information required to be disclosed by paragraph (d)(2) of this 
section.
    (2) Establishment of toll-free number. If a toll-free telephone 
number is referred to in a television or radio advertisement for the 
purposes of complying with this section, the lessor shall:
    (i) Establish the toll-free telephone number no later than the date 
the advertisement is broadcast;
    (ii) Maintain the telephone number for no less than ten days, 
beginning on the date of the broadcast; and
    (iii) Provide the information required by paragraph (d)(2) of this 
section to any person who calls. The information shall be provided 
orally, or in writing if requested by the consumer.


Sec. 213.9  Record retention.

    A lessor shall retain evidence of compliance with the requirements 
imposed under this part, other than the advertising requirements under 
Sec. 213.8, for a period of not less than two years after the date 
disclosures are required to be made or action is required to be taken.


Sec. 213.10  Relation to state laws.

    (a) Inconsistent state laws. A state law that is inconsistent with 
the requirements of the act and this part is preempted to the extent of 
the inconsistency. If a lessor cannot comply with a state law without 
violating a provision of this part the state law is inconsistent with 
the requirements of the act and this part within the meaning of section 
186(a) of the act and is preempted, unless the state law gives greater 
protection and benefit to the consumer. A state, through an appropriate 
official having primary enforcement or interpretative responsibilities 
for its consumer leasing law, may apply to the Board for a preemption 
determination.
    (b) Exemptions.--(1) Applications. A state may apply to the Board 
for an exemption from the requirements of the act and this part for any 
class of lease transactions within the state. The Board will grant such 
an exemption if the Board determines that:
    (i) The class of leasing transactions is subject to state law 
requirements substantially similar to the act and this 

[[Page 48765]]
part or that lessees are afforded greater protection under state law; 
and
    (ii) There is adequate provision for state enforcement.
    (2) Enforcement and liability. After an exemption has been granted, 
the requirements of the applicable state law (except for additional 
requirements not imposed by federal law) will constitute the 
requirements of the act and this part. No exemption will extend to the 
civil liability provisions of sections 130, 131, and 185 of the act.
    (c) Procedures and criteria for preemptions and exemptions. The 
procedures and criteria for requesting a preemption or an exemption 
determination are available from the Board upon request.

Appendix A to Part 213--Model Forms

A-1  Model Open-End or Finance Vehicle Lease Disclosures
A-2  Model Closed-End or Net Vehicle Lease Disclosures
A-3  Model Furniture Lease Disclosures

A-1  Model Open-End or Finance Vehicle Lease Disclosures

Federal Consumer Leasing Act Disclosure Statement

Date ____________________

1. LESSOR(S)
----------------------------------------------------------------------
LESSEE(S)
----------------------------------------------------------------------

2. Description of leased property

----------------------------------------------------------------------------------------------------------------
         Year                   Make                  Model                Body style            Vehicle ID#    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------


3. a. Initial Value of Vehicle.......................          $________
  b. Total Payment Due at Lease Signing..............          $________
  (Total of the itemized costs should equal the means                   
   of paying itemized costs)                                            
                                                                        


Itemized Costs                                  Means of paying Itemized                                        
                                                 Costs                                                          
  Downpayment..............          $________  Net Trade-in Allowance....          $________                   
  Registration Fee.........          $________  Rebate....................                                      
  ________________.........          $________  Cash......................          $________                   
  *First Monthly Payment...          $________    ........................                                      
  *Refundable Security               $________    ........................                                      
   Deposit.                                                                                                     
                                                                                                                


  c. Total of Monthly Payments.......................          $________
  Base Payment.......................................          $________
  Use/Lease Tax......................................          $________
  Insurance..........................................          $________
  ________________...................................                   
  Total Monthly Payment..............................          $________
                                                                        


  Payment Schedule: The first monthly payment of                        
   $________ is due on ____, followed by ____                           
   payments of ____ due on the ____ of each month.                      
  d. Total of Other Charges Payable to Lessor (not                      
   included in b or c)...............................          $________
  Disposition Fee....................................          $________
  ________________...................................          $________
                                                                        


  e. Estimated [Retail/Wholesale] Value of Vehicle...          $________
  (Your liability for this sum may be limited, see                      
   item 6)                                                              
  f. Purchase Option: You have __ /do not have __ an                    
   option to purchase the leased property at the end                    
   of the lease term. If you purchase the property at                   
   that time, the price will be $________                               
  g. Total Lease Obligation (Downpayment, trade-in +                    
   c + e)............................................          $________
  h. Estimated Lease Charge..........................          $________
  (Cost of the lease attributable to interest and                       
   other charges obtained by adding b (less less                        
   *first monthly payment and *any refundable                           
   charges) + c + d + f (but if no purchase option is                   
   available then e) -a))                                               
                                                                        

Early Termination. You may have to pay a substantial charge if you 
end this lease early. For example, if you terminate this lease at 
the end of the first year, you may owe the lessor $________. The 
actual charge will vary depending on when the lease is terminated. 
Other charges such as for excessive wear and use may also be 
imposed.

Excessive Wear and Use. You may be charged for excessive wear and 
use of the vehicle based on the lessor's standards for normal use. 
[In addition, you will be charged ________ cents per mile for each 
mile in excess of ________ miles shown on the odometer.]

Other Important Terms. Before signing this lease, please read your 
lease documents for further information about Conditions for and the 
Amount or Method of Determining Early Termination Charges, Charges 
for Delinquency, Default, or Late Payments, Maintenance 
Responsibilities, Any Purchase Option Prior to the End of the Lease 
Term, Insurance, Total Taxes and Official Fees Paid, Warranties, 
Liability at the End of the Lease Term, and Any Security Interest, 
if applicable.

4. Official Fees and Taxes
    The total amount you will pay for official and license fees, 
registration, title and taxes during the lease term is $________.

5. Insurance
    The following types and amounts of insurance will be acquired in 
connection with this lease:--------------------------------------------
______________________________________________________________________
__________.
____ We (lessor) will provide the insurance coverage quoted above 
for a total premium cost of $________.
____ You (lessee) agree to provide insurance coverage in the amounts 
and types indicated above.

6. End of Term Liability
    (a) The estimated value of the vehicle stated in item 3(e) is 
based on a reasonable, good faith estimate of the value of the 
vehicle at the end of the lease term. If the actual value of the 
vehicle at that time is greater than the estimated value, you will 
have no further liability under this lease, except for other charges 
already incurred [and are entitled to a credit or refund of any 
surplus]. If the actual value of the vehicle is less than the 
estimated value, you will be liable for any difference up to $ 
________ (3 times the monthly payment). For any difference in excess 
of that amount, you will be liable only if 

[[Page 48766]]

    1. Excessive use or damage [as described in item 7] 
[representing more than normal wear and tear] resulted in an 
unusually low value at the end of the term.
    2. You voluntarily agree with us after the end of the lease term 
to make a higher payment.
    3. The matter is not otherwise resolved and we win a lawsuit 
against you seeking a higher payment. Should we bring a lawsuit 
against you, we must prove that our original estimate of the value 
of the leased property at the end of the lease term was reasonable 
and was made in good faith. For example, we might prove that the 
actual was less than the original estimated value, although the 
original estimate was reasonable, because of an unanticipated 
decline in value for that type of vehicle. Unless we prove that the 
excess amount owed was the result of excessive use or unreasonable 
wear and use, we will pay your reasonable attorney's fees.
    (b) If you disagree with the value we assign to the vehicle, you 
may obtain, at your own expense, from an independent third party 
agreeable to both of us, a professional appraisal of the ________ 
value of the leased vehicle which could be realized at sale. The 
appraised value shall then be used as the actual value.

7. Standards for Wear and Use
    The following standards are applicable for determining unreasonable 
or excess wear and use of the leased vehicle---------------------------
______________________________________________________________________
__________.

8. Maintenance
  [You are responsible for the following maintenance and servicing of 
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]
  [We are responsible for the following maintenance and servicing of 
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]

9. Warranties
  The leased vehicle is subject to the following express warranties:---
______________________________________________________________________
__________.

10. Early Termination and Default
  (a) You may terminate this lease before the end of the lease term 
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
  The charge for such early termination is-----------------------------
______________________________________________________________________
__________.
  (b) We may terminate this lease before the end of the lease term 
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
  Upon such termination we shall be entitled to the following charge(s) 
for--------------------------------------------------------------------
______________________________________________________________________
__________.
    (c) To the extent these charges take into account the value of 
the vehicle at the end of the lease term, you have the same right to 
a professional appraisal as that stated in item 6(b):
______________________________________________________________________
__________.

11. Security Interest
    We reserve a security interest of the following type in the 
property listed below to secure performance of your obligations 
under this lease:
______________________________________________________________________
__________.

12. Late Payments
  The charge for late payments is--------------------------------------
______________________________________________________________________
__________.

13. Option to Purchase
    [You have an option to purchase the leased vehicle prior to the 
end of the term. The price will be $________/or the method of 
determining the price].
    [You have no option to purchase the leased vehicle.]

A-2  Model Closed-End or Net Vehicle Lease Disclosures

FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT

Date ____________________

1. LESSOR(S)
----------------------------------------------------------------------
LESSEE(S)
----------------------------------------------------------------------
2. Description of leased property

----------------------------------------------------------------------------------------------------------------
         Year                   Make                  Model                Body style            Vehicle ID#    
----------------------------------------------------------------------------------------------------------------
                                                                                                                
----------------------------------------------------------------------------------------------------------------


3. a. Gross Cost.....................................          $________
  (The agreed upon acquisition value of the vehicle                     
   including but not limited to items such as taxes,                    
   fees, service contracts, and insurance. The gross                    
   cost is commonly referred to by the industry as                      
   the ``gross capitalized cost.'')                                     
  b. Total Payment Due at Lease Signing..............          $________
  (Total of the itemized costs should equal the means                   
   of paying itemized costs)                                            
                                                                        


Itemized Costs               .................  Means of Paying Itemized                                        
                                                 Costs                                                          
  Downpayment..............          $________  Net Trade-in Allowance....          $________                   
  Registration Fee.........          $________  Rebate....................          $________                   
$________                            $________  Cash......................          $________                   
  *First Monthly Payment...          $________                                                                  
  *Refundable Security               $________                                                                  
   Deposit.                                                                                                     
                                                                                                                


  c. Total of Monthly Payments.......................          $________
  Base Payment.......................................          $________
  Use/Lease Tax......................................          $________
  Insurance..........................................         $________ 

[[Page 48767]]
                                                                        
  $________________..................................          $________
  Total Monthly Payment..............................          $________
                                                                        



  Payment Schedule: The first monthly payment of                        
   $________ is due on ____, followed by ____                           
   payments of ________ due on the ____ of each                         
   month.                                                               
  d. Total of Other Charges Payable to Lessor (not                      
   included in b or c)...............................          $________
                                                                        


  Disposition Fee....................................          $________
  ________________...................................          $________
  e. Residual Value..................................          $________
  (The estimated value of the vehicle at the end of                     
   the lease term)                                                      
  f. Purchase Option: You have __ / do not have __ an                   
   option to purchase the leased property at the end                    
   of the lease term. If you purchase the property at                   
   that time, the price will be                                $________
  g. Estimated Lease Charge..........................          $________
  (Cost of the lease attributable to interest and                       
   other charges obtained by adding b (less *first                      
   monthly payment and *any refundable charges) + c +                   
   d + f (but if no purchase option is available,                       
   then e) - a))                                                        
                                                                        

Early Termination. You may have to pay a substantial charge if you 
end this lease early. For example, if you terminate this lease at 
the end of the first year, you may owe the lessor $________. The 
actual charge will vary depending on when the lease is terminated. 
Other charges such as for excessive wear and use may also be 
imposed.

Excessive Wear and Use. You may be charged for excessive wear and 
use of the vehicle based on the lessor's standards for normal use. 
[In addition, you will be charged ________ cents per mile for each 
mile in excess of ________ miles shown on the odometer.]

Other Important Terms. Before signing this lease, please read your 
lease documents for further information about Conditions for and the 
Amount or Method of Determining Early Termination Charges, Charges 
for Delinquency, Default, or Late Payments, Maintenance 
Responsibilities, Any Purchase Option Prior to the End of the Lease 
Term, Insurance, Total Taxes and Official Fees Paid, Warranties, 
Liability at the End of the Lease Term, and Any Security Interest, 
if applicable.

4. Official Fees and Taxes
    The total amount you will pay for official and license fees, 
registration, title and taxes during the lease term is $________.

5. Insurance
  The following types and amounts of insurance will be acquired in 
connection with this lease:--------------------------------------------
______________________________________________________________________
__________.
____We (lessor) will provide the insurance coverage quoted above for 
a total premium cost of $________.
____You (lessee) agree to provide insurance coverage in the amounts 
and types indicated above.

6. Standards for Wear and Use
  The following standards are applicable for determining unreasonable 
or excess wear and use of the leased vehicle:--------------------------
______________________________________________________________________
__________.

7. Maintenance
  [You are responsible for the following maintenance and servicing of 
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]
  [We are responsible for the following maintenance and servicing of 
the leased vehicle:----------------------------------------------------
______________________________________________________________________
__________.]

8. Warranties
  The leased vehicle is subject to the following express warranties:---
______________________________________________________________________
__________.

9. Early Termination and Default
  (a) You may terminate this lease before the end of the lease term 
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
  The charge for such early termination is-----------------------------
______________________________________________________________________
__________.
  (b) We may terminate this lease before the end of the lease term 
under the following conditions:----------------------------------------
______________________________________________________________________
__________.
  Upon such termination we shall be entitled to the following charge(s) 
for:-------------------------------------------------------------------
______________________________________________________________________
__________.
    (c) To the extent that these charges take into account the value 
of the vehicle at the end of the lease term, if you disagree with 
the value we assign to the vehicle, you may obtain, at your own 
expense, from an independent third party agreeable to both of us, a 
professional appraisal of the ________ value of the leased vehicle 
which could be realized at sale. The appraised value shall then be 
used as the actual value.

10. Security interest
    We reserve a security interest of the following type in the 
property listed below to secure performance of your obligations 
under this lease:
______________________________________________________________________
__________.

11. Late Payments
  The charge for late payments is:-------------------------------------
______________________________________________________________________
__________.

12. Option to Purchase
    [You have an option to purchase the leased vehicle prior to the 
end of the term. The price will be $________ / the method of 
determining the price.]
    [You have no option to purchase the leased vehicle.]

A-3 Model Furniture Lease Disclosures

FEDERAL CONSUMER LEASING ACT DISCLOSURE STATEMENT

Date ____________________

1. LESSOR(S)
----------------------------------------------------------------------
LESSEE(S)
----------------------------------------------------------------------
2. Description of leased property

                                                                        

[[Page 48768]]
----------------------------------------------------------------------------------------------------------------
         Item                  Color                 Stock #                  Mfg.                  Qty.        
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                                                                                
----------------------------------------------------------------------------------------------------------------



3. a. Gross Cost.....................................          $________
  (The agreed upon acquisition value of the furniture                   
   including but not limited to items such as taxes,                    
   fees, and insurance.)                                                
  b. Total Payment Due at Lease Signing..............         $ ________
  (Total of the itemized costs should equal the means                   
   of paying itemized costs)                                            
                                                                        


Itemized Costs                                  Means of Paying Itemized                                        
                                                 Costs                                                          
  Downpayment..............          $________  Net Trade-in Allowance....          $________                   
  Delivery Fee.............          $________  Rebate....................          $________                   
  ____________.............          $________  Cash......................          $________                   
  *First Monthly Payment...          $________                                                                  
  *Refundable Security               $________                                                                  
   Deposit.                                                                                                     
                                                                                                                


  c. Total of Monthly Payments.......................          $________
                                                                        


  Base Payment.............          $________                                                                  
  Use/Lease Tax............          $________                                                                  
  ____________.............          $________                                                                  
  Total Monthly Payment....          $________                                                                  
                                                                                                                


  Payment Schedule: The first monthly payment of                        
   $________ is due on ________, followed by ________                   
   payments of $________ due on the ____ of each                        
   month.                                                               
  d. Total of Other Charges Payable to Lessor (not                      
   included in b or c)...............................          $________
                                                                        


  Pick-up Charge...........          $________                                                                  
  ____________.............          $________                                                                  
                                                                                                                


  e. Residual Value..................................          $________
  (The estimated value of the furniture at the end of                   
   the lease term)                                                      
  f. Purchase Option: You have ____ / do not have                       
   ____ an option to purchase the leased property, at                   
   the end of the lease term. If you purchase the                       
   property at that time, the price will be                    $________
  g. Estimated Lease Charge..........................          $________
  (Cost of the lease attributable to interest and                       
   other charges obtained by adding b (less *first                      
   monthly payment and *any refundable charges) + c +                   
   d + f (but if no purchase option is available,                       
   then e)-a))                                                          
                                                                        

Early Termination. You may have to pay a substantial charge if you 
end this lease early. For example, if you terminate this lease at 
the end of the first year, you may owe the lessor $________. The 
actual charge will vary depending on when the lease is terminated. 
[Other charges such as for excessive wear and use may also be 
imposed.]

Excessive Wear and Use. You may be charged for excessive wear and 
use of the furniture based on the lessor's standards for normal use.

Other Important Terms. Before signing this lease, please read your 
lease documents for further information about Conditions for and the 
Amount or Method of Determining Early Termination Charges, Charges 
for Delinquency, Default, or Late Payments, Maintenance 
Responsibilities, Any Purchase Option Prior to the End of the Lease 
Term, Insurance, Total Taxes and Official Fees Paid, Warranties, 
Liability at the End of the Lease Term, and Any Security Interest, 
if applicable.

4. Official Fees and Taxes
    The total amount you will pay for official and license fees, 
registration, title and taxes during the lease term is $________.

5. Insurance
  The following types and amounts of insurance will be acquired in 
connection with this lease: ________-----------------------------------
____ We (lessor) will provide the insurance coverage quoted above 
for a total premium cost of $________.
____ You (lessee) agree to provide insurance coverage in the amounts 
and types indicated above.

6. Maintenance
  [You are responsible for the following maintenance of the leased 
furniture:-------------------------------------------------------------
______________________________________________________________________
__________.]

  [We are responsible for the following maintenance of the leased 
furniture:-------------------------------------------------------------
______________________________________________________________________
__________.]

7. Warranties
  The leased furniture is subject to the following express warranties:-
______________________________________________________________________
__________.

8. Standards for Wear and Use
  The following standards are applicable for determining unreasonable 
or excess wear and use of the leased furniture:------------------------
______________________________________________________________________
__________.

9. Early Termination and Default
  (a) You may terminate this lease before the end of the lease term 
under the following conditions:----------------------------------------
______________________________________________________________________
__________.

  The charge for such early termination is-----------------------------
______________________________________________________________________
__________.

  (b) We may terminate this lease before the end of the lease term 
under the following conditions:----------------------------------------
______________________________________________________________________
__________.

  Upon such termination we shall be entitled to the following charge(s) 
for:-------------------------------------------------------------------
______________________________________________________________________
__________.

10. Security interest
  We reserve a security interest of the following type in the property 
listed below to secure performance of your obligations under this 
lease:-----------------------------------------------------------------
______________________________________________________________________
__________.


[[Page 48769]]

11. Late Payments
  The charge for late payments is:-------------------------------------

12. Option to Purchase
    [You have an option to purchase the leased furniture prior to 
the end of the term. The price will be $________/ the method of 
determining the price].
    [You have no option to purchase the leased vehicle.]
Appendix B to Part 213--Federal Enforcement Agencies

    The following list indicates which federal agency enforces 
Regulation M (12 CFR part 213) for particular classes of business. 
Any questions concerning compliance by a particular business should 
be directed to the appropriate enforcement agency. Terms that are 
not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) 
shall have the meaning given to them in the International Banking 
Act of 1978 (12 U.S.C. 3101).
    1. National banks and federal branches and federal agencies of 
foreign banks.
    District office of the Office of the Comptroller of the Currency 
for the district in which the institution is located.
    2. State member banks, branches and agencies of foreign banks 
(other than federal branches, federal agencies, and insured state 
branches of foreign banks), commercial lending companies owned or 
controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act.
    Federal Reserve Bank serving the District in which the 
institution is located.
    3. Nonmember insured banks and insured state branches of foreign 
banks.
    Federal Deposit Insurance Corporation Regional Director for the 
region in which the institution is located.
    4. Savings institutions insured under the Savings Association 
Insurance Fund of the FDIC and federally chartered savings banks 
insured under the Bank Insurance Fund of the FDIC (but not including 
state-chartered savings banks insured under the Bank Insurance 
Fund).
    Office of Thrift Supervision regional director for the region in 
which the institution is located.
    5. Federal credit unions.
    Regional office of the National Credit Union Administration 
serving the area in which the federal credit union is located.
    6. Air carriers.
    Assistant General Counsel for Aviation Enforcement and 
Proceedings, Department of Transportation, 400 Seventh Street, S.W., 
Washington, DC 20590.
    7. Those subject to Packers and Stockyards Act.
    Nearest Packers and Stockyards Administration area supervisor.
    8. Federal Land Banks, Federal Land Bank Associations, Federal 
Intermediate Credit Banks, and Production Credit Associations.
    Farm Credit Administration, 490 L'Enfant Plaza, S.W., 
Washington, DC 20578.
    9. All other lessors (lessors operating on a local or regional 
basis should use the address of the FTC regional office in which 
they operate).
    Division of Credit Practices, Bureau of Consumer Protection, 
Federal Trade Commission, Washington, DC 20580.

Appendix C to Part 213--Issuance of Staff Interpretations

    Officials in the Board's Division of Consumer and Community 
Affairs are authorized to issue official staff interpretations of 
this Regulation M (12 CFR part 213). These interpretations provide 
the formal protection afforded under section 130(f) of the act. 
Except in unusual circumstances, interpretations will not be issued 
separately but will be incorporated in an official commentary to 
Regulation M, which will be amended periodically. No staff 
interpretations will be issued approving lessor's forms, statements, 
or calculation tools or methods.

    By order of the Board of Governors of the Federal Reserve 
System, September 12, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-23048 Filed 9-19-95; 8:45 am]
BILLING CODE 6210-01-P