[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Rules and Regulations]
[Pages 52107-52115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26011]


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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: Final rule.

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SUMMARY: The Board is publishing a final 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 final rule adopts several technical 
amendments to the regulation and commentary concerning lease payments, 
advertisements, and the treatment of taxes.

DATES: This rule is effective September 24, 1998. Compliance is 
optional until October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Staff Attorney, 
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:

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I. Background

    The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, is 
implemented by the Board's Regulation M (12 CFR 213). 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.

II. Regulatory Revisions

    On March 25, 1998, the Board published several technical amendments 
to Regulation M (63 FR 14538). Seventeen commenters, representing major 
leasing companies and a consumer representative, submitted comments on 
the proposed amendments; most generally supported the revisions.
    In the same rulemaking, the Board proposed to allow lessors to 
provide Regulation M disclosures electronically. Similar proposals were 
made under Regulations B (Equal Credit Opportunity), DD (Truth in 
Savings), and Z (Truth in Lending); an interim rule was issued under 
Regulation E. The Board anticipates further action on these proposals 
by year-end.

III. Section-by-Section Analysis

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.''
    To avoid confusion, references to the ``lease term'' in 
Sec. 213.4(f)(8) have been changed to ``lease payments'' with 
corresponding changes to the model forms in appendix A of Regulation M. 
For example, 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 such as 24 months or 
36 months).
    Despite the revision to the model forms, lessors may continue to 
use the existing form until supplies are 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 term of the lease (such as 24 months or 36 months) is not a 
required disclosure. Lessors may, however, disclose the lease term 
among the segregated disclosures if they choose. This guidance, 
included in the preamble to the proposed change, has been incorporated 
into the commentary, replacing existing comment 4(f)(8)-1. Lessors 
should note, however, that the calculation under Sec. 213.4(f)(8) calls 
for the number of payments.

Section 213.7--Advertising

    On April 1, 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). Under the act, 
certain terms in an advertisement will trigger the disclosure of 
additional information. A statement in a lease advertisement that no 
initial payment is required is a ``triggering'' term that has been 
added to Sec. 213.7(d)(1)(ii). It had been inadvertently omitted 
previously.

Appendix A--Model Forms

    Several technical changes have been made to the model forms in 
appendix A. The model forms for open- and closed-end leases in appendix 
A-1 and A-2 have been 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 has been revised; in the ``end of term 
liability,'' the second line of the paragraph following item 3 has been 
corrected by changing ``actual'' to read ``actual value.'' Model form 
A-3 for a furniture lease has been revised by adding ``or delivery `` 
in the heading ``Amount due at lease signing.''

IV. 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 have expressed concern about exposure to 
civil liability 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 results are different 
because of rounding.
    Comment 4(f)(7)-1 has been added to respond to this concern. The 
comment has been revised from the proposed language for clarity, 
without substantive change. The anomaly also could be avoided by making 
adjustments to the rent charge.
4(f)(8) Lease Payment.
    Current comment 4(f)(8)-1 has been deleted as unnecessary, and has 
been replaced by a new comment 4(f)(8)-1 that allows lessors to include 
the lease term among the segregated disclosures. (Generally, lessors 
may not add information to the segregated disclosures unless required 
by regulation in Sec. 213.3(a)(2) or permitted to be included among the 
segregated disclosures. See comment 3(a)(2)-2 and comments 1 and 2 to 
appendix A.)
4(n) Fees and Taxes
    Several examples are provided in comment 4(n)-1 to illustrate when 
taxes are disclosed under this section. This comment has been revised 
to clarify that taxes which are part of the 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 commenters, the 
comment has been revised to clarify that inapplicable disclosures may 
be deleted.

V. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 604), the Board has reviewed the final amendments to 
Regulation M. Two of the three requirements of a final regulatory 
flexibility analysis under this section are (1) a succinct statement of 
the need for and the objectives of the rule and (2) a summary of the 
issues raised by the public comments, the agency's assessment of the 
issues, and a statement of the changes made in the final rule in 
response to the comments. These two areas are discussed above.
    The third requirement of the analysis calls for a description of 
significant alternatives to the rule that would minimize the rule's 
economic impact on small entities and reasons why the alternatives were 
rejected. The final amendments will apply to all lessors subject to 
Regulation M, including small entities. The amendments represent 
relatively small changes to the existing

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regulation; in some cases, the amendments clarify rights and duties of 
covered lessors or reduce economic burden. Accordingly, the amendments 
should not have a negative economic impact on small entities, and, 
therefore, there were no significant alternatives that would have 
minimized further the economic impact on those entities.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under 
the authority delegated to the Board by the Office of Management and 
Budget. The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless it displays a currently valid OMB control number. The OMB 
control number is 7100-0202.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR 213-- Regulation M, including Appendices A, B, C, and D 
and Supplement I. This information collection is mandatory under the 
Consumer Leasing Act (CLA) (15 U.S.C. 1667 et seq.) and the Board's 
Regulation M. The purpose of the disclosures associated with Regulation 
M is to ensure that lessees of personal property receive meaningful 
information that enables them to compare lease terms with other leases 
and, where appropriate, with credit transactions. The respondents/
recordkeepers are individuals or businesses that regularly lease, offer 
to lease, or arrange for the lease of personal property under a 
consumer lease, including small businesses. Institutions are also 
required to retain records for twenty-four months as evidence of 
compliance. No comments specifically addressing the burden estimate 
were received.
    The Board also extended the recordkeeping and disclosure 
requirements in connection with Regulation M for three years. The 
current estimated annual burden for this information collection is 
11,179 hours. It is estimated that there are 310 disclosure respondents 
and 15 advertising respondents with an average frequency of 120 and 3 
responses per respondent each year, respectively. The technical 
amendments clarifying the rules on lease payments, advertisements and 
rounding calculations are estimated to have no effect on burden. There 
is estimated to be no annual cost burden and no associated capital or 
start up cost.
    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 of the information, no issue of confidentiality under the Freedom 
of Information Act normally arises. However, the information may be 
protected from disclosure under the exemptions (b)(4), (6), and (8) of 
the Freedom of Information Act (5 U.S.C. 522 (b)(4), (6), and (8)).
    The Board has a continued interest in the public's opinions of 
Federal Reserve collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0202), 
Washington, DC 20503.

List of Subjects in 12 CFR Part 213

    Advertising, Federal Reserve System, Reporting and recordkeeping 
requirements, Truth in lending.
    For the reasons set forth in the preamble, the Board amends 
Regulation M, 12 CFR Part 213, as set forth below:

PART 213--CONSUMER LEASING (REGULATION M)

    1. The authority citation for part 213 is revised to read as 
follows:

    Authority: 15 U.S.C. 1604; 1667f.

    2. Section 213.4 is amended by revising paragraph (f)(8) to read as 
follows:


Sec. 213.4  Content of disclosures.

* * * * *
    (f) Payment calculation. * * *
    (8) Lease payments. The lease payments with a description such as 
``the number of payments in your lease.''
* * * * *
    3. Section 213.7 is amended by revising paragraph (d)(1)(ii) to 
read as follows:


Sec. 213.7  Advertising.

* * * * *
    (d) Advertising 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.
* * * * *
    4. Appendix A to part 213 is amended by revising Appendix A-1, 
Appendix A-2, and Appendix A-3 to read as follows:

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BILLING CODE 6210-01-C
    5. In Supplement I to Part 213--Official Staff Commentary to 
Regulation M, under Section 213.4--Content of Disclosures, the 
following amendments are made:
    a. A new paragraph 4(f)(7) Total of Base Periodic Payments is added 
in numerical order.
    b. The heading to paragraph 4(f)(8) and paragraph 1. are revised.
    c. Under paragraph 4(n) Fees and taxes, paragraph 1.ii. is revised.
    d. Under Appendix A--Model Forms, paragraph 2.v. is revised.
    The addition and revisions 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 Payment
    1. Accuracy of disclosure. If the periodic payment calculation 
under Sec. 213.4(f) has been calculated correctly, the amount disclosed 
under Sec. 213.4(f)(7)--the total of base periodic payments--is correct 
for disclosure purposes even if that amount differs from the base 
periodic payment disclosed under Sec. 213.4(f)(9) multiplied by the 
number of lease payments disclosed under Sec. 213.4(f)(8), when the 
difference is due to rounding.
* * * * *
4(f)(8) Lease Payment
    1. Lease Term. The lease term may be disclosed among the segregated 
disclosures.
* * * * *
4(n) Fees and taxes.
    1. Treatment of certain taxes. * * *
    ii. Taxes that are part of the scheduled payments are reflected in 
the disclosure under Sec. 213.4(c), (f), and (n).
* * * * *

Appendix A--Model Forms

* * * * *
    2. Examples of acceptable changes. * * *
    v. Deleting or blocking out inapplicable disclosures, 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, September 23, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-26011 Filed 9-28-98; 8:45 am]
BILLING CODE 6210-01-P