[Federal Register Volume 63, Number 234 (Monday, December 7, 1998)]
[Proposed Rules]
[Pages 67434-67436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32338]


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FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-1028]


Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; official staff commentary.

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SUMMARY: The Board is publishing for comment proposed revisions to the 
official staff commentary to Regulation M, which implements the 
Consumer Leasing Act. The commentary applies and interprets the 
requirements of the regulation. The proposed update would provide 
guidance on disclosures for lease advertisements, multiple-item leases, 
renegotiations and extensions and estimates of official fees and taxes.

DATES: Comments should be received by January 22, 1999.

ADDRESSES: Comments should refer to Docket No. R-1028, may be mailed to 
Ms. Jennifer J. Johnson, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, 
D.C. 20551. Comments addressed to Ms. Johnson may also be delivered to 
the Board's mail room between 8:45 a.m. and 5:15 p.m., and to the 
security control room at all other times. Both the mail room and the 
security control room are accessible from the courtyard entrance on 
20th Street between Constitution Avenue and C Street, N.W. Comments may 
be inspected in room MP-500 between 9:00 a.m. and 5:00 p.m., in 
accordance with Secs. 261.12 and 261.14, of the Board's Rules Regarding 
the Availability of Information. 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller, Staff Attorney, or 
Jane Ahrens, Senior Counsel, 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 part 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.
    The commentary (12 CFR Part 213 (Supp. I)) is a substitute for 
individual written staff interpretations; it is updated annually, as 
necessary, to address significant questions that arise. This is the 
first update since the January 1, 1998 compliance date for the revised 
regulation. The Board expects to adopt revisions to the commentary in 
final form in March 1999. To the extent the revisions require changes 
in lessors' compliance procedures, the effective date for mandatory 
compliance is October 1, 1999.

II. Proposed Revisions

Section 213.3--General Disclosure Requirements

3(d) Use of Estimates
    Comment 3(d)(1)-1(i) provides an example for estimating official 
fees and

[[Page 67435]]

taxes. The language of the example would be revised and moved to 
comment 4(n)-2.

Section 213.4--Content of Disclosures

4(c) Payment Schedule and Total Amount of Periodic Payments
    Comment 4(c)-1 would be revised to clarify that scheduled payments 
can be made at both regular and irregular intervals. A similar revision 
would be made in comment 1 to appendix A.
4(f) Payment Calculation
    Motor vehicle lease disclosures must include a mathematical 
progression of how periodic payments are derived. Comment 4(f)-2 would 
be added to address lease transactions that involve multiple items of 
leased property if one of the items is not a motor vehicle under state 
law.
4(n) Fees and Taxes
    The lessor must disclose the total amount payable by the lessee 
during the lease term for official and license fees, registration, 
certificate of title fees, and taxes. These amounts may vary over the 
course of the lease, and some lessors have requested guidance for 
calculating an estimated total amount. Proposed comment 4(n)-2 would 
clarify lessors' ability to use rates or charges in effect at the time 
of disclosure. The proposed comment would also provide guidance for 
estimating fees and taxes that are based on the future market value of 
the leased property, both of which may vary depending on the valuation 
method used.

Section 213.5--Renegotiations, Extensions, and Assumptions

5(a) Renegotiations
    A renegotiation occurs where a lease is satisfied and replaced by a 
new lease which generally triggers new disclosures. Proposed comment 
5(a)-1 would be added to clarify that disclosures should conform to the 
lessee's legal obligation.
5(b) Extensions
    Proposed comment 5(b)-3 would be added to provide guidance on lease 
extensions, which sometimes are consummated before the end of the 
initial lease term. The revisions would clarify that disclosures should 
be based on the lessee's obligation for the period of the extension, 
whether the extension agreement is consummated during the initial lease 
term or afterwards. Any fees required in connection with the extension 
also must be reflected in the new disclosures, regardless of when the 
fees are paid.

Section 213.7--Advertising

7(d)(2) Additional Terms
    Proposed comment 7(d)(2)-1 would be revised to provide guidance for 
advertising periodic lease payments that are affected by third-party 
fees that vary by state or locality, such as taxes or licenses.

Appendix A--Model Forms

    Comment 1 to appendix A would be revised to provide additional 
examples of permissible changes to the model forms.

III. Form of Comment Letters

    Comment letters should refer to Docket No. R-1028, 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 computer diskettes in any IBM-compatible DOS- or Windows-based 
format.

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 
revisions to text of the staff commentary. New language is shown inside 
bold-faced arrows, while language that would be deleted is set off with 
brackets.
    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 213 as follows:

PART 213--CONSUMER LEASING (REGULATION M)

    1. The authority citation for part 213 would continue to read as 
follows:

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

    2. In Supplement I to Part 213, under Sec. 213.3--General 
disclosure requirements, under Paragraph 3(d)(1) Standard, paragraph 1. 
would be amended by removing ``For example:'' from the last line and 
paragraph 1.i. would be removed.
    3. In Supplement I to Part 213, under Sec. 213.4--Content of 
disclosures, the following amendments would be made:
    a. Under 4(c) Payment Schedule and Total Amount of Periodic 
Payments, paragraph 1. would be revised; and
    b. Under 4(f) Payment Calculation, a new paragraph 2. would be 
added.
    c. Under 4(n) Fees and Taxes, a new paragraph 2. would be added.
    The additions and revisions would read as follows:

Supplement I to Part 213--Official Staff Commentary to Regulation M

* * * * *


Sec. 213.4  Content of disclosures.

* * * * *
    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 or irregular 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(f) Payment Calculation
* * * * *
    2. Multiple-items. If a lease transaction involves 
multiple items of leased property, one of which is not a motor vehicle 
under state law, at their option, lessors may include all items in the 
disclosures required under 4(f). See comment 3(a)-4 regarding 
disclosure of multiple transactions.
* * * * *
    4(n) Fees and Taxes
* * * * *
    2. Estimates. Lessors may estimate the total amount for 
fees and taxes based on the rates or charges in effect at the time of 
the disclosure and identify it as an estimate. Where a rate is applied 
to the market value of the leased property, lessors have flexibility in 
estimating the future value of the property, including using the 
unamortized balance under the lease or a published valuation guide. 
Lessors may accompany the estimate with a statement that the actual fee 
or tax may be higher or lower depending on the rate in effect or the 
value of the leased property at the time the fee or tax is 
due.
* * * * *
    4. In Supplement I to Part 213, under Sec. 213.5--Renegotiations, 
extensions, and assumptions, the following amendments would be made:
    a. A new undesignated heading, 5(a) Renegotiations, and paragraph 
1. would be added; and
    b. Under Paragraph 5(b) Extensions., a new paragraph 3. would be 
added.
    The additions would read as follows:

[[Page 67436]]

Sec. 213.5  Renegotiations, extensions, and assumptions.

* * * * *
    5(a) Renegotiations
    1. Basis of disclosures. Lessors have flexibility in 
making disclosures so long as they reflect the legal obligation under 
the renegotiated lease. For example, assume that a 24-month lease is 
replaced by a 36-month lease. The initial lease began on January 1, 
1998, and was renegotiated and replaced on July 1, 1998, so that the 
new lease term ends on January 1, 2001. If the renegotiated lease 
covers the 36-month period beginning January 1, 1998, the new 
disclosures would reflect all payments made by the lessee on the 
initial lease and all payments on the renegotiated lease. However, if 
the renegotiated lease covers only the remaining 30 months, from July 
1, 1998, to January 1, 2001, the disclosures would reflect only the 
charges incurred in connection with the renegotiation and the payments 
for the remaining period.
* * * * *
    5(b) Extensions
* * * * *
    3. Basis of disclosures. The disclosures should be based 
on the extension period, including any upfront costs paid in connection 
with the extension. For example, assume that initially a lease ends on 
March 1, 1999. In January 1999, agreement is reached to extend the 
lease until October 1, 1999. The disclosure would include any extension 
fee paid in January and the periodic payments for the seven-month 
extension period beginning in March.
* * * * *
    5. In Supplement I to Part 213, under Sec. 213.7--Advertising, 
under Paragraph 7(d)(2) Additional Terms., paragraph 1. would be 
revised as follows:
* * * * *


Sec. 213.7  Advertising.

* * * * *
    7(d)(2) Additional Terms
* * * * *
    1. Third-party fees that vary by state or locality. The disclosure 
of a periodic payment or[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 periodic payment or 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.
* * * * *
    6. In Supplement I to Part 213, under Appendix A--Model Forms, 
paragraph 1. would be revised as follows:

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 regular or irregular 
periodic payments. The model form may also be modified to reflect that 
a transaction is an extension. 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.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, acting through the Secretary of the Board under delegated 
authority, December 1, 1998.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 98-32338 Filed 12-4-98; 8:45 am]
BILLING CODE 6210-01-P