[Federal Register Volume 63, Number 57 (Wednesday, March 25, 1998)]
[Proposed Rules]
[Pages 14538-14548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6990]
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FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1004]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is publishing for comment a proposed rule amending
Regulation M, which implements the Consumer Leasing Act. The act
requires lessors to provide consumers with uniform cost and other
disclosures about consumer lease transactions. The proposed rule would
allow lessors to deliver by electronic communication the disclosures
required by the act and regulation, if the consumer agrees to such
delivery. For purposes of the regulation, an electronic communication
is a message transmitted electronically that allows visual text to be
displayed on equipment such as a modem-equipped computer. In addition,
the proposal contains several technical amendments that would be made
to the regulation and commentary.
DATES: Comments should be received by May 15, 1998.
ADDRESSES: Comments should refer to Docket No. R-1004, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments also may be delivered to Room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the
guard station in the Eccles Building courtyard on 20th Street, N.W.
(between Constitution Avenue and C Street) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. weekdays, except as provided in 12 CFR 261.12 of the Board's
Rules Regarding Availability of Information.
FOR FURTHER INFORMATION CONTACT: Obrea Poindexter or Kyung Cho-Miller,
Staff Attorneys, Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, at (202) 452-3667. For users
of Telecommunications Device for the Deaf (TDD) only, 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 Board's Regulation M (12 CFR 213) implements
the act. 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.
As part of the Regulatory Planning and Review Program and its
review of regulations under section 303 of the Riegle Community
Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4803),
the Board determined that the use of electronic communication to
deliver information to consumers that is required by federal consumer
financial services and fair lending laws could effectively reduce
regulatory compliance burden without adversely affecting consumer
protections. Thus, the Board has been considering the issue and closely
following the development of electronic communication. For example, in
May 1996 the Board proposed to amend Regulation E (Electronic Fund
Transfers) to permit disclosures to be provided electronically. In
March 1997, the Board issued an amendment to the staff commentary to
Regulation CC (Availability of Funds and Collection of Checks) that
allowed financial institutions to send notices electronically. (62 FR
13801, March 18, 1997.)
Having considered the comments received on the Regulation E
proposal and other rulemakings, the Board now proposes to amend
Regulation M to allow lessors to provide Regulation M disclosures
electronically. Any electronic communication would remain subject to
the timing, format, and other requirements of the act and the
regulation. Concurrently, the Board is issuing similar proposed rules
to address electronic communication under Regulations DD (Truth in
Savings), B (Equal Credit Opportunity), and Z (Truth in Lending),
published elsewhere in today's Federal Register. In addition, the Board
has issued an interim rule under Regulation E also published elsewhere
in today's Federal Register so that financial institutions can
implement systems to provide Electronic Fund Transfer Act disclosures
electronically.
II. Proposed Regulatory Revisions
The CLA and Regulation M require disclosures to be provided to
consumers in writing. Under Regulation M, the requirement that
disclosures be in writing has been presumed to require that lessors
provide paper documents. However, under many laws that call for
information to be in writing, information in electronic form is
considered to be ``written.'' Information produced, stored, or
communicated by computer is also generally considered to be a writing
at least where text is involved.
Pursuant to its authority under section 187 of the CLA, the Board
proposes to amend Regulation M to permit lessors to use electronic
communication where the regulation calls for information to be provided
in writing. Few lessors currently consummate lease agreements
electronically; however, as standards are developed for establishing
legal agreements by electronic communication, more lease contracts may
be entered into by that means.
The term ``electronic communication'' is limited to a communication
that can be displayed as visual text. An example is an electronic
visual text message that is displayed on a screen (such as the
consumer's computer monitor). Communications by telephone voicemail
systems do not meet the definition of ``electronic communication'' for
purposes of this regulation because they do not have the feature
generally associated with a writing--visual text.
Section 213.3--General Disclosure Requirements
3(a) General requirements
Definition
Section 213.3(a) would be revised to address electronic
communications under Sec. 213.3(a)(5). Electronic communication is a
visual text message electronically transmitted between a lessor and a
consumer's home computer or other electronic device used by a consumer.
Agreements Between Lessors and Consumers
Section 213.3(a)(5) permits lessors to send electronic disclosures
if the consumer agrees. There may be various ways that a lessor and a
consumer could agree to the electronic delivery of disclosures and
other information. Whether such an agreement exists between the parties
would be
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determined by applicable state law. The regulation would not preclude a
lessor and a consumer from entering into an agreement electronically,
nor does it prescribe a formal mechanism for doing so. The Board does
believe, however, that consumers should be clearly informed when they
are consenting to the delivery of CLA and Regulation M disclosures
electronically.
Delivery Requirements for Electronic Communication
Regulation M provides that a lessor make disclosures to a consumer.
The requirement is satisfied when the institution ensures that the
disclosures will be presented to the consumer in a timely manner.
Electronic disclosures remain subject to the format, timing, and other
applicable requirements under Regulation M.
The ``Clear and Conspicuous'' Standard
Regulation M requires lessors to present required information
``clearly and conspicuously'' in writing. The ``clear and conspicuous''
requirement applies to electronic disclosures. The Board does not
intend to discourage or encourage specific types of technologies.
Regardless of the technology, however, the disclosures provided by
electronic communication must meet the ``clear and conspicuous''
standard. A lessor must satisfy this requirement, but is generally not
required to ensure that the consumer has the equipment to read the
disclosures.
Consumer Ability to Retain Disclosures
Regulation M requires that written disclosures be in a form the
consumer may keep. This requirement applies to disclosures provided by
electronic communication. Lessors satisfy the retention requirement if,
for example, disclosures can be printed or downloaded by the consumer.
Thus, lessors would not be required to monitor an individual consumer's
ability to retain the information, nor to take steps to find out
whether the consumer has in fact retained it. The Board anticipates
that, where appropriate, a lessor will inform consumers of any special
technical specifications for receiving or retaining information before
or at the time a consumer agrees to receive information electronically.
Current Need for Safeguards Concerning the Electronic Delivery of
Disclosures
Today, most consumers receive disclosures in paper form. As
electronic commerce increases and technology advances take place,
obtaining disclosures by electronic communication may likely become
more commonplace. Compliance and other issues will arise that suggest
further interpretations. Currently, however, the use of electronic
communication in the delivery of financial services is still evolving.
Thus, it is difficult to fully predict the extent to which additional
safeguards, if any, may be needed to ensure that consumers receive the
same protections that exist for disclosures in paper form. The Board
expects that lessors will provide sufficient details about the delivery
of disclosures electronically. The Board plans to closely monitor the
development of the electronic delivery of Regulation M disclosures, and
will address compliance or other issues that may arise as appropriate.
Section 213.4--Content of Disclosures
4(f)(8) Lease term
In September 1996, Regulation M was revised to require, among other
things, that lessors show consumers a mathematical progression of how a
scheduled payment is derived in a motor vehicle lease. In deriving a
scheduled payment, the ``total of base periodic payments'' is divided
by the number of lease payments. The caption in the regulation and on
the model forms refers to the number of lease payments as the ``lease
term.''
For leases with monthly payments, typically the lease term and the
number of payments are the same. For leases with other payment
arrangements, the number of payments and the lease term typically are
not the same, for example, single-payment leases. In reflecting the
consumer's legal obligation to make one payment under a single-payment
lease, the figure disclosed under Sec. 213.4(f)(8) should be one, not
the lease term of 24 months or 36 months, for example.
To avoid confusion, references to the ``lease term'' in
Sec. 213.4(f)(8) would be changed to ``lease payments'' with
corresponding changes to the model forms in appendix A. Despite the
proposed revision to the model forms, lessors would continue to use the
existing form until the supply is exhausted. If properly completed,
those forms comply with the requirements of the act and regulation,
protecting lessors from civil liability under sections 130 of the Truth
in Lending Act and 185 of the Consumer Leasing Act.
The disclosure of the lease term is not a required disclosure. If
they choose, however, lessors may disclose the lease term among the
segregated disclosures along with the number of lease payments, but
should note that the calculation under Sec. 213.4(f)(8) calls for the
number of payments.
Section 213.7--Advertising
In April 1997, the Board revised Regulation M to implement
amendments to the act contained in the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, which streamlined the advertising
disclosures for lease transactions. (62 FR 15364, April 1, 1997) Under
the act, certain terms in an advertisement will trigger the disclosure
of additional information. One of them is a statement in a lease
advertisement that no initial payment is required, which triggers the
disclosure of additional information. This ``triggering'' term was
inadvertently omitted from Sec. 213.7(d)(1)(ii), and is being added.
Appendix A--Model Forms
The Board is proposing several technical changes to the model forms
in appendix A. The model forms for open-and closed-end leases in
appendix A-1 and A-2 would be revised to change the reference under the
payment calculation from ``Lease term. The number of months in your
lease.'' to ``Lease payments. The number of payments in your lease.''
Page 2 of the open-end model form would be revised by adding ``value''
after ``actual'' in the ``end of term liability'' disclosure (a)(3),
line 3. Model form A-3 for a furniture lease would be revised by adding
``or delivery'' after the heading ``Amount due at lease signing.''
III. Proposed Commentary Provisions
Section 213.4--Content of Disclosures
4(f) Payment Calculation
4(f)(7) Total of Base Periodic Payments.
For motor vehicle leases, lessors are required under Sec. 213.4(f)
to provide a mathematical progression of how scheduled lease payments
are derived. Some lessors are concerned about exposure to civil
liability because if one divides the total of the base periodic
payments disclosed under Sec. 213.4(f)(7) by the number of payments in
the lease disclosed under Sec. 213.4(f)(8) and then multiplies the base
periodic payment disclosed under Sec. 213.4(f)(9) by the number of
payments in the lease disclosed under Sec. 213.4(f)(8), the result is
different because of rounding.
This anomaly may be avoided by making adjustments to the rent
charge. However, some lessors have requested a small tolerance for the
total of base periodic payments disclosure. They believe that a
tolerance of $1 would be sufficient to remedy differences due to
rounding.
[[Page 14540]]
In response to issues concerning rounding, proposed comment
4(f)(7)-1 would be added to clarify that if the periodic payment
calculation under Sec. 213.4(f) is calculated correctly, the disclosed
total of base periodic payments is correct for disclosure purposes even
if it varies from the base periodic payments multiplied by the number
of payments in the lease, when the difference is solely due to
rounding.
4(n) Fees and Taxes
Several examples are provided in comment 4(n)-1 to illustrate when
taxes are disclosed under this section. The treatment of taxes paid as
a part of regularly scheduled payments is unclear. This comment would
be revised to clarify that taxes that are part of the regularly
scheduled payments are required to be disclosed under Sec. 213.4(n).
Appendix A--Model Forms
Comment 2 to Appendix A provides examples of acceptable changes
that may be made to the model forms. At the request of lessors, the
comment would be revised to clarify that inapplicable disclosures may
be deleted.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-1004 and, when
possible, should use a standard typeface with a type size of 10 or 12
characters per inch. This will enable the Board to convert the text to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Also, if accompanied by an
original document in paper form, comments may be submitted on 3\1/2\
inch or 5\1/4\ inch computer diskettes in any IBM-compatible DOS-based
format.
V. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act,
the Board's office of the Secretary has reviewed the proposed
amendments to Regulation M. Overall, the proposed amendments are not
expected to have any significant impact on small entities. The proposed
rule would relieve compliance burden. The proposed rule would also give
lessors flexibility in providing disclosures. A final regulatory
flexibility analysis will be conducted after consideration of comments
received during the public comment period.
VI. Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed
the proposed rule under the authority delegated to the Board by the
Office of Management and Budget.
The Federal Reserve has no data with which to estimate the burden
the proposed revised requirements would impose on state member banks.
Lessors would be able to use electronic communication to provide
disclosures and other information required by this regulation rather
than having to make the information available in paper form. The use of
electronic communication in home banking and financial services may
reduce the paperwork burden of lessors or merely may reduce the dollar
cost.
The Federal Reserve requests comments from lessors, especially
state member banks, that will help to estimate the number and burden of
the various disclosures that would be made in the first year this rule
is effective. Comments are invited on: (a) Whether the proposed revised
collection of information is necessary for the proper performance of
the Federal Reserve's functions; including whether the information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed revised information collection, including
the cost of compliance; (c) ways to enhance the quality, utility, and
clarity of the information to be collected; and (d) ways to minimize
the burden of information collection on respondents, including through
the use of automated collection techniques or other forms of
information technology. Comments on the collection of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0202), Washington, DC 20503, with copies of
such comments to be sent to Mary M. McLaughlin, Chief, Financial
Reports Section, Division of Research and Statistics, Mail Stop 97,
Board of Governors of the Federal Reserve System, Washington, DC 20551.
The collection of information requirements in this proposed revised
regulation are found in 12 CFR 213.3, 213.4, 213.5, 213.7, 213.8, and
appendix A. This information is mandatory (15 U.S.C. 1667 et seq.) to
ensure adequate disclosure of basic terms, costs, and rights relating
to services affecting consumers using certain home-banking services and
consumers receiving certain disclosures by electronic communication.
The respondents/recordkeepers are for-profit, including small
businesses. Records, required to evidence compliance with the
regulation, must be retained for twenty-four months.
The Board also proposes to extend the Recordkeeping and Disclosure
Requirements in Connection with Regulation M (OMB No. 7100-0202) for
three years. The current estimated total annual burden for this
information collection is 11,179 hours, as shown in the table below.
The proposed clarifications of some leasing terms are not estimated to
affect the paperwork burden. These amounts reflect the burden estimate
of the Federal Reserve System for the state member banks under its
supervision, of which relatively few engage in consumer leasing. This
regulation applies to all types of lessors, not just state member
banks. However, under Paperwork Reduction Act regulations, the Federal
Reserve accounts for the burden of the paperwork associated with the
regulation only for state member banks. Other agencies account for the
paperwork burden for the institutions they supervise.
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Estimated
Number of Estimated annual
respondents annual Estimated response time burden
frequency hours
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Disclosures............................. 310 120 18 minutes 11,160
Advertising............................. 15 3 25 minutes 19
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Total............................... ........... ........... ............................... 11,179
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Consumer lease information in or referred to by advertisements is
available to the public. Disclosures of the costs, liabilities, and
terms of consumer lease transactions relating to specific leases are
not publicly available. Because the Federal Reserve does not collect
any information, no issue of confidentiality under the Freedom of
Information Act normally arises. However, the information may be
protected from disclosure under the
[[Page 14541]]
exemptions (b)(4), (6), and (8) of the Freedom of Information Act (5
U.S.C. 522 (b)). An agency may not conduct or sponsor, and an
organization is not required to respond to, an information collection
unless it displays a currently valid OMB control number. The OMB
control number for the Recordkeeping and Disclosure Requirements in
Connection with Regulation M is 7100-0202.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and recordkeeping
requirements, Truth in lending.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to Regulation M. New language is shown inside bold-faced
arrows, while language that would be removed is set off with brackets.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation M, 12 CFR part 213, as set forth below:
PART 213--CONSUMER LEASING (REGULATION M)
1. The authority citation for part 213 would continue to read as
follows:
Authority: 15 U.S.C. 1604.
2. Section 213.3 would be amended by adding a new paragraph (a)(5)
to read as follows:
Sec. 213.3 General disclosure requirements.
(a) General requirements. * * *
(5) Electronic communication. For purposes of this
regulation, the term electronic communication means a message
transmitted electronically between a consumer and a lessor in a format
that allows visual text to be displayed on equipment such as a personal
computer monitor. A lessor and a consumer may agree to send by
electronic communication the disclosures required by this regulation to
be provided in writing. Any electronic communication must comply with
paragraph (a) of this section.
* * * * *
3. Section 213.4 would be amended by revising paragraph (f)(8) to
read as follows:
Sec. 213.4 Content of disclosures.
* * * * *
(f) Payment calculation. * * *
(8) [Lease term. The lease term with a description such as ``the
number of periods of repayment in your lease.''] Lease
payments. The lease payments with a description such as ``the number of
payments in your lease.''
* * * * *
4. Section 213.7 would be amended by revising paragraph (d)(1)(ii)
to read as follows:
Sec. 213.7 Advertising.
* * * * *
(d) Advertisement of terms that require additional disclosure.--(1)
Triggering terms. * * *
(ii) A statement of any capitalized cost reduction or other payment
or that no payment is required ,
prior to or at consummation or by delivery, if
delivery occurs after consummation. [or that no payment is
required.]
* * * * *
5. Appendix A to part 213 would be amended by revising Appendix A-
1, Appendix A-2, and Appendix A-3 to read as follows:
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6. In Supplement I to Part 213--Official Staff Commentary to
Regulation M, under Section 213.4--Content of Disclosures, the
following amendments would be made:
a. A new paragraph heading ``4(f)(7) Total of base periodic
payments'' would be added in numerical order and a new paragraph 1.
would be added immediately below the new heading.
b. Under (4)(n) Fees and taxes, paragraph 1.ii. would be revised.
The addition and revision would read as follows:
Supplement I to Part 213--Official Staff Commentary to Regulation M
* * * * *
Section 213.4--Content of Disclosures
* * * * *
4(f)(7) Total of base periodic payments.
1. Accuracy of disclosure. Lessors are deemed to be in
compliance with Sec. 213.4(f)(7) of the regulation if due to
rounding in a manner the lessor arrives at the base periodic
payment, the amount disclosed under Sec. 213.4(f)(7), the total of
base periodic payments, differs from the base periodic payment
disclosed under Sec. 213.4(f)(9), multiplied by the number of
payments under the lease disclosed under
Sec. 213.4(f)(8).
* * * * *
4(n) Fees and taxes.
1. Treatment of certain taxes. * * *
ii. Taxes that are part of regularly scheduled payments are
reflected in the disclosure under Secs. 213.4(c) and
213.4(n) and itemized under Sec. 213.4(f)(10).
* * * * *
7. In Supplement I to Part 213, under Appendix A--Model Forms,
paragraph 2.v. would be revised as follows:
* * * * *
Appendix A--Model Forms
* * * * *
2. Examples of acceptable changes. * * *
v. Deleting or blocking out 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 multipurpose standard
forms[.]).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, March 12, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-6990 Filed 3-24-98; 8:45 am]
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