[Federal Register Volume 62, Number 65 (Friday, April 4, 1997)]
[Rules and Regulations]
[Pages 16053-16064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8574]


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FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-0961]


Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; official staff interpretation.

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

SUMMARY: The Board is publishing revisions to the official staff 
commentary to Regulation M, which

[[Page 16054]]

implements the Consumer Leasing Act. The act requires lessors to 
provide uniform cost and other disclosures about consumer lease 
transactions. Regulation M was revised in September 1996 under the 
Board's Regulatory Planning and Review program, which calls for the 
periodic review of Board regulations. The commentary applies and 
interprets the requirements of Regulation M. The revisions to the 
commentary provide guidance on the final rule issued in September 1996, 
as amended in April 1997.

DATES: This rule is effective April 1, 1997. Compliance is optional 
until October 1, 1997.

FOR FURTHER INFORMATION CONTACT: Kyung H. Cho-Miller or Obrea Otey 
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. For users of 
Telecommunications Devices for the Deaf (TDD) only, contact Diane 
Jenkins, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    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 is implemented by the Board's Regulation M 
(12 CFR part 213). An official staff commentary (Supplement I-CL-1 to 
12 CFR part 213) provides guidance to lessors in applying the 
regulation to specific transactions. The CLA requires lessors to 
provide consumers with uniform cost and other disclosures about 
consumer lease transactions. The act 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.
    In September 1996, the Board approved a final rule revising 
Regulation M, after a review of the regulation and consumer leasing 
generally. The review was conducted under the Board's Regulatory 
Planning and Review Program, which calls for the periodic review of 
Board regulations 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.
    The September 1996 final rule includes new disclosures to 
supplement the act's requirements (61 FR 52246, October 7, 1996). The 
major changes primarily affect motor-vehicle leasing. They include a 
mathematical progression on how scheduled payments are derived (using 
figures such as the gross capitalized cost of a lease, the vehicle's 
residual value, the amount of depreciation, and the rent charge) and a 
warning statement about charges for terminating a lease early. General 
changes in the format of the disclosures require that certain lease 
disclosures be segregated from other information. A lessor is not 
required to disclose the cost of a lease expressed as a percentage 
rate; however, if a rate is disclosed or advertised, a special notice 
must accompany the rate stating that it may not measure the overall 
cost of financing the lease. Further, a rate in an advertisement cannot 
be more prominent than any other Regulation M disclosure.
    The final rule also revises the advertising rules and implements 
amendments to the CLA contained in the Riegle Community Development and 
Regulatory Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160); 
those amendments allow 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 CLA's 
advertising rules were further amended and streamlined on September 30, 
1996, by the Economic Growth and Regulatory Paperwork Reduction Act of 
1996 (Pub. L. 104-208, 110 Stat. 3009). The Board issued a proposal to 
implement those changes. (62 FR 62, January 2, 1997). A final rule has 
been issued with a mandatory compliance date of October 1, 1997.
    The Board published an updated proposal to the commentary in 
February 1997 (62 FR 7361, February 19, 1997). Comment letters were 
received from representatives of the major lease trade associations, 
state agencies, consumer representatives, and the Federal Trade 
Commission, among others. The final revisions to the commentary include 
guidance on material that was published for comment in September 1995, 
incorporate guidance on the September 1996 final rule, and address 
certain questions raised following public review of the final rule, 
incorporating many suggestions made by the commenters.

II. Discussion of Final Revisions

    The following discussion covers the revisions to the Regulation M 
commentary section-by-section. Comments that have been revised for 
further clarity, without substantive change, are not discussed. Most of 
the discussion focuses on new comments and significant revisions to 
existing comments.

Introduction

    Comments I-3 and I-6 are deleted as obsolete or unnecessary. 
Comments I-1, I-2, I-4, and I-5 are redesignated accordingly.

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

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
1-1.......................................  1-1.                        
1-2.......................................  Deleted as unnecessary (see 
                                             appendix C).               
------------------------------------------------------------------------

    Comment 1-1 is revised to clarify persons covered by the 
regulation.

Section 213.2--Definitions

2(a) Definitions

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
2(a)(2)-1.................................  2(b)-1 and -2; including    
                                             text from former Sec.      
                                             213.2(a)(2).               
2(a)(2)-2.................................  2(b)-3.                     
                                            2(d)-1 new.                 
2(a)(4)-1.................................  2(h)-1; includes text from  
                                             former Sec.  213.2(a)(4).  
2(a)(4)-2.................................  2(h)-4.                     
2(a)(4)-3.................................  2(h)-2.                     
2(a)(6)-1.................................  2(e)-1.                     
2(a)(6)-2.................................  2(e)-2.                     
                                            2(e)-3 new.                 
2(a)(6)-3.................................  2(e)-6.                     
2(a)(6)-4.................................  2(e)-4.                     
                                            2(e)-5 new; includes text   
                                             from former Sec.           
                                             213.2(a)(3).               
2(a)(6)-5.................................  2(e)-8.                     
2(a)(6)-6.................................  2(e)-7.                     
2(a)(7)-1.................................  2(g)-1.                     
2(a)(8)-1.................................  2(h)-3.                     
2(a)(9)-1.................................  2(j)-1.                     
2(a)(12)-1................................  2(l)-1.                     
2(a)(14)-1................................  2(m)-1.                     
2(a)(14)-2................................  2(m)-2.                     
2(a)(14)-3 and -4.........................  2(m)-3.                     
2(a)(14)-5................................  2(m)-4.                     
2(a)(14)-6................................  4(l)-2.                     
2(a)(15)-1................................  2(o)-2.                     
2(a)(15)-2................................  2(o)-1; includes text from  
                                             former Sec.  213.2(a)(15). 
2(a)(15)-3................................  2(o)-3.                     
2(a)(17)-1 through -5.....................  Deleted as unnecessary.     
2(a)(18)-1 through -3.....................  Deleted as unnecessary.     
2(b)-1....................................  Deleted as unnecessary.     
2(b)-2....................................  3(a)(3)-1.                  
------------------------------------------------------------------------

2(b)  Advertisement
    Comment 2(b)-1, former comment 2(a)(2)-1, is revised to include 
examples

[[Page 16055]]

of advertisements formerly in Sec. 213.2(a)(2) and to indicate that the 
term ``advertisement'' includes electronic messages.
2(d)  Closed-End Lease
    Comment 2(d)-1 provides general guidance on the definition of a 
``closed-end lease.''
2(e)  Consumer Lease
    Comment 2(e)-2, former comment 2(a)(6)-2, is revised to clarify 
that leases with penalties for not continuing beyond an initial four 
months are covered under the regulation. Comment 2(e)-3 provides 
guidance on the total contractual obligation for purposes of 
determining whether a lease is covered under the regulation. Comment 
2(e)-5 incorporates former Sec. 213.2(a)(3), the statutory definition 
of agricultural purpose in section 103(s) of the TILA. Comment 2(e)-7, 
former comment 2(a)(6)-6, includes an additional example of a lease 
deemed incidental to a service, and thus not covered by the regulation.
2(f)  Gross Capitalized Cost
    Proposed comment 2(f)-1 has been deleted as unnecessary.
2(h)  Lessor
    Comment 2(h)-1, former comment 2(a)(4)-1, is revised to include the 
definition of the phrase ``arrange for leasing of personal property'' 
in former Sec. 213.2(a)(4).
2(m)  Realized Value
    Comment 2(m)-1 has been revised for accuracy to add a reference to 
the adjusted lease balance.
    Based on comment, comment 2(m)-2 has been revised to add fair 
market value to the second sentence so as not to exclude the use of 
this method of determining the realized value, if appropriate, where 
the leased property is sold.
    Comment 2(m)-3 provides guidance for determining the realized 
value, combining former comments 2(a)(14)-3 and -4. Based on comment, 
to more closely track the language of the former comments, the comment 
has been revised from the proposal. The second and third sentences of 
former comment 2(a)(14)-4 are deleted as unnecessary.
2(o)  Security Interest and Security
    Comment 2(o)-2, former comment 2(a)(15)-2, is revised to include 
examples of a security interest formerly in Sec. 213.2(a)(15).
    Questions have arisen about whether interest that accrues on a 
security deposit is a security interest for purposes of this regulation 
and thus required to be disclosed under Sec. 213.4(r). Under Regulation 
M, whether or not a security deposit is a security interest under state 
or other applicable law, a deposit disclosed under Sec. 213.4(b) is not 
disclosed under Sec. 213.4(r). Interest on a security deposit, however, 
is disclosable under Sec. 213.4(r) if it is considered a security 
interest under state or other applicable law.

Section 213.3--General Disclosure Requirements

3(a)  General Requirements

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
4(a)-1....................................  3(a)-1.                     
4(a)-2....................................  Moved to Sec.  213.3(f).    
4(a)-3....................................  3(a)(1)-1.                  
4(a)-4....................................  3(a)-4.                     
4(a)-5....................................  Deleted as unnecessary.     
4(a)(1)-1.................................  3(a)-2 and -3.              
4(a)(1)-2.................................  Deleted as unnecessary.     
4(a)(2)-1.................................  4(b)-1.                     
4(a)(2)-2.................................  3(a)(1)-2.                  
                                            3(a)(1)-3 new.              
4(a)(2)-3.................................  3(a)(1)-4.                  
4(a)(2)-4.................................  Deleted as unnecessary.     
4(a)(2)-5.................................  3(a)(1)-5.                  
                                            3(a)(2)-1 through -3 new.   
4(a)(4)-1.................................  Deleted as unnecessary, see 
                                             revised Sec.  213.3(a)(4). 
4(a)(4)-2.................................  Deleted as unnecessary, see 
                                             revised Sec.  213.3(a)(4). 
4(b)-1....................................  3(b)-1.                     
4(c)-1....................................  3(c)-1.                     
4(d)-1 through -5.........................  3(d)(1)-1 through -5.       
4(d)-6....................................  Deleted as unnecessary.     
4(e)-1 and -2.............................  3(e)-1 and -2.              
                                            3(e)-3 new; text from       
                                             footnote 1 of former       
                                             regulation.                
------------------------------------------------------------------------

3(a)  General Requirements
    Comment 3(a)-1, former comment 4(a)-1, is revised to clarify that 
leasing disclosures must reflect the terms of the legal obligation.
    Comment 3(a)-4, former comment 4(a)-4, is revised to provide 
guidance on disclosing a prior lease or credit balance added to a lease 
transaction. Commenters also asked the Board to clarify that where a 
prior lease or credit balance is rolled into a lease and the 
transaction is disclosed as a single lease, Regulation M disclosures 
(not Regulation Z) are required. Based on comment and further analysis, 
language has been added to indicate that Regulation M disclosures are 
required where a lease transaction includes incidental services or when 
a prior lease or credit balance is part of a single lease transaction. 
Accordingly, the illustrations have been revised.
3(a)(1)  Form of Disclosures
    Comment 3(a)(1)-3, which provides guidance on disclosing the 
lessor's address, is adopted substantially as proposed. Some commenters 
expressed concern that requiring the disclosure of the lessor's name 
only would not adequately identify the lessor. A lessor may add an 
address or other information such as a telephone number to the 
identification.
    Comment 3(a)(1)-5, former comment 4(a)(2)-5, is revised to provide 
guidance on ways in which lessors may demonstrate compliance with the 
requirement that lessees receive disclosures prior to becoming 
obligated on the lease transaction.
3(a)(2)  Segregation of Certain Disclosures
    Comment 3(a)(2)-1 provides general guidance on the location of the 
segregated disclosures referenced in Sec. 213.3(a)(2). Comment 3(a)(2)-
2 restates the general rule on including additional information among 
the segregated disclosures referenced in Sec. 213.3(a)(2). Comment 
3(a)(2)-3 provides a cross-reference to the commentary to appendix A 
which provides guidance on designing lease forms that are substantially 
similar to the regulation's model forms.
3(b)  Additional Information; Nonsegregated Disclosures
    Comment 3(b)-1, former comment 4(b)-1, on state law disclosures is 
revised to add clarifying language; the second sentence has been 
deleted as unnecessary.
3(d)  Use of Estimates
    Comment 3(d)(1)-4, former comment 4(d)-4, is revised to provide 
that in disclosing the estimate of the value of leased property at 
termination of an open-end lease, a lessor must indicate whether the 
retail or wholesale value is used. This provision was previously 
contained in Regulation M in the instructions to the model forms. In 
addition, the reference to ``intention'' has been deleted as not 
helpful.
3(e)  Effect of Subsequent Occurrence
    Comment 3(e)-3 incorporates the first sentence of footnote 1 of the 
former regulation.

Section 213.4--Content of Disclosures

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
                                            4(a)-1 new.                 

[[Page 16056]]

                                                                        
4(g)-1....................................  Deleted as unnecessary.     
4(g)-2....................................  3(a)(1)-2 and -3; date      
                                             requirement moved to Sec.  
                                             213.3(a)(1).               
4(g)(1)-1.................................  Deleted as unnecessary.     
4(g)(2)-1.................................  Deleted as unnecessary.     
4(g)(2)-2.................................  4(b)-1 (cross references    
                                             former comment 2(b)-2).    
4(g)(2)-3.................................  Deleted.                    
                                            4(b)-2 new (incorporated    
                                             from the instructions to   
                                             the model form in former   
                                             appendix C-2).             
                                            4(b)-3 through -6 new.      
4(g)(3)-1.................................  Deleted as unnecessary.     
4(g)(3)-2.................................  4(c)-1; reference to open-  
                                             end lease deleted.         
4(g)(4)-1.................................  deleted.                    
4(g)(5)-1.................................  4(d)-1 and -2.              
4(g)(5)-2.................................  Deleted as unnecessary; see 
                                             Sec.  213.3(a)(2).         
                                            4(d)-3 new.                 
4(g)(5)-3.................................  4(d)-4.                     
4(g)(5)-4.................................  4(d)-5.                     
                                            4(d)-6 new.                 
                                            4(e)-1 new.                 
                                            4(f)-1 new.                 
                                            4(f)(1)-1 and -2 new.       
                                            4(f)(8)-1 new.              
                                            4(o)-1 new.                 
4(g)(6)-1.................................  4(o)-2.                     
4(g)(6)-2.................................  4(o)-3.                     
4(g)(7)-1 through -3......................  4(p)-1 through -3.          
4(g)(8)-1.................................  4(h)-1.                     
4(g)(9)-1.................................  4(r)-1.                     
4(g)(10)-1 through -5.....................  4(q)-1 through -5.          
4(g)(11)-1 through -3.....................  4(i)-1 through -3.          
                                            4(i)-4 and -5 new.          
4(g)(12)-1................................  4(g)(1)-4.                  
4(g)(12)-2................................  4(g)(1)-5.                  
4(g)(12)-3................................  4(g)(1)-1.                  
                                            4(g)(1)-2 new.              
                                            4(g)(1)-3 new.              
                                            4(j)-1 new.                 
4(g)(14)-1 and -2.........................  4(l)-1 and -2.              
                                            4(l)-3 new.                 
4(g)(14)-3................................  4(l)-4.                     
                                            4(m)-1 and -2 new.          
4(g)(15)-1................................  4(m)(2)-1.                  
4(g)(15)-2................................  Deleted.                    
                                            4(m)(1)-1 new.              
4(g)(15)-3................................  Deleted.                    
4(g)(15)-4................................  4(m)(2)-2.                  
4(g)(15)-5................................  Deleted.                    
4(g)(15)-6................................  4(m)(2)-3.                  
                                            4(n)-1 new.                 
                                            4(s)-1 new.                 
------------------------------------------------------------------------

4(a)  Description of Property
    Comment 4(a)-1 clarifies that the description of leased property 
cannot be among the segregated disclosures.
4(b)  Total Amount Due at Lease Signing or Delivery
    A number of commenters, including consumer and leasing 
representatives, urged the Board to amend the transaction disclosures 
to require amounts due at delivery, if delivery occurs after 
consummation, to be included in the amount due at lease signing 
disclosure. The Economic Growth and Regulatory Paperwork Reduction Act 
of 1996 revised the advertising disclosure of the total amount due at 
lease signing to add amounts due at delivery, if delivery occurs after 
consummation. The regulation has been revised accordingly to parallel 
the changes that the Congress made to the advertising disclosure. 
Comment 4(b)-2 incorporates a definition of ``capitalized cost 
reduction'' from the instructions in former appendix C-1 of the 
regulation. Comment 4(b)-3 provides guidance on the disclosure of 
negative net trade-in allowances where the amount owed on a prior 
credit or lease balance exceeds an agreed-upon trade-in value. Comment 
4(b)-4 clarifies that a rebate is included in the itemization under 
this section only when it is used to reduce an amount due at lease 
signing or delivery. Comment 4(b)-5 clarifies that where the balance 
sheet method is required, in motor-vehicle leases, the totals in each 
column must equal one another.
4(c)  Payment Schedule and Total Amount of Periodic Payments
    Comment 4(c)-1 provides guidance in disclosing periodic payments. 
Commenters asked for guidance on whether all periodic payments required 
to be paid under a lease, for example an annually assessed tax, must be 
disclosed under Sec. 213.4(c). To facilitate compliance, only payments 
made at regular intervals and generally derived from capitalized and 
amortized amounts, rent, and amounts that are collected by the lessor 
at the same interval(s) must be disclosed under Sec. 213.4(c). Based on 
comment and further analysis, the comment has been revised to clarify 
what payments should be included in the payment schedule and total 
amount of periodic payments.
4(d)  Other Charges
    Comment 4(d)-1, former comment 4(g)(5)-1, is revised to provide 
flexibility in making the ``other charges'' disclosure. Comment 4(d)-3 
clarifies that third-party charges are not disclosed under 
Sec. 213.4(d). Comment 4(d)-6 provides guidance on the disclosure of 
optional ``disposition'' fees.
4(e)  Total of Payments
    Comment 4(e)-1 explains the additional statement in the total of 
payments disclosure for open-end leases.
4(f)  Payment Calculation
    Comment 4(f)-1 clarifies that lessors should look to state or other 
applicable law in determining whether the leased property is a motor 
vehicle.
4(f)(1)  Gross Capitalized Cost
    Comment 4(f)(1)-1 provides guidance on disclosing the agreed-upon 
value of a leased motor vehicle.
    Comment 4(f)(1)-2 addresses the itemization of the gross 
capitalized cost. A few commenters suggested that lessors that provide 
an itemization as a matter of course be allowed to include the 
itemization among the segregated disclosures. Given that some 
itemizations may be lengthy, an itemization may not be included in the 
segregated disclosures so as not to distract from other information.
4(f)(2)  Capitalized Cost Reduction
    Comment 4(f)(2)-1 provides guidance on the amounts not included in 
the capitalized cost reduction disclosure.
4(f)(8)  Lease Term
    Comment 4(f)(8)-1 clarifies the meaning of the phrase ``lease 
term'' referenced under Sec. 213.4(f)(8).
4(g)  Early Termination
    Comment 4(g)(1)-2 provides guidance on disclosing the method used 
to determine the amount of an early termination charge. Comment 
4(g)(1)-3 provides guidance on the timing for disclosing a written 
explanation of the method used to calculate the adjusted lease balance.
4(h)  Maintenance Responsibilities
    Comment 4(h)-1 has been revised for clarity, based on comment. 
Proposed comment 4(h)-2, regarding the disclosure of excess mileage 
charges, is deleted as unnecessary.
4(i)  Purchase Option
    Several commenters on the September 1995 proposal requested 
clarification on whether lessors are allowed to disclose a purchase-
option fee (and other fees and taxes applicable to the purchase option) 
separately from the purchase-option price. Comments 4(i)-3 and -4, 
former comment 4(g)(11)-3, are revised to allow lessors flexibility in 
disclosing fees associated with a purchase-option

[[Page 16057]]

price. Further, with the September 1996 final rule regarding the 
disclosure format, and since a lessee is not obligated to purchase the 
leased property, the purchase-option fee and any other fee associated 
with exercising the purchase option must be disclosed under 
Sec. 213.4(i) and not Sec. 213.4(d).
    Comment 4(i)-5 provides guidance on disclosing the price of a 
purchase option in a ``fair market value'' lease. Based on comment, the 
comment has been revised to indicate that the independent source must 
be readily available.
4(j)  Statement Referencing Nonsegregated Disclosures
    Comment 4(j)-1 clarifies that inapplicable information may be 
deleted from the Sec. 213.4(j) disclosure, which references and alerts 
consumers to read CLA required disclosures not included among the 
segregated disclosures.
4(l)  Right of Appraisal
    Comment 4(l)-2, former comment 4(g)(14)-2, is revised to provide 
that a lessor must indicate whether an appraisal will be based on the 
wholesale or retail value. This provision was contained in the former 
regulation in the instructions to the model forms.
4(m)  Liability at End of Lease Term Based on Estimated Value
    The regulation reformats Sec. 213.4(m), former Sec. 213.4(g)(15), 
for clarity. The commentary has been similarly reformatted.
    Comment 4(m)-2 clarifies that under section 183(a) of the CLA 
lessors must pay the lessees' attorney's fees.
4(n)  Fees and Taxes
    Comment 4(n)-1 provides guidance on the treatment of certain taxes, 
including taxes disclosed under Sec. 213.4(n) and elsewhere.
4(o)  Insurance
    Comment 4(o)-1 clarifies that Sec. 213.4(o) applies to voluntary 
and required insurance provided in connection with a lease transaction. 
Comment 4(o)-3, former comment 4(g)(6)-2, is revised to provide 
additional guidance on the disclosure of mechanical breakdown 
protection and, based on comments, other products, (such as guaranteed 
automobile protection) as insurance under Sec. 213.4(o).
4(p)  Warranties or Guarantees
    Comment 4(p)-1, former comment 4(g)(7)-1, is revised to provide 
further guidance on identifying warranties under Sec. 213.4(p) when a 
lessor provides a list that includes warranties not available to the 
lessee.
4(s)  Limitation on Rate Information
    Comment 4(s)-1 clarifies that a lease rate may not be included 
among the segregated disclosures referenced in Sec. 213.3(a)(2).

Section 213.5--Renegotiations, Extensions, and Assumptions

    Section 213.5, formerly Sec. 213.4(h), contains the disclosure 
rules governing leases that are renegotiated, extended, or assumed. 
Many of the commentary provisions have been moved to the regulation. 
For example, the definitions of a renegotiation and an extension have 
been included in the regulation.

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
4(h)-1....................................  5-1.                        
4(h)-2....................................  First sentence moved to Sec.
                                              213.5(a); second sentence 
                                             deleted; third sentence    
                                             moved to 5-1.              
4(h)-3....................................  Moved to Sec.  213.5(d).    
4(h)-4....................................  Moved to Sec.  213.5(b).    
4(h)-5....................................  5(b)-1.                     
                                            5(b)-2 new.                 
4(h)-6....................................  Deleted as unnecessary.     
4(h)-7....................................  Moved to Sec.  213.5(d)(6). 
4(h)-8....................................  Moved to Sec.  213.5(d)(2). 
4(h)-9....................................  Moved to Sec.  213.5(c).    
------------------------------------------------------------------------

5(b)  Extension
    Comment 5(b)-1, former comment 4(h)-5, is revised to clarify the 
circumstances in which disclosures are required when a consumer lease 
is extended on a month-to-month basis for more than six months. This 
comment and comment 5(b)-2 incorporate into the commentary longstanding 
Board interpretations that were originally issued when leasing 
provisions were contained in Regulation Z (Truth in Lending) prior to 
1982.

Section 213.7--Advertising

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
5(a)-1....................................  7(a)-1.                     
5(a)-2....................................  7(a)-2.                     
5(b)-1 and 2..............................  7(c)-1 and 2.               
5(c)-1....................................  7(b)-1.                     
                                            7(b)(1)-1 and -2 new.       
                                            7(b)(2)-1 new.              
5(c)-2....................................  7(d)(1)-1.                  
                                            7(d)(2)-1 new.              
5(d)-1....................................  7(e)-1 new.                 
                                            7(f)(1)-1 through -4 new.   
------------------------------------------------------------------------

    The CLA advertising provisions were amended on September 30, 1996 
by the Economic Growth and Regulatory Paperwork Reduction Act of 1996.
7(b)  Clear and Conspicuous Standard
    Comment 7(b)-1 provides guidance on the clear and conspicuous 
standard. A comment in the September 1995 proposal provided that lease 
disclosures must appear on a television screen for at least five 
seconds. The comment was not meant to provide a safe harbor, as five 
seconds is inadequate as a test for determining full compliance with 
the clear and conspicuous standard. The comment has been deleted.
7(b)(1)  Amount Due at Lease Signing or Delivery
    Comment 7(b)(1)-1 clarifies that an itemization of the amount due 
at lease signing or delivery is not required under Sec. 213.7(d)(2). 
Comment 7(b)(1)-2 provides general guidance on the prominence rule in 
Sec. 213.7(b)(1).
7(b)(2)  Advertisement of a Lease Rate
    Comment 7(b)(2)-1 provides guidance on the location of the 
statement that must accompany any percentage rate stated in an 
advertisement.
7(d)  Advertisement of Terms that Require Additional Disclosure
7(d)(1)  Triggering Terms
    Comment 7(d)(1)-1, former comment 5(c)-2, is revised to provide 
guidance for disclosing examples of a typical lease. The last sentence 
of the proposed comment has been deleted as unnecessary.
7(d)(2)  Additional Terms
    Commenters requested clarification on how third-party fees that 
vary by jurisdiction such as taxes, licenses, and registration fees 
should be reflected in the disclosure of the total amount due at lease 
signing or delivery under Sec. 213.7(d)(2)(ii). Comment 7(d)(2)-1 
clarifies that lessors have flexibility in disclosing such fees.
7(e)  Alternative Disclosures--Merchandise Tags
    Comment 7(e)-1 provides general guidance on disclosing multiple-
item leases with merchandise tags.
7(f)  Alternative Disclosures--Television or Radio Advertisements
7(f)(1)  Toll-free Number or Print Advertisement
    Comment 7(f)(1)-1 clarifies that a newspaper circulated nationally 
may qualify as a publication in general circulation in the community 
served by the media station. Comment 7(f)(1)-2 provides guidance on 
establishing a number for consumers to call for

[[Page 16058]]

disclosure information. Comment 7(f)(1)-3 provides guidance on the use 
of a multi-function toll-free number to provide disclosures. Comment 
7(f)(1)-4 provides general guidance on the statement that must 
accompany a toll-free number instructing consumers to call the number 
for details about costs and terms.

Section 213.8--Record Retention

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
6-1.......................................  8-1.                        
------------------------------------------------------------------------

    Section 213.8 of the regulation was formerly Sec. 213.6.

Section 213.9--Relations to State Laws.

    Section 213.9 of the regulation combines and simplifies former 
Secs. 213.7 and 213.8. The comments to these sections, as well as 
references in former appendices A and B, have been deleted as 
unnecessary.
    Comment 9-1 has been added to include the states that are exempt 
from Regulation M--Maine and Oklahoma.

Appendix A Model Forms

------------------------------------------------------------------------
                  Former                                 New            
------------------------------------------------------------------------
C-1.......................................  A-1, A-2.                   
C-2.......................................  Deleted.                    
C-3.......................................  A-3; closed-end definition  
                                             moved to Sec.  213.2(d)    
C-4.......................................  A-4.                        
------------------------------------------------------------------------

    Under the final rule, the model forms are moved from appendix C to 
appendix A. Former comment app. C-2 is deleted as unnecessary. Minor 
revisions are made to other comments in this appendix. For example, 
comment app. A-1, former comment C-1, is revised to indicate that 
changes to the headings, format, and the content of the segregated 
disclosures should be minimal. Also the definition of a closed-end 
lease in comment app. C-3 is deleted because a definition has been 
added in the regulation.

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, 12 CFR part 213 is 
amended 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. Supplement I to Part 213--Official Staff Commentary to 
Regulation M is revised to read as follows:

SUPPLEMENT I TO PART 213--OFFICIAL STAFF COMMENTARY TO REGULATION M

Introduction

    1. Official status. The commentary in Supplement I is the 
vehicle by which the Division of Consumer and Community Affairs of 
the Federal Reserve Board issues official staff interpretations of 
Regulation M (12 CFR part 213). Good faith compliance with this 
commentary affords protection from liability under section 130(f) of 
the Truth in Lending Act (15 U.S.C. 1640(f)). Section 130(f) 
protects lessors from civil liability for any act done or omitted in 
good faith in conformity with any interpretation issued by a duly 
authorized official or employee of the Federal Reserve System.
    2. Procedures for requesting interpretations. Under appendix C 
of Regulation M, anyone may request an official staff 
interpretation. Interpretations that are adopted will be 
incorporated in this commentary following publication in the Federal 
Register. No official staff interpretations are expected to be 
issued other than by means of this commentary.
    3. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph that 
it interprets. The comments are designated with as much specificity 
as possible according to the particular regulatory provision 
addressed. For example, some of the comments to Sec. 213.4(f) are 
further divided by subparagraph, such as comment 4(f)(1)-1 and 
comment 4(f)(2)-1. In other cases, comments have more general 
application and are designated, for example, as comment 4(a)-1. This 
introduction may be cited as comments I-1 through I-4. An appendix 
may be cited as comment app. A-1.
    4. Illustrations. Lists that appear in the commentary may be 
exhaustive or illustrative; the appropriate construction should be 
clear from the context. Illustrative lists are introduced by phrases 
such as ``including,'' ``such as,'' ``to illustrate,'' and ``for 
example.''

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

    1. Foreign applicability. Regulation M applies to all persons 
(including branches of foreign banks or leasing companies located in 
the United States) that offer consumer leases to residents of any 
state (including foreign nationals) as defined in Sec. 213.2(p). The 
regulation does not apply to a foreign branch of a U.S. bank or to a 
leasing company leasing to a U.S. citizen residing or visiting 
abroad or to a foreign national abroad.

Section 213.2--Definitions

2(b)  Advertisement

    1. Coverage. The term advertisement includes messages inviting, 
offering, or otherwise generally announcing to prospective customers 
the availability of consumer leases, whether in visual, oral, print 
or electronic media. Examples include:
    i. Messages in newspapers, magazines, leaflets, catalogs, and 
fliers.
    ii. Messages on radio, television, and public address systems.
    iii. Direct mail literature.
    iv. Printed material on any interior or exterior sign or 
display, in any window display, in any point-of-transaction 
literature or price tag that is delivered or made available to a 
lessee or prospective lessee in any manner whatsoever.
    v. Telephone solicitations.
    vi. On-line messages, such as those on the Internet.
    2. Exclusions. The term does not apply to the following:
    i. Direct personal contacts, including follow-up letters, cost 
estimates for individual lessees, or oral or written communications 
relating to the negotiation of a specific transaction.
    ii. Informational material distributed only to businesses.
    iii. Notices required by federal or state law, if the law 
mandates that specific information be displayed and only the 
mandated information is included in the notice.
    iv. News articles controlled by the news medium.
    v. Market research or educational materials that do not solicit 
business.
    3. Persons covered. See the commentary to Sec. 213.7(a).

2(d)  Closed-End Lease

    1. General. 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(e)  Consumer lease

    1. Primary purposes. A lessor must determine in each case if the 
leased property will be used primarily for personal, family, or 
household purposes. If a question exists as to the primary purpose 
for a lease, the fact that a lessor gives disclosures is not 
controlling on the question of whether the transaction is covered. 
The primary purpose of a lease is determined before or at 
consummation and a lessor need not provide Regulation M disclosures 
where there is a subsequent change in the primary use.
    2. Period of time. To be a consumer lease, the initial term of 
the lease must be more than four months. Thus, a lease of personal 
property for four months, three months or on a month-to-month or 
week-to-week basis (even though the lease actually extends beyond 
four months) is not a consumer lease and is not subject to the 
disclosure requirements of the regulation. However, a lease that 
imposes a penalty for not continuing the lease beyond four months is 
considered to have a term of more than four months. To illustrate:
    i. A three-month lease extended on a month-to-month basis and 
terminated after one year is not subject to the regulation.
    ii. A month-to-month lease with a penalty, such as the 
forfeiture of a security deposit for terminating before one year, is 
subject to the regulation.

[[Page 16059]]

    3. Total contractual obligation. The total contractual 
obligation is not necessarily the same as the total of payments 
disclosed under Sec. 213.4(e). The total contractual obligation 
includes nonrefundable amounts a lessee is contractually obligated 
to pay to the lessor, but excludes items such as:
    i. Residual value amounts or purchase-option prices;
    ii. Amounts collected by the lessor but paid to a third party, 
such as taxes, licenses, and registration fees.
    4. Credit sale. The regulation does not cover a lease that meets 
the definition of a credit sale in Regulation Z, 12 CFR 
226.2(a)(16), which is defined, in part, as a bailment or lease 
(unless terminable without penalty at any time by the consumer) 
under which the consumer:
    i. Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
services involved; and
    ii. Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the 
property upon compliance with the agreement.
    5. Agricultural purpose. Agricultural purpose means a purpose 
related to the production, harvest, exhibition, marketing, 
transportation, processing, or manufacture of agricultural products 
by a natural person who cultivates, plants, propagates, or nurtures 
those agricultural products, including but not limited to the 
acquisition of personal property and services used primarily in 
farming. Agricultural products include horticultural, viticultural, 
and dairy products, livestock, wildlife, poultry, bees, forest 
products, fish and shellfish, and any products thereof, including 
processed and manufactured products, and any and all products raised 
or produced on farms and any processed or manufactured products 
thereof.
    6. Organization or other entity. A consumer lease does not 
include a lease made to an organization such as a corporation or a 
government agency or instrumentality. Such a lease is not covered by 
the regulation even if the leased property is used (by an employee, 
for example) primarily for personal, family or household purposes, 
or is guaranteed by or subsequently assigned to a natural person.
    7. Leases of personal property incidental to a service. The 
following leases of personal property are deemed incidental to a 
service and thus are not subject to the regulation:
    i. Home entertainment systems requiring the consumer to lease 
equipment that enables a television to receive the transmitted 
programming.
    ii. Security alarm systems requiring the installation of leased 
equipment intended to monitor unlawful entries into a home and in 
some cases to provide fire protection.
    iii. Propane gas service where the consumer must lease a propane 
tank to receive the service.
    8. Safe deposit boxes. The lease of a safe deposit box is not a 
consumer lease under Sec. 213.2(e).

2(g)  Lessee

    1. Guarantors. Guarantors are not lessees for purposes of the 
regulation.

2(h)  Lessor

    1. Arranger of a lease. To ``arrange'' for the lease of personal 
property means to provide or offer to provide a lease that is or 
will be extended by another person under a business or other 
relationship pursuant to which the person arranging the lease (a) 
receives or will receive a fee, compensation, or other consideration 
for the service or (b) has knowledge of the lease terms and 
participates in the preparation of the contract documents required 
in connection with the lease. To illustrate:
    i. An automobile dealer who, pursuant to a business 
relationship, completes the necessary lease agreement before 
forwarding it for execution to the leasing company (to whom the 
obligation is payable on its face) is ``arranging'' for the lease.
    ii. An automobile dealer who, without receiving a fee for the 
service, refers a customer to a leasing company that will prepare 
all relevant contract documents is not ``arranging'' for the lease.
    2. Consideration. The term ``other consideration'' as used in 
comment 2(h)-1 refers to an actual payment corresponding to a fee or 
similar compensation and not to intangible benefits, such as the 
advantage of increased business, which may flow from the 
relationship between the parties.
    3. Assignees. An assignee may be a lessor for purposes of the 
regulation in circumstances where the assignee has substantial 
involvement in the lease transaction. See cf. Ford Motor Credit Co. 
v. Cenance, 452 U.S. 155 (1981) (held that an assignee was a 
creditor for purposes of the pre-1980 Truth in Lending Act and 
Regulation Z because of its substantial involvement in the credit 
transaction).
    4. Multiple lessors. See the commentary to Sec. 213.3(c).

2(j)  Organization

    1. Coverage. The term ``organization'' includes joint ventures 
and persons operating under a business name.

2(l)  Personal Property

    1. Coverage. Whether property is personal property depends on 
state or other applicable law. For example, a mobile home or 
houseboat may be considered personal property in one state but real 
property in another.

2(m)  Realized Value

    1. General. Realized value refers to either the retail or 
wholesale value of the leased property at early termination or at 
the end of the lease term. It is not a required disclosure. Realized 
value is relevant only to leases in which the lessee's liability at 
early termination or at the end of the lease term typically is based 
on the difference between the residual value (or the adjusted lease 
balance) of the leased property and its realized value.
    2. Options. Subject to the contract and to state or other 
applicable law, the lessor may calculate the realized value in 
determining the lessee's liability at the end of the lease term or 
at early termination in one of the three ways stated in 
Sec. 213.2(m). If the lessor sells the property prior to making the 
determination about liability, the price received for the property 
(or the fair market value) is the realized value. If the lessor does 
not sell the property prior to making that determination, the 
highest offer or the fair market value is the realized value.
    3. Determination of realized value. Disposition charges are not 
subtracted in determining the realized value but amounts 
attributable to taxes may be subtracted.
    4. Offers. In determining the highest offer for disposition, the 
lessor may disregard offers that an offeror has withdrawn or is 
unable or unwilling to perform.
    5. Lessor's appraisal. See commentary to Sec. 213.4(l).

2(o)  Security Interest and Security

    1. Disclosable interests. For purposes of disclosure, a security 
interest is an interest taken by the lessor to secure performance of 
the lessee's obligation. For example, if a bank that is not a lessor 
makes a loan to a leasing company and takes assignments of consumer 
leases generated by that company to secure the loan, the bank's 
security interest in the lessor's receivables is not a security 
interest for purposes of this regulation.
    2. General coverage. An interest the lessor may have in leased 
property must be disclosed only if it is considered a security 
interest under state or other applicable law. The term includes, but 
is not limited to, security interests under the Uniform Commercial 
Code; real property mortgages, deeds of trust, and other consensual 
or confessed liens whether or not recorded; mechanic's, 
materialman's, artisan's, and other similar liens; vendor's liens in 
both real and personal property; liens on property arising by 
operation of law; and any interest in a lease when used to secure 
payment or performance of an obligation.
    3. Insurance exception. The lessor's right to insurance proceeds 
or unearned insurance premiums is not a security interest for 
purposes of this regulation.

Section 213.3--General Disclosure Requirements

3(a)  General Requirements

    1. Basis of disclosures. Disclosures must reflect the terms of 
the legal obligation between the parties. For example:
    i. In a three-year lease with no penalty for termination after a 
one-year minimum term, disclosures are based on the full three-year 
term of the lease. The one-year minimum term is only relevant to the 
early termination provisions of Secs. 213.4 (g)(1), (k) and (l).
    2. Clear and conspicuous standard. The clear and conspicuous 
standard requires that disclosures be reasonably understandable. For 
example, the disclosures must be presented in a way that does not 
obscure the relationship of the terms to each other; appendix A of 
this part contains model forms that meet this standard. In addition, 
although no minimum typesize is required, the disclosures must be 
legible, whether typewritten, handwritten, or printed by computer.

[[Page 16060]]

    3. Multipurpose disclosure forms. A lessor may use a 
multipurpose disclosure form provided the lessor is able to 
designate the specific disclosures applicable to a given 
transaction, consistent with the requirement that disclosures be 
clearly and conspicuously provided.
    4. Number of transactions. Lessors have flexibility in handling 
lease transactions that may be viewed as multiple transactions. For 
example:
    i. When a lessor leases two items to the same lessee on the same 
day, the lessor may disclose the leases as either one or two lease 
transactions.
    ii. When a lessor sells insurance or other incidental services 
in connection with a lease, the lessor may disclose in one of two 
ways: as a single lease transaction (in which case Regulation M, not 
Regulation Z, disclosures are required) or as a lease transaction 
and a credit transaction.
    iii. When a lessor includes an outstanding lease or credit 
balance in a lease transaction, the lessor may disclose the 
outstanding balance as part of a single lease transaction (in which 
case Regulation M, not Regulation Z, disclosures are required) or as 
a lease transaction and a credit transaction.

3(a)(1)  Form of Disclosures

    1. Cross-references. Lessors may include in the nonsegregated 
disclosures a cross-reference to items in the segregated disclosures 
rather than repeat those items. A lessor may include in the 
segregated disclosures numeric or alphabetic designations as cross-
references to related information so long as such references do not 
obscure or detract from the segregated disclosures.
    2. Identification of parties. While disclosures must be made 
clearly and conspicuously, lessors are not required to use the word 
``lessor'' and ``lessee'' to identify the parties to the lease 
transaction.
    3. Lessor's address. The lessor must be identified by name; an 
address (and telephone number) may be provided.
    4. Multiple lessors and lessees. In transactions involving 
multiple lessors and multiple lessees, a single lessor may make all 
the disclosures to a single lessee as long as the disclosure 
statement identifies all the lessors and lessees.
    5. Lessee's signature. The regulation does not require that the 
lessee sign the disclosure statement, whether disclosures are 
separately provided or are part of the lease contract. Nevertheless, 
to provide evidence that disclosures are given before a lessee 
becomes obligated on the lease transaction, the lessor may, for 
example, ask the lessee to sign the disclosure statement or an 
acknowledgement of receipt, may place disclosures that are included 
in the lease documents above the lessee's signature, or include 
instructions alerting a lessee to read the disclosures prior to 
signing the lease.

3(a)(2)  Segregation of Certain Disclosures

    1. Location. The segregated disclosures referred to in 
Sec. 213.3(a)(2) may be provided on a separate document and the 
other required disclosures may be provided in the lease contract, so 
long as all disclosures are given at the same time. Alternatively, 
all disclosures may be provided in a separate document or in the 
lease contract.
    2. Additional information among segregated disclosures. The 
disclosures required to be segregated may contain only the 
information required or permitted to be included among the 
segregated disclosures.
    3. Substantially similar. See commentary to appendix A of this 
part.

3(a)(3)  Timing of Disclosures

    1. Consummation. When a contractual relationship is created 
between the lessor and the lessee is a matter to be determined under 
state or other applicable law.

3(b)  Additional Information; Nonsegregated Disclosures

    1. State law disclosures. A lessor may include in the 
nonsegregated disclosures any state law disclosures that are not 
inconsistent with the act and regulation under Sec. 213.9 as long 
as, in accordance with the standard set forth in Sec. 213.3(b) for 
additional information, the state law disclosures are not used or 
placed to mislead or confuse or detract from any disclosure required 
by the regulation.

3(c)  Multiple Lessors or Lessees

    1. Multiple lessors. If a single lessor provides disclosures to 
a lessee on behalf of several lessors, all disclosures for the 
transaction must be given, even if the lessor making the disclosures 
would not otherwise have been obligated to make a particular 
disclosure.

3(d)  Use of Estimates

3(d)(1)  Standard

    1. Time of estimated disclosure. The lessor may, after making a 
reasonable effort to obtain information, use estimates to make 
disclosures if necessary information is unknown or unavailable at 
the time the disclosures are made. For example:
    i. Section 213.4(n) requires the lessor to disclose the total 
amount payable by the lessee during the lease term for official and 
license fees, registration, certificate of title fees, or taxes. If 
these amounts are subject to increases or decreases over the course 
of the lease, the lessor may estimate the disclosures based on the 
rates or charges in effect at the time of the disclosure.
    2. Basis of estimates. Estimates must be made on the basis of 
the best information reasonably available at the time disclosures 
are made. The ``reasonably available'' standard requires that the 
lessor, acting in good faith, exercise due diligence in obtaining 
information. The lessor may rely on the representations of other 
parties. For example, the lessor might look to the consumer to 
determine the purpose for which leased property will be used, to 
insurance companies for the cost of insurance, or to an automobile 
manufacturer or dealer for the date of delivery.
    3. Residual value of leased property at termination. In an open-
end lease where the lessee's liability at the end of the lease term 
is based on the residual value of the leased property as determined 
at consummation, the estimate of the residual value must be 
reasonable and based on the best information reasonably available to 
the lessor (see Sec. 213.4(m)). A lessor should generally use an 
accepted trade publication listing estimated current or future 
market prices for the leased property unless other information or a 
reasonable belief based on its experience provides the better 
information. For example:
    i. An automobile lessor offering a three-year open-end lease 
assigns a wholesale value to the vehicle at the end of the lease 
term. The lessor may disclose as an estimate a wholesale value 
derived from a generally accepted trade publication listing current 
wholesale values.
    ii. Same facts as above, except that the lessor discloses an 
estimated value derived by adjusting the residual value quoted in 
the trade publication because, in its experience, the trade 
publication values either understate or overstate the prices 
actually received in local used-vehicle markets. The lessor may 
adjust estimated values quoted in trade publications if the lessor 
reasonably believes based on its experience that the values are 
understated or overstated.
    4. Retail or wholesale value. The lessor may choose either a 
retail or a wholesale value in estimating the value of leased 
property at termination of an open-end lease provided the choice is 
consistent with the lessor's general practice when determining the 
value of the property at the end of the lease term. The lessor 
should indicate whether the value disclosed is a retail or wholesale 
value.
    5. Labelling estimates. Generally, only the disclosure for which 
the exact information is unknown is labelled as an estimate. 
Nevertheless, when several disclosures are affected because of the 
unknown information, the lessor has the option of labelling as an 
estimate every affected disclosure or only the disclosure primarily 
affected.

3(e)  Effect of Subsequent Occurrence

    1. Subsequent occurrences. Examples of subsequent occurrences 
include:
    i. An agreement between the lessee and lessor to change from a 
monthly to a weekly payment schedule.
    ii. An increase in official fees or taxes.
    iii. An increase in insurance premiums or coverage caused by a 
change in the law.
    iv. Late delivery of an automobile caused by a strike.
    2. Redisclosure. When a disclosure becomes inaccurate because of 
a subsequent occurrence, the lessor need not make new disclosures 
unless new disclosures are required under Sec. 213.5.
    3. Lessee's failure to perform. The lessor does not violate the 
regulation if a previously given disclosure becomes inaccurate when 
a lessee fails to perform obligations under the contract and a 
lessor takes actions that are necessary and proper in such 
circumstances to protect its interest. For example, the addition of 
insurance or a security interest by the lessor because the lessee 
has not performed obligations contracted for in the lease is not a 
violation of the regulation.

Section 213.4--Content of Disclosures

4(a)  Description of Property

    1. Placement of description. Although the description of leased 
property may not be

[[Page 16061]]

included among the segregated disclosures, a lessor may choose to 
place the description directly above the segregated disclosures.

4(b)  Amount Due at Lease Signing or Delivery

    1. Consummation. See commentary to Sec. 213.3(a)(3).
    2. Capitalized cost reduction. A capitalized cost reduction is a 
payment in the nature of a downpayment on the leased property that 
reduces the amount to be capitalized over the term of the lease. 
This amount does not include any amounts included in a periodic 
payment paid at lease signing or delivery.
    3. ``Negative'' equity trade-in allowance. If an amount owed on 
a prior lease or credit balance exceeds the agreed upon value of a 
trade-in, the difference is not reflected as a negative trade-in 
allowance under Sec. 213.4(b). The lessor may disclose the trade-in 
allowance as zero or not applicable, or may leave a blank line.
    4. Rebates. Only rebates applied toward an amount due at lease 
signing or delivery are required to be disclosed under 
Sec. 213.4(b).
    5. Balance sheet approach. In motor-vehicle leases, the total 
for the column labeled ``total amount due at lease signing or 
delivery'' must equal the total for the column labeled ``how the 
amount due at lease signing or delivery will be paid.''
    6. Amounts to be paid in cash. The term cash is intended to 
include payments by check or other payment methods in addition to 
currency; however, a lessor may add a line item under the column 
``how the amount due at lease signing or delivery will be paid'' for 
non-currency payments such as credit cards.

4(c)  Payment Schedule and Total Amount of Periodic Payments

    1. Periodic payments. The phrase ``number, amount, and due dates 
or periods of payments'' requires the disclosure of all payments 
that are made at regular intervals and generally derived from rent, 
capitalized or amortized amounts such as depreciation, and other 
amounts that are collected by the lessor at the same interval(s), 
including for example taxes, maintenance, and insurance charges. 
Other periodic payments may, but need not, be disclosed under 
Sec. 213.4(c).

4(d)  Other charges

    1. Coverage. Section 213.4(d) requires the disclosure of charges 
that are anticipated by the parties incident to the normal operation 
of the lease agreement. If a lessor is unsure whether a particular 
fee is an ``other charge,'' the lessor may disclose the fee as such 
without violating Sec. 213.4(d) or the segregation rule under 
Sec. 213.3(a)(2).
    2. Excluded charges. This section does not require disclosure of 
charges that are imposed when the lessee terminates early, fails to 
abide by, or modifies the terms of the existing lease agreement, 
such as charges for:
    i. Late payment.
    ii. Default.
    iii. Early termination.
    iv. Deferral of payments.
    v. Extension of the lease.
    3. Third-party fees and charges. Third-party fees or charges 
collected by the lessor on behalf of third parties, such as taxes, 
are not disclosed under Sec. 213.4(d).
    4. Relationship to other provisions. The other charges mentioned 
in this paragraph are charges that are not required to be disclosed 
under some other provision of Sec. 213.4. To illustrate:
    i. The price of a mechanical breakdown protection (MBP) contract 
is sometimes disclosed as an ``other charge.'' Nevertheless, the 
price of MBP is sometimes reflected in the periodic payment 
disclosure under Sec. 213.4(c) or in states where MBP is regarded as 
insurance, the cost is be disclosed in accordance with 
Sec. 213.4(o).
    5. Lessee's liabilities at the end of the lease term. 
Liabilities that the lessor imposes upon the lessee at the end of 
the scheduled lease term and that must be disclosed under 
Sec. 213.4(d) include disposition and ``pick-up'' charges.
    6. Optional ``disposition'' charges. Disposition and similar 
charges that are anticipated by the parties as an incident to the 
normal operation of the lease agreement must be disclosed under 
Sec. 213.4(d). If, under a lease agreement, a lessee may return 
leased property to various locations, and the lessor charges a 
disposition fee depending upon the location chosen, under 
Sec. 213.4(d), the lessor must disclose the highest amount charged. 
In such circumstances, the lessor may also include a brief 
explanation of the fee structure in the segregated disclosure. For 
example, if no fee or a lower fee is imposed for returning a leased 
vehicle to the originating dealer as opposed to another location, 
that fact may be disclosed. By contrast, if the terms of the lease 
treat the return of the leased property to a location outside the 
lessor's service area as a default, the fee imposed is not disclosed 
as an ``other charge,'' although it may be required to be disclosed 
under Sec. 213.4(q).

4(e)  Total of payments

    1. Open-end lease. The additional statement is required under 
Sec. 213.4(e) for open-end leases because, with some limitations, a 
lessee is liable at the end of the lease term for the difference 
between the residual and realized values of the leased property.

4(f)  Payment Calculation

    1. Motor-vehicle lease. Whether leased property is a motor 
vehicle is determined by state or other applicable law.

4(f)(1)  Gross Capitalized Cost

    1. Agreed upon value of the vehicle. The agreed upon value of a 
motor vehicle includes the amount of capitalized items such as 
charges for vehicle accessories and options, and delivery or 
destination charges. The lessor may also include taxes and fees for 
title, licenses, and registration that are capitalized. Charges for 
service or maintenance contracts, insurance products, guaranteed 
automobile protection, or an outstanding balance on a prior lease or 
credit transaction are not included in the agreed upon value.
    2. Itemization of the gross capitalized cost. The lessor may 
choose to provide the itemization of the gross capitalized cost only 
on request or may provide the itemization as a matter of course. In 
the latter case, the lessor need not provide a statement of the 
lessee's option to receive an itemization. The gross capitalized 
cost must be itemized by type and amount. The lessor may include in 
the itemization an identification of the items and amounts of some 
or all of the items contained in the agreed upon value of the 
vehicle. The itemization must be provided at the same time as the 
other disclosures required by Sec. 213.4, but it may not be included 
among the segregated disclosures.

4(f)(8)  Lease Term

    1. Definition. Under Sec. 213.4(f)(8) the ``lease term'' refers 
to the number of periodic payments.

4(g)  Early Termination

4(g)(1)  Conditions and Disclosure of Charges

    1. Reasonableness of charges. See the commentary to 
Sec. 213.4(q).
    2. Description of the method. Section 213.4(g)(1) requires a 
full description of the method of determining an early termination 
charge. The lessor should attempt to provide consumers with clear 
and understandable descriptions of its early termination charges. 
Descriptions that are full, accurate, and not intended to be 
misleading will comply with Sec. 213.4(g)(1), even if the 
descriptions are complex. In providing a full description of an 
early termination method, a lessor may use the name of a generally 
accepted method of computing the unamortized cost portion (also 
known as the ``adjusted lease balance'') of its early termination 
charges. For example, a lessor may state that the ``constant yield'' 
method will be utilized in obtaining the adjusted lease balance, but 
must specify how that figure, and any other term or figure, is used 
in computing the total early termination charge imposed upon the 
consumer. Additionally, if a lessor refers to a named method in this 
manner, the lessor must provide a written explanation of that method 
if requested by the consumer. The lessor has the option of providing 
the explanation as a matter of course in the lease documents or on a 
separate document.
    3. Timing of written explanation of a named method. While a 
lessor may provide an address or telephone number for the consumer 
to request a written explanation of the named method used to 
calculate the adjusted leased balance, if at consummation a consumer 
requests such an explanation, the lessor must provide a written 
explanation at that time. If a consumer requests an explanation 
after consummation, the lessor must provide a written explanation 
within a reasonable time after the request is made.
    4. Default. When default is a condition for early termination of 
a lease, default charges must be disclosed under Sec. 213.4(g)(1). 
See the commentary to Sec. 213.4(q).
    5. Lessee's liability at early termination. When the lessee is 
liable for the difference between the unamortized cost and the 
realized value at early termination, the method of determining the 
amount of the difference must be disclosed under Sec. 213.4(g)(1).

4(h)  Maintenance Responsibilities

    1. Standards for wear and use. No disclosure is required if a 
lessor does not set

[[Page 16062]]

standards or impose charges for wear and use (such as excess 
mileage).

4(i)  Purchase Option

    1. Mandatory disclosure of no purchase option. Generally the 
lessor need only make the specific required disclosures that apply 
to a transaction. In the case of a purchase option disclosure, 
however, a lessor must disclose affirmatively that the lessee has no 
option to purchase the leased property if the purchase option is 
inapplicable.
    2. Existence of purchase option. Whether a purchase option 
exists under the lease is determined by state or other applicable 
law. The lessee's right to submit a bid to purchase property at 
termination of the lease is not an option to purchase under 
Sec. 213.4(i) if the lessor is not required to accept the lessee's 
bid and the lessee does not receive preferential treatment.
    3. Purchase-option fee. A purchase-option fee is disclosed under 
Sec. 213.4(i), not Sec. 213.4(d). The fee may be separately itemized 
or disclosed as part of the purchase-option price.
    4. Official fees and taxes. Official fees such as those for 
taxes, licenses, and registration charged in connection with the 
exercise of a purchase option may be disclosed under Sec. 213.4(i) 
as part of the purchase-option price (with or without a reference to 
their inclusion in that price) or may be separately disclosed and 
itemized by category. Alternatively, a lessor may provide a 
statement indicating that the purchase-option price does not include 
fees for tags, taxes, and registration.
    5. Purchase-option price. Lessors must disclose the purchase-
option price as a sum certain or as a sum certain to be determined 
at a future date by reference to a readily available independent 
source. The reference should provide sufficient information so that 
the lessee will be able to determine the actual price when the 
option becomes available. Statements of a purchase price as the 
``negotiated price'' or the ``fair market value'' do not comply with 
the requirements of Sec. 213.4(i).

4(j)  Statement referencing nonsegregated disclosures

    1. Content. A lessor may delete inapplicable items from the 
disclosure. For example, if a lease contract does not include a 
security interest, the reference to a security interest may be 
omitted.

4(l)  Right of appraisal

    1. Disclosure inapplicable. The lessee does not have the right 
to an independent appraisal merely because the lessee is liable at 
the end of the lease term or at early termination for unreasonable 
wear or use. Thus, the disclosure under Sec. 213.4(l) does not 
apply. For example:
    i. The automobile lessor might expect a lessee to return an 
undented car with four good tires at the end of the lease term. Even 
though it may hold the lessee liable for the difference between a 
dented car with bald tires and the value of a car in reasonably good 
repair, the disclosure under Sec. 213.4(l) is not required.
    2. Lessor's appraisal. If the lessor obtains an appraisal of the 
leased property to determine its realized value, that appraisal does 
not suffice for purposes of section 183(c) of the act; the lessor 
must disclose the lessee's right to an independent appraisal under 
Sec. 213.4(l).
    3. Retail or wholesale. In providing the disclosures in 
Sec. 213.4(l), a lessor must indicate whether the wholesale or 
retail appraisal value will be used.
    4. Time restriction on appraisal. The regulation does not 
specify a time period in which the lessee must exercise the 
appraisal right. The lessor may require a lessee to obtain the 
appraisal within a reasonable time after termination of the lease.

4(m)  Liability at end of Lease Term Based on Residual Value

    1. Open-end leases. Section 213.4(m) applies only to open-end 
leases.
    2. Lessor's payment of attorney's fees. Section 183(a) of the 
act requires that the lessor pay the lessee's attorney's fees in all 
actions under Sec. 213.4(m), whether successful or not.

4(m)(1)  Rent and other charges

    1. General. This disclosure is intended to represent the cost of 
financing an open-end lease based on charges and fees that the 
lessor requires the lessee to pay. Examples of disclosable charges, 
in addition to the rent charge, include acquisition, disposition, or 
assignment fees. Charges imposed by a third party whose services are 
not required by the lessor (such as official fees and voluntary 
insurance) are not included in the Sec. 213.4(m)(1) disclosure.

4(m)(2)  Excess liability

    1. Coverage. The disclosure limiting the lessee's liability for 
the value of the leased property does not apply in the case of early 
termination.
    2. Leases with a minimum term. If a lease has an alternative 
minimum term, the disclosures governing the liability limitation are 
not applicable for the minimum term.
    3. Charges not subject to rebuttable presumption. The limitation on 
liability applies only to liability at the end of the lease term that 
is based on the difference between the residual value of the leased 
property and its realized value. The regulation does not preclude a 
lessor from recovering other charges from the lessee at the end of the 
lease term. Examples of such charges include:
    i. Disposition charges.
    ii. Excess mileage charges.
    iii. Late payment and default charges.
    iv. In simple-interest accounting leases, amount by which the 
unamortized cost exceeds the residual value because the lessee has 
not made timely payments.

4(n)  Fees and taxes

    1. Treatment of certain taxes. Taxes paid in connection with the 
lease are generally disclosed under Sec. 213.4(n), but there are 
exceptions. To illustrate:
    i. Taxes paid by lease signing or delivery are disclosed under 
Sec. 213.4(b) and Sec. 213.4(n).
    ii. Taxes that are part of a regularly scheduled payments are 
reflected in the disclosure under Sec. 213.4(c) and itemized under 
Sec. 213.4(f)(10).
    iii. A tax payable by the lessor that is passed on to the 
consumer and is reflected in the lease documentation must be 
disclosed under Sec. 213.4(n). A tax payable by the lessor and 
absorbed as a cost of doing business need not be disclosed.
    iv. Taxes charged in connection with the exercise of a purchase 
option are disclosed under Sec. 213.4(i), not Sec. 213.4(n).

4(o)  Insurance

    1. Coverage. If insurance is obtained through the lessor, 
information on the type and amount of insurance coverage (whether 
voluntary or required) as well as the cost, must be disclosed.
    2. Lessor's insurance. Insurance purchased by the lessor 
primarily for its own benefit, and absorbed as a business expense 
and not separately charged to the lessee, need not be disclosed 
under Sec. 213.4(o) even if it provides an incidental benefit to the 
lessee.
    3. Mechanical breakdown protection and other products. Whether 
products purchased in conjunction with a lease, such as mechanical 
breakdown protection (MBP) or guaranteed automobile protection 
(GAP), should be treated as insurance is determined by state or 
other applicable law. In states that do not treat MBP or GAP as 
insurance, Sec. 213.4(o) disclosures are not required. In such cases 
the lessor may, however, disclose this information in accordance 
with the additional information provision in Sec. 213.3(b). For MBP 
insurance contracts not capped by a dollar amount, lessors may 
describe coverage by referring to a limitation by mileage or time 
period, for example, by indicating that the mechanical breakdown 
contract insures parts of the automobile for up to 100,000 miles.

4(p)  Warranties or Guarantees

    1. Brief identification. The statement identifying warranties 
may be brief and need not describe or list all warranties applicable 
to specific parts such as for air conditioning, radio, or tires in 
an automobile. For example, manufacturer's warranties may be 
identified simply by a reference to the standard manufacturer's 
warranty. If a lessor provides a comprehensive list of warranties 
that may not all apply, to comply with Sec. 213.4(p) the lessor must 
indicate which warranties apply or, alternatively, which warranties 
do not apply.
    2. Warranty disclaimers. Although a disclaimer of warranties is 
not required by the regulation, the lessor may give a disclaimer as 
additional information in accordance with Sec. 213.3(b).
    3. State law. Whether an express warranty or guaranty exists is 
determined by state or other law.

4(q)  Penalties and Other Charges for Delinquency

    1. Collection costs. The automatic imposition of collection 
costs or attorney fees upon default must be disclosed under 
Sec. 213.4(q). Collection costs or attorney fees that are not 
imposed automatically, but are contingent upon expenditures in 
conjunction with a collection proceeding or upon the

[[Page 16063]]

employment of an attorney to effect collection, need not be 
disclosed.
    2. Charges for early termination. When default is a condition 
for early termination of a lease, default charges must also be 
disclosed under Sec. 213.4(g)(1). The Sec. 213.4(q) and (g)(1) 
disclosures may, but need not, be combined. Examples of combined 
disclosures are provided in the model lease disclosure forms in 
appendix A.
    3. Simple-interest leases. In a simple-interest accounting 
lease, the additional rent charge that accrues on the lease balance 
when a periodic payment is made after the due date does not 
constitute a penalty or other charge for late payment. Similarly, 
continued accrual of the rent charge after termination of the lease 
because the lessee fails to return the leased property does not 
constitute a default charge. But in either case, if the additional 
charge accrues at a rate higher than the normal rent charge, the 
lessor must disclose the amount of or the method of determining the 
additional charge under Sec. 213.4(q).
    4. Extension charges. Extension charges that exceed the rent 
charge in a simple-interest accounting lease or that are added 
separately are disclosed under Sec. 213.4(q).
    5. Reasonableness of charges. Pursuant to section 183(b) of the 
act, penalties or other charges for delinquency, default, or early 
termination may be specified in the lease but only in an amount that 
is reasonable in light of the anticipated or actual harm caused by 
the delinquency, default, or early termination, the difficulties of 
proof of loss, and the inconvenience or nonfeasibility of otherwise 
obtaining an adequate remedy.

4(r)  Security Interest

    1. Disclosable security interests. See Sec. 213.2(o) and 
accompanying commentary to determine what security interests must be 
disclosed.

4(s)  Limitations on Rate Information

    1. Segregated disclosures. A lease rate may not be included 
among the segregated disclosures referenced in Sec. 213.3(a)(2).

Section 213.5--Renegotiations, Extensions and Assumptions

    1. Coverage. Section 213.5 applies only to existing leases that 
are covered by the regulation. It does not apply to the 
renegotiation or extension of leases with an initial term of four 
months or less, because such leases are not covered by the 
definition of consumer lease in.
    Sec. 213.2(e). Whether and when a lease is satisfied and 
replaced by a new lease is determined by state or other applicable 
law.

5(b)  Extensions

    1. Time of extension disclosures. If a consumer lease is 
extended for a specified term greater than six months, new 
disclosures are required at the time the extension is agreed upon. 
If the lease is extended on a month-to-month basis and the 
cumulative extensions exceed six months, new disclosures are 
required at the commencement of the seventh month and at the 
commencement of each seventh month thereafter for as long as the 
extensions continue. If a consumer lease is extended for terms of 
varying durations, one of which will exceed six months beyond the 
originally scheduled termination date of the lease, new disclosures 
are required at the commencement of the term that will exceed six 
months beyond the originally scheduled termination date.
    2. Content of disclosures for month-to-month extensions. The 
disclosures for a lease extended on a month-to-month basis for more 
than six months should reflect the month-to-month nature of the 
transaction.

Section 213.7--Advertising

7(a)  General Rule

    1. Persons covered. All ``persons'' must comply with the 
advertising provisions in this section, not just those that meet the 
definition of a lessor in Sec. 213.2(h). Thus, automobile dealers, 
merchants, and others who are not themselves lessors must comply 
with the advertising provisions of the regulation if they advertise 
consumer lease transactions. Pursuant to section 184(b) of the act, 
however, owners and personnel of the media in which an advertisement 
appears or through which it is disseminated are not subject to civil 
liability for violations under section 185(b) of the act.
    2. ``Usually and customarily.'' Section 213.7(a) does not 
prohibit the advertising of a single item or the promotion of a new 
leasing program, but prohibits the advertising of terms that are not 
and will not be available. Thus, an advertisement may state terms 
that will be offered for only a limited period or terms that will 
become available at a future date.

7(b)  Clear and Conspicuous Standard

    1. Standard. The disclosures in an advertisement in any media 
must be reasonably understandable. For example, very fine print in a 
television advertisement or detailed and very rapidly stated 
information in a radio advertisement does not meet the clear and 
conspicuous standard if consumers cannot see and read or hear, and 
cannot comprehend, the information required to be disclosed.

7(b)(1)  Amount due at Lease Signing or Delivery

    1. Itemization not required. Only a total of amounts due at 
lease signing or delivery is required to be disclosed, not an 
itemization of its component parts. Such an itemization is provided 
in any transaction-specific disclosures provided under Sec. 213.4.
    2. Prominence rule. Except for a periodic payment, oral or 
written references to components of the total due at lease signing 
or delivery (for example, a reference to a capitalized cost 
reduction, where permitted) may not be more prominent than the 
disclosure of the total amount due at lease signing or delivery.

7(b)(2)  Advertisement of a Lease Rate

    1. Location of statement. The notice required to accompany a 
percentage rate stated in an advertisement must be placed in close 
proximity to the rate without any other intervening language or 
symbols. For example, a lessor may not place an asterisk next to the 
rate and place the notice elsewhere in the advertisement. In 
addition, with the exception of the notice required by 
Sec. 213.4(s), the rate cannot be more prominent than any Sec. 213.4 
disclosure stated in the advertisement.

7(c)  Catalogs and Multi-Page Advertisements

    1. General rule. The multiple-page advertisements referred to in 
Sec. 213.7(c) are advertisements consisting of a series of numbered 
pages--for example, a supplement to a newspaper. A mailing 
comprising several separate flyers or pieces of promotional material 
in a single envelope is not a single multiple-page advertisement.
    12. Cross-references. A multiple-page advertisement is a single 
advertisement (requiring only one set of lease disclosures) if it 
contains a table, chart, or schedule with the disclosures required 
under Sec. 213.7(d)(2) (i) through (v). If one of the triggering 
terms listed in Sec. 213.7(d)(1) appears in a catalog or other 
multiple-page advertisement, the page on which the triggering term 
is used must clearly refer to the specific page where the table, 
chart, or schedule begins.

7(d)(1)  Triggering Terms

    1. Typical example. When any triggering term appears in a lease 
advertisement, the additional terms enumerated in Sec. 213.7(d)(2) 
(i) through (v) must also appear. In a multi-lease advertisement, an 
example of one or more typical leases with a statement of all the 
terms applicable to each may be used. The examples must be labeled 
as such and must reflect representative lease terms that are made 
available by the lessor to consumers.

7(d)(2)  Additional Terms

    1. Third-party fees that vary by state or locality. The 
disclosure of the total amount due at lease signing or delivery may:
    i. Exclude third-party fees, such as taxes, licenses, and 
registration fees and disclose that fact; or
    ii. Provide a total that includes third-party fees based on a 
particular state or locality as long as that fact and the fact that 
fees may vary by state or locality are disclosed.

7(e)  Alternative Disclosures--Merchandise Tags

    1. Multiple-item leases. Multiple-item leases that utilize 
merchandise tags requiring additional disclosures may use the 
alternate disclosure rule.

7(f)  Alternative Disclosures--Television or Radio Advertisements

7(f)(1)  Toll-Free Number or Print Advertisement

    1. Publication in general circulation. A reference to a written 
advertisement appearing in a newspaper circulated nationally, for 
example, USA Today or the Wall Street Journal, may satisfy the 
general circulation requirement in Sec. 213.7(f)(1)(ii).
    2. Toll-free number, local or collect calls. In complying with 
the disclosure requirements of Sec. 213.7(f)(1)(i), a lessor must 
provide a toll-free number for nonlocal calls made from an area code 
other than the one used in the lessor's dialing area. Alternatively, 
a lessor may provide any

[[Page 16064]]

telephone number that allows a consumer to reverse the phone charges 
when calling for information.
    3. Multi-purpose number. When an advertised toll-free number 
responds with a recording, lease disclosures must be provided early 
in the sequence to ensure that the consumer receives the required 
disclosures. For example, in providing several dialing options--such 
as providing directions to the lessor's place of business--the 
option allowing the consumer to request lease disclosures should be 
provided early in the telephone message to ensure that the option to 
request disclosures is not obscured by other information.
    4. Statement accompanying toll free number. Language must 
accompany a telephone and television number indicating that 
disclosures are available by calling the toll-free number, such as 
``call 1-800-000-0000 for details about costs and terms.''

Section 213.8--Record Retention

    1. Manner of retaining evidence. A lessor must retain evidence 
of having performed required actions and of having made required 
disclosures. Such records may be retained in paper form, on 
microfilm, microfiche, or computer, or by any other method designed 
to reproduce records accurately. The lessor need retain only enough 
information to reconstruct the required disclosures or other 
records.

Section 213.9--Relation to State Laws

    1. Exemptions granted. Effective October 1, 1982, the Board 
granted the following exemptions from portions of the Consumer 
Leasing Act:
    i. Maine. Lease transactions subject to the Maine Consumer 
Credit Code and its implementing regulations are exempt from 
chapters 2, 4, and 5 of the federal act. (The exemption does not 
apply to transactions in which a federally chartered institution is 
a lessor.)
    ii. Oklahoma. Lease transactions subject to the Oklahoma 
Consumer Credit Code are exempt from chapters 2 and 5 of the federal 
act. (The exemption does not apply to sections 132 through 135 of 
the federal act, nor does it apply to transactions in which a 
federally chartered institution is a lessor.)

Appendix A--Model Forms

    1. Permissible changes. Although use of the model forms is not 
required, lessors using them properly will be deemed to be in 
compliance with the regulation. Generally, lessors may make certain 
changes in the format or content of the forms and may delete any 
disclosures that are inapplicable to a transaction without losing 
the act's protection from liability. For example, the model form 
based on monthly periodic payments may be modified for single-
payment lease transactions or for quarterly or other periodic 
payments. The content, format, and headings for the segregated 
disclosures must be substantially similar to those contained in the 
model forms; therefore, any changes should be minimal. The changes 
to the model forms should not be so extensive as to affect the 
substance and the clarity of the disclosures.
    2. Examples of acceptable changes.
    i. Using the first person, instead of the second person, in 
referring to the lessee.
    ii. Using ``lessee,'' ``lessor,'' or names instead of pronouns.
    iii. Rearranging the sequence of the nonsegregated disclosures.
    iv. Incorporating certain state ``plain English'' requirements.
    v. Deleting inapplicable disclosures by blocking out, filling in 
``N/A'' (not applicable) or ``0,'' crossing out, leaving blanks, 
checking a box for applicable items, or circling applicable items. 
(This should facilitate use of multi-purpose standard forms.)
    vi. Adding language or symbols to indicate estimates.
    vii. Adding numeric or alphabetic designations.
    viii. Rearranging the disclosures into vertical columns, except 
for Sec. 213.4 (b) through (e) disclosures.
    ix. Using icons and other graphics.
    3. Model closed-end or net vehicle lease disclosure. Model A-2 
is designed for a closed-end or net vehicle lease. Under the ``Early 
Termination and Default'' provision a reference to the lessee's 
right to an independent appraisal of the leased vehicle under 
Sec. 213.4(l) is included for those closed-end leases in which the 
lessee's liability at early termination is based on the vehicle's 
realized value.
    4. Model furniture lease disclosures. Model A-3 is a closed-end 
lease disclosure statement designed for a typical furniture lease. 
It does not include a disclosure of the appraisal right at early 
termination required under Sec. 213.4(l) because few closed-end 
furniture leases base the lessee's liability at early termination on 
the realized value of the leased property. The disclosure should be 
added if it is applicable.

    By order of the Board of Governors of the Federal Reserve 
System, acting through the Secretary of the Board under delegated 
authority, March 31, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-8574 Filed 4-3-97; 8:45 am]
BILLING CODE 6210-01-P