[Federal Register Volume 62, Number 1 (Thursday, January 2, 1997)]
[Proposed Rules]
[Pages 62-70]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32496]


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FEDERAL RESERVE SYSTEM
12 CFR Part 213

[Regulation M; Docket No. R-0952]


Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is publishing for comment proposed revisions to 
Regulation M, which implements the Consumer Leasing Act. The act 
requires lessors to provide uniform cost and other disclosures about 
consumer lease transactions. The proposed revisions primarily implement 
amendments to the act contained in the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996, which streamline the advertising 
disclosures for lease transactions. In addition, the proposal contains 
several technical amendments that would be made to the regulation.

DATES: Comments must be received by February 7, 1997.

ADDRESSES: Comments should refer to Docket No. R-0952, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
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, N.W. 
(between Constitution Avenue and C Street) at any time. Comments may be 
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and 
5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's 
rules regarding the availability of information.

FOR FURTHER INFORMATION CONTACT: Kyung H. Cho-Miller or Obrea O. 
Poindexter, 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. Users of Telecommunications 
Device for the Deaf only may contact Dorothea Thompson, 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 CLA generally applies to consumer leases of 
personal property in which the contractual obligation does not exceed 
$25,000 and has a term of more than four months. An automobile lease is 
the most common type of consumer lease covered by the act. Under the 
act, lessors are required to provide uniform cost and other information 
about consumer lease transactions.
    The Board was given rulewriting authority, and its Regulation M (12 
CFR part 213) implements the CLA. An official staff commentary 
interprets the regulation.
    The Board recently completed a review of Regulation M, pursuant to 
its policy of periodically reviewing its regulations, and approved a 
final rule in September 1996 substantially revising the regulation to 
update the disclosure requirements and to carry out more effectively 
the purposes of the Act (61 FR 52246, October 7, 1996).

II. Proposed Regulatory Provisions

    This proposed rulemaking contains a few technical amendments to the 
regulation. For example, the model clause for providing a description 
of the leased property is added and the example of an annual charge as 
an other charge is deleted on the open- and closed-end model forms. All 
the proposed technical amendments are discussed in detail in the 
section-by-section analysis.

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    In the September 1996 final rule, the advertising provisions 
implemented amendments to the CLA contained in the Riegle Community 
Development and Regulatory Improvement Act of 1994 (Pub. L. 103-325, 
108 Stat. 2160), allowing a toll-free number or a print advertisement 
to substitute for certain lease disclosures in radio commercials (which 
was expanded in the final rule to television commercials).
    The advertisement provisions were amended and streamlined on 
September 30, 1996, when the Congress enacted the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996 (Pub. L. 104-208, 110 Stat. 
3009) (the 1996 Act). The Board's proposed rule implements the 
statutory changes, which are discussed in detail below in Sec. 213.7.

III. Section-by-Section Analysis

Section 213.4  Content of disclosures

4(n)  Fees and Taxes
    In the September 1996 final rule, paragraph 4(n) of this section 
stated that the lessor must disclose the total dollar amount of all 
official and license fees, registration, title, or taxes required to be 
paid ``to the lessor'' in connection with the lease. Adding ``paid to 
the lessor'' narrowed the scope of the disclosure from the previous 
requirement. No substantive change to the requirement was intended. 
Thus, the phrase ``to the lessor'' would be deleted from this section.
4(o)  Insurance
    The Board proposes to revise the captions for paragraph 4(o) (1) 
and (2) to change the focus from voluntary and required insurance. The 
new captions more accurately reflect the requirement for the insurance 
disclosure--that insurance obtained through the lessor or through a 
third party, regardless of whether it is required or voluntary, must be 
disclosed.

Section 213.5  Renegotiations, Extensions, and Assumptions

5(d)  Exceptions
    Under Regulation M, new disclosures generally are required where a 
covered lease transaction is renegotiated or extended; however, under 
paragraph 5(d)(1) new disclosures are not required if the ``lease 
charge'' is reduced in a renegotiation or an extension of an existing 
lease. This exception was moved from the official staff commentary to 
the regulation in the final rule approved in September 1996. For 
clarity and consistency in terminology throughout the regulation, the 
Board proposes to replace the term ``lease charge'' with the term 
``rent charge.''

Section 213.7  Advertising

    The advertising provisions in Regulation M currently require 
additional disclosure if an advertisement states any of the following 
terms: the amount of any payment; the number of required payments; or a 
statement of any capitalized cost reduction or other payment required 
prior to or at consummation, or that no payment is required. Under the 
amendments to the CLA contained in the 1996 Act, an advertisement that 
states the number of required payments would no longer trigger 
additional disclosures.
    The 1996 Act also changes the items that must be disclosed (to the 
extent applicable) when a triggering term is stated in an 
advertisement. The current disclosures and the changes made by the 1996 
Act are as follows:

    (1) That the transaction advertised is a lease. No change was 
made in this disclosure.
    (2) The total amount due at lease signing, or that no payment is 
required. This disclosure has been expanded to also include amounts 
due at delivery if delivery occurs after consummation.
    (3) The number, amounts, due dates or periods of scheduled 
payments, and total of such payments under the lease. The total of 
scheduled payments is eliminated as a required disclosure.
    (4) A statement of whether or not the lessee has the option to 
purchase the leased property, and where the lessee has the option to 
purchase at the end of the lease term, the purchase-option price. 
This disclosure has been eliminated entirely.
    (5) A statement of the amount, or the method for determining the 
amount, of the lessee's liability (if any) at the end of the lease 
term. This disclosure has been eliminated entirely.
    (6) For an open-end lease, a statement of the lessee's liability 
(if any) for the difference between the residual value of the lease 
property and its realized value at the end of the lease term. This 
disclosure was simplified to require a short statement that an 
additional charge may be imposed.

    The 1996 Act also adds as an additional disclosure of a statement 
on whether or not a security deposit is required.
7(b)  Clear and Conspicuous Standard
7(b)(1)  Amount Due at Lease Signing
    The general rule in this paragraph states that any reference to a 
charge that is part of the total amount due at lease signing may not be 
more prominent than the disclosure of the total amount due at lease 
signing. The amount of any capitalized cost reduction (or no 
capitalized cost reduction) is provided as an example of an amount that 
is a part of the total amount due at lease signing. The Board proposes 
to delete this example from this paragraph and to move it to the 
official staff commentary.
7(d)  Advertisement of Terms That Require Additional Disclosure
7(d)(1)  Triggering Terms
    Pursuant to the 1996 Act, the Board proposes to delete paragraph 
7(d)(1)(ii). Merely stating in an advertisement the number of required 
lease payments, for example, ``36 payments,'' no longer ``triggers'' 
the additional disclosures in paragraph 7(d)(2). Paragraph 7(d)(1)(iii) 
would be redesignated as paragraph 7(d)(1)(ii).
7(d)(2)  Additional Terms
    An advertisement stating any item listed in paragraph 7(d)(1) is 
required to state the additional disclosures in paragraph 7(d)(2), as 
applicable. As discussed previously, the 1996 Act amends many of the 
required additional disclosures in this paragraph. The following 
proposed changes implement the statutory amendments.
    The 1996 Act expands the disclosure of the total amount due at 
lease signing in paragraph 7(d)(2)(ii) to include ``amounts paid at 
delivery, whichever occurs later.'' Prior to the amendments, a delivery 
charge paid after consummation was not included in the total amount due 
at lease signing in Sec. 213.4(b) or in this section. Under the 
proposed changes to implement the statutory amendment, the delivery 
charge would be included in the total even if it was paid after 
consummation. The Board does not propose to expand the disclosure under 
Sec. 213.4 to parallel the new advertising rule.
    The total of scheduled payments disclosure from paragraph 
7(d)(2)(iii), all of paragraph 7(d)(2)(iv), and all of paragraph 
7(d)(2)(v) will be deleted. A statement of whether or not a security 
deposit is required is added by the statute and proposed as paragraph 
7(d)(iv). For an open-end lease, the amended statute requires a 
statement that an extra charge may be imposed at the end of the lease 
term; the regulatory provision is redesignated as paragraph 7(d)(2)(v).
7(f)  Alternative Disclosures--Television or Radio Advertisements
7(f)(1)  Toll-Free Number or Print Advertisement
    The 1996 Act deletes the ``total of scheduled payments'' as a 
required additional disclosure under section 184(a), the general 
advertising disclosures, but not in section 184(c),

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which governs radio advertisements. Section 105(a) of the TILA provides 
that the Board's regulations ``may contain 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 
purposes of [the CLA], to prevent circumvention or evasion thereof, or 
to facilitate compliance therewith.'' The Board does not believe that 
the Congress intended to require more disclosures for radio 
advertisements than other advertisements. Accordingly, the Board 
proposes to delete the disclosure of the ``total of scheduled 
payments'' from section 184(c) on radio advertisements pursuant to its 
exception authority under section 105(a).

Appendices

    Lessors are required to provide a description of leased property 
under the CLA and Sec. 213.4(a) of Regulation M. The Board proposes to 
amend the model forms for open- and closed-end leases disclosures to 
add among the nonsegregated disclosures a model clause for describing 
leased property.
    The Board proposes to amend the model forms for open- and closed-
end leases by deleting ``annual tax'' as an example of an other charge. 
Third-party fees or charges paid to the lessor but not retained by the 
lessor such as taxes are not included in the ``other charges'' 
disclosure.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-0952 and, when 
possible, should use a standard Courier typeface with a type size of 10 
or 12 characters per inch. This will enable the Board to convert the 
text to machine-readable form through electronic scanning, and will 
facilitate automated retrieval of comments for review. Also, if 
accompanied by an original document in paper form, comments may be 
submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-
compatible DOS-based format.
    The comment period ends on February 7, 1997. Normally, the Board 
provides a 60-day comment period, in keeping with the Board's policy 
statement on rulemaking (44 FR 3957, January 19, 1979). The proposed 
regulatory revisions primarily implement changes in the law made by the 
1996 Act that streamline the advertising provisions and, in addition, 
make a few technical changes to Regulation M. The Board believes that 
it is desirable to ensure that a final rule takes effect along with the 
final rule approved in September 1996, which requires issuing a final 
rule by April 1, 1997. Accordingly, the Board is providing an 
abbreviated comment period.

V. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 603), the Board's Office of the Secretary has reviewed the 
proposed amendments to Regulation M. Overall, the amendments are not 
expected to have any significant impact on small entities. The proposed 
regulatory revisions, primarily required to implement the 1996 Act, 
ease compliance by streamlining the advertising provisions. A final 
regulatory flexibility analysis will be conducted after consideration 
of comments received during the public comment period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), 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, Chief, Financial Reports Section, Division 
of Research and Statistics, Mail Stop 97, Board of Governors of the 
Federal Reserve System, Washington, DC 20551.
    The respondents are individuals or businesses that regularly lease, 
offer to lease, or arrange for the lease of personal property under a 
consumer lease. The purpose of the disclosures associated with 
Regulation M is to ensure that lessees of personal property receive 
meaningful information that enables them to compare lease terms with 
other leases and, where appropriate, with credit transactions. Records, 
required to evidence compliance with the regulation, must be retained 
for twenty-four months. The revisions to the collection of information 
requirements in this proposed rule are found in 12 CFR 213.4, 213.5, 
and 213.7 and appendices A-1 and 2.
    Regulation M applies to all types of financial institutions, not 
just state member banks. Under the Paperwork Reduction Act, however, 
the Federal Reserve accounts for the paperwork burden associated with 
Regulation M only for state member banks. Any estimates of paperwork 
burden for institutions other than state member banks affected by the 
amendments would be provided by the federal agency or agencies that 
supervise those lessors. The Federal Reserve 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 found that among 
state member banks that engage in consumer leasing, only a very few 
advertise consumer leases.
    The proposed revisions to Secs. 213.4 and 213.5 are estimated to 
have no effect on the hour burden that the regulation imposes. The 
proposed revisions to Sec. 213.7, while more substantive, are expected 
to have no net effect on the hour burden.
    The current hour burden for state member banks, as of the September 
1996 final rule, is estimated to be eighteen minutes for the 
disclosures and twenty-five minutes for advertising. It is estimated 
that there will be 310 respondents and an average frequency of 120 
responses per respondent each year. The total amount of annual hour 
burden at all state member banks is estimated to be 11,179 hours. 
Start-up cost burden associated with the September 1996 final rule was 
estimated to be $12,000 per respondent, amounting to a total of 
$3,720,000 for state member banks. The Federal Reserve estimates that 
this amount is sufficient to cover any costs of the proposed rule.
    The disclosures made by lessors to consumers under Regulation M are 
mandatory (15 U.S.C. 1667 et seq.). Because the Federal Reserve does 
not collect any information, no issue of confidentiality under the 
Freedom of Information Act arises. Consumer lease information in 
advertisements is available to the public. Disclosures of the costs, 
liabilities, and terms of consumer lease transactions relating to 
specific leases are not publicly available.
    An agency may not conduct or sponsor, and an organization is not 
required to respond to, this information collection unless it displays 
a currently valid OMB control number. The OMB control number is 7100-
0202.
    Comments are invited on: (a) whether the proposed revised 
collection of information is necessary for the proper performance of 
the Federal Reserve's functions; including whether the information has 
practical utility; (b) the accuracy of the Federal Reserve's estimate 
of the burden of the proposed revised information collection, including 
the cost of compliance; (c) ways to enhance the quality, utility, and 
clarity of the information to be

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collected; and (d) ways to minimize the burden of information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology.

List of Subjects in 12 CFR Part 213

    Advertising, Federal Reserve System, Reporting and recordkeeping 
requirements, Truth in Lending.

    Certain conventions have been used to highlight the proposed 
revisions to the regulation. New language is shown inside bold-faced 
arrows, while language that would be deleted is set off with bold-faced 
brackets.
    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. Section 213.4 would be amended as follows:
    a. Paragraph (n) would be revised; and
    b. The headings of Paragraphs (o)(1) and (o)(2) would be revised.
    The revisions read as follows:


Sec. 213.4   Content of disclosures.

* * * * *
    (n) Fees and taxes. The total dollar amount for all official and 
license fees, registration, title, or taxes required to be paid [to the 
lessor] in connection with the lease.
    (o) Insurance. * * *
    (1) [Voluntary insurance.] Through the 
lessor. * * *
    (2) [Required insurance.] Through a third 
party. * * *
* * * * *
    3. Section 213.5 would be amended by revising paragraph (d)(1) to 
read as follows:


Sec. 213.5   Renegotiations, extensions, and assumptions.

* * * * *
    (d) Exceptions. * * *
    (1) A reduction in the [lease] rent charge;
* * * * *
    4. Section 213.7 would be amended as follows:
    a. Paragraph (b)(1) would be revised;
    b. Paragraph (d) would be revised.
    The revisions read as follows:


Sec. 213.7   Advertising.

* * * * *
    (b) Clear and conspicuous standard. * * *
    (1) Amount due at lease signing. Except for the statement of a 
periodic payment, any affirmative or negative reference to a charge 
that is a part of the total amount due at lease signing under paragraph 
(d)(2)(ii) of this section [, such as the amount of any capitalized 
cost reduction (or no capitalized cost reduction is required),] shall 
not be more prominent than the disclosure of the total amount due at 
lease signing.
* * * * *
    (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; or
    [(ii) The number of required payments; or]
    [(iii)] (ii) A statement of any capitalized 
cost reduction or other payment required prior to or at consummation, 
or that no payment is required.
    (2) Additional terms. An advertisement stating any item listed in 
paragraph (d)(1) of this section shall also state the following items:
    (i) That the transaction advertised is a lease;
    (ii) The total amount due at lease signing or delivery, 
whichever is later , or that no payment is required;
    (iii) The number, amounts, and  due dates or 
periods of scheduled payments[, and total of such payments] under the 
lease;
    [(iv) A statement of whether or not the lessee has the option to 
purchase the leased property, and where the lessee has the option to 
purchase at the end of the lease term, the purchase-option price. The 
method of determining the purchase-option price may be substituted in 
disclosing the lessee's option to purchase the leased property prior to 
the end of the lease term;]
    [(v)] (iv)  A statement of whether 
or not a security deposit is required  [the amount, or the 
method for determining the amount, of the lessee's liability (if any) 
at the end of the lease term that] ; and
    [(vi)] (v)  A statement [of the lessee's 
liability] that an extra charge may be imposed at the end of 
the lease term where the lessee is liable  (if any) for the 
difference between the residual value of the leased property and its 
realized value at the end of the lease term.
* * * * *
    5. Appendix A to part 213 is amended by revising Appendix A-1 and 
Appendix A-2 to read as follows:

Appendix A to Part 213--Model Forms

* * * * *

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* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, December 17, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-32496 Filed 12-31-96; 8:45 am]
BILLING CODE 6210-01-P