[Federal Register Volume 64, Number 177 (Tuesday, September 14, 1999)]
[Proposed Rules]
[Pages 49713-49722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23141]


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FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-1042]


Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is requesting comment on proposed revisions to 
Regulation M, which implements the Consumer Leasing Act. The Board 
previously published a proposed rule that permits lessors to use 
electronic communication (for example, communication via personal 
computer and modem) to provide disclosures required by the act and 
regulation, if the consumer agrees to such delivery. (A similar rule 
was also proposed under various other consumer financial services and 
fair lending regulations administered by the Board.) In response to 
comments received on the proposals, the Board is publishing for comment 
an alternative proposal on the electronic delivery of disclosures, 
together with proposed commentary that would provide further guidance 
on electronic communication issues.

DATES: Comments must be received by October 29, 1999.

ADDRESSES: Comments, which should refer to Docket No. R-1042, may be 
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, DC 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. 
weekdays, and to the security control room at all other times. The mail 
room and the security control room, both in the Board's Eccles 
Building, 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., pursuant to 
Sec. 261.12, except as provided in Sec. 261.14 of the Board's Rules 
Regarding the Availability of Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Kyung H. 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. Users of Telecommunications Device 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 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 Board's Regulation M (12 CFR 
part 213) implements the act.
    The CLA and Regulation M require disclosures to be provided to 
consumers in writing, presuming that lessors provide paper documents. 
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, where visual text is involved.
    In May 1996, the Board revised Regulation E (Electronic Fund 
Transfers) following a comprehensive review. During that process, the 
Board determined that electronic communications for delivery of 
information required by federal laws governing financial services could 
effectively reduce compliance costs without adversely affecting 
consumer protections. Consequently, the Board simultaneously issued a 
proposed rule to permit financial institutions to use electronic 
communication to deliver disclosures that Regulation E requires to be 
given in writing. (61 FR 19696, May 2, 1996.) The 1996 proposal 
required that disclosures be provided in a form the consumer may 
retain, a requirement that institutions could satisfy by providing 
information in a format that may be printed or downloaded. The proposed 
rule also allowed consumers to request a paper copy of a disclosure for 
up to one year after its original delivery.
    Following a review of the comments, on March 25, 1998, the Board 
issued an interim rule under Regulation E (the ``interim rule''), 63 FR 
14528. The Board also published proposals under Regulations DD (Truth 
in Savings), 63 FR 14533, M (Consumer Leasing), 63 FR 14538, Z (Truth 
in Lending), 63 FR 14548, and B (Equal Credit Opportunity), 63 FR 
14552, (collectively, the ``March 1998 proposed rules''). The rules 
would apply to financial institutions, creditors, lessors, and other 
entities that are required to give disclosures to consumers and others. 
(For ease of reference this background section uses the terms 
``financial institutions,'' ``institutions,'' and ``consumers.'') The 
interim rule and the March 1998 proposed rules were similar to the May 
1996 proposed rule; however, they did not require financial 
institutions to provide paper copies of disclosures to a consumer upon 
request if the consumer previously agreed to receive disclosures 
electronically. The Board believed that most institutions would 
accommodate consumer requests for paper copies when feasible or 
redeliver disclosures electronically; and the Board encouraged 
financial institutions to do so.
    The March 1998 proposed rules and the interim rule permitted 
financial institutions to provide disclosures electronically if the 
consumer agreed, with few other requirements. The rule was intended to 
provide flexibility and did not specify any particular method for 
obtaining a consumer's agreement. Whether the parties had an agreement 
would be determined by state law. The proposals and the interim rule 
did not preclude a financial institution and a consumer from entering 
into an agreement electronically, nor did they prescribe a formal 
mechanism for doing so.
    The Board received approximately 200 written comments on the 
interim rule and the March 1998 proposed rules. The majority of 
comments were submitted by financial institutions and their trade 
associations. Industry commenters generally supported the use of 
electronic communication to deliver information required by the CLA and 
Regulation M. Nevertheless, many sought specific revisions and 
additional guidance on how to comply with the disclosure requirements 
in particular transactions and circumstances.
    Industry commenters were especially concerned about the condition 
that a consumer had to ``agree'' to receive information by electronic 
communication, because the rule did not specify a method for 
establishing that an ``agreement'' was reached. These commenters 
believed that relying on state law created uncertainty about what

[[Page 49714]]

constitutes an agreement and, therefore, potential liability for 
noncompliance. To avoid uncertainty over which state's laws apply, some 
commenters urged the Board to adopt a federal minimum standard for 
agreements or for informed consent to receive disclosures by electronic 
communication. These commenters believed that such a standard would 
avoid the compliance burden associated with tailoring legally binding 
``agreements'' to the contract laws of all jurisdictions where 
electronic communications may be sent.
    Consumer advocates generally opposed the March 1998 interim rule 
and proposed rules. Without additional safeguards, they believed, 
consumers may not be provided with adequate information about 
electronic communications before an ``agreement'' is reached. They also 
believed that promises of lower costs could induce consumers to agree 
to receive disclosures electronically without a full understanding of 
the implications. To avoid such problems, they urged the Board, for 
example, either to require institutions to disclose to consumers that 
their account with the institution will not be adversely affected if 
they do not agree to receive electronic disclosures, or to permit 
financial institutions to offer electronic disclosures only to 
consumers who initiate contact with the institution through electronic 
communication. They also noted that some consumers will likely consent 
to electronic disclosures believing that they have the technical 
capability to retrieve information electronically, but might later 
discover that they are unable to do so. They questioned consumers' 
willingness and ability to access and retain disclosures posted on 
Internet websites, and express their apprehension that the goals of 
federally mandated disclosure laws will be lost.
    Consumer advocates and others were particularly concerned about the 
use of electronic disclosures in connection with home-secured loans and 
certain other transactions that consumers typically consummate in 
person (citing as examples automobile loans and leases, short-term 
``payday'' loans, or home improvement financing contracts resulting 
from door-to-door sales). They asserted that there is little benefit to 
eliminating paper disclosures in such transactions and that allowing 
electronic disclosures in those cases could lead to abusive practices. 
Accordingly, consumer advocates and others believed that paper 
disclosures should always accompany electronic disclosures in mortgage 
loans and certain other transactions, and that consumers should have 
the right to obtain paper copies of disclosures upon request for all 
types of transactions (deposit account, credit card, loan or lease, and 
other transactions).
    A final issue raised by consumer advocates was the integrity of 
disclosures sent electronically. They stated that there may be 
instances when the consumer and the institution disagree on the terms 
or conditions of an agreement and consumers may need to offer 
electronic disclosures as proof of the agreed-upon terms and to enforce 
rights under consumer protection laws. Thus, to assure that electronic 
documents have not been altered and that they accurately reflect the 
disclosures originally sent, consumer advocates recommended that the 
Board require that electronic disclosures be authenticated by an 
independent third party.
    The Board's Consumer Advisory Council considered the electronic 
delivery of disclosures in 1998 and again in 1999. Many Council members 
shared views similar to those expressed in written comment letters on 
the 1998 proposals. For example, some Council members expressed concern 
that the Board was moving too quickly in allowing electronic 
disclosures for certain transactions, and suggested that the Board 
might go forward with electronic disclosures for deposit accounts while 
proceeding more slowly on credit and lease transactions. Others 
expressed concern about consumer access and consumers' ability to 
retain electronic disclosures. They believed that, without specific 
guidance from the Board, institutions would provide electronic 
disclosures without knowing whether consumers could retain or access 
the disclosures, and without establishing procedures to address 
technical malfunctions or nondelivery. The Council also discussed the 
integrity and security of electronic documents.

II. Overview of Proposed Revisions

    Based on a review of the comments and further analysis, the Board 
is requesting comment on a modified proposed rule that is more detailed 
than the interim rule and March 1998 proposed rules. It is intended to 
provide specific guidance for lessors that choose to use electronic 
communication to comply with Regulation M's requirements to provide 
written disclosures, and to ensure effective delivery of disclosures to 
consumers through this medium. Though detailed, the proposal provides 
flexibility for compliance with electronic communication rules.
    The modified proposal does not permit the electronic delivery of 
Regulation M disclosures where a consumer enters into a lease agreement 
in person, and the required Regulation M disclosures are provided at 
that time (either as part of the lease agreement or separately), those 
disclosures have to be in paper form.
    The Regulation M leasing disclosures must be given to consumers 
before they become obligated for a lease, and must reflect the legal 
obligation. The disclosures can be made in a separate statement or in 
the lease contract or other document evidencing the lease. Lessors 
typically include the disclosures in the lease agreement. 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.
    While leases are typically not consummated on-line, consumers are 
able to shop on-line and apply for leases. The purpose of the 
Regulation M disclosures is to ensure that consumers have meaningful 
information about lease terms and to promote comparison shopping. 
Therefore, the use of electronic communication may allow lessors to 
provide Regulation M disclosures to consumers earlier in the leasing 
process.
    The Board is soliciting comment on a modified approach that 
addresses both industry and consumer group concerns. Under the 
proposal, lessors would have to provide specific information about how 
the consumer can receive and retain electronic disclosures--through a 
standardized disclosure statement--before obtaining consumers' 
acceptance of such delivery, with some exceptions. If they satisfy 
these requirements and obtain consumers' affirmative consent, lessors 
would be permitted to use electronic communications. As a general rule 
a lessor would be permitted to offer the option of receiving electronic 
disclosures to all consumers, whether they initially contact the lessor 
by electronic communications, or otherwise. To address concerns about 
potential abuses, however, the proposal provides that if a consumer 
consummates a lease in person, disclosures required to be given at that 
time must be in paper form.
    Lessors would have the option of delivering disclosures to an e-
mail address designated by the consumer or making disclosures available 
at another location such as the lessor's website, for printing or 
downloading. If the disclosures are posted at a website location, 
lessors generally must notify

[[Page 49715]]

consumers at an e-mail address about the availability of the 
information. (Lessors may offer consumers the option of receiving alert 
notices at a postal address.) The disclosures must remain available at 
that site for 90 days.
    Disclosures provided electronically would be subject to the ``clear 
and conspicuous'' standard, and the existing format, timing, and 
retainability rules in Regulation M. For example, to satisfy the timing 
requirement, if disclosures are due at the time an electronic 
transaction is being conducted, they would have to appear on the screen 
before the consumer could consummate the transaction.
    Lessors generally must provide a means for consumers to confirm the 
availability of equipment to receive and retain electronic disclosure 
documents. A lessor would not otherwise have a duty to verify 
consumers' actual ability to receive, print, or download the 
disclosures. Some commenters suggested that lessors should be required 
to verify delivery by return receipt. The Board solicits comment on the 
need for such a requirement and the feasibility of that approach.
    As previously mentioned, consumer advocates and others have 
expressed concerns that electronic documents can be altered more easily 
than paper documents. The issue of the integrity and security of 
electronic documents affects electronic commerce in general and is not 
unique to the written disclosures required under the consumer 
protection laws administered by the Board. Consumers' ability to 
enforce rights under the consumer protection laws could be impaired in 
some cases, however, if the authenticity of disclosures that they 
retain cannot be demonstrated. Signatures, notary seals, and other 
established verification procedures are used to detect alterations for 
transactions memorialized in paper form. The development of similar 
devices for electronic communications should reduce uncertainty over 
time about the ability to use electronic documents for resolving 
disputes.
    The Board's rules require lessors to retain evidence of compliance 
with Regulation M. Specific comment is solicited on the feasibility of 
complying with a requirement that lessors provide disclosures in a 
format that cannot be altered without detection, or have systems in 
place capable of detecting whether or not information has been altered, 
as well as the feasibility of requiring use of independent 
certification authorities to verify disclosure documents.
    Elsewhere in today's Federal Register, the Board is publishing 
similar proposals for comment under Regulations B, E, Z, and DD. In a 
separate notice the Board is publishing an interim rule under 
Regulation DD, which implements the Truth in Savings Act, to permit 
depository institutions to use electronic communication to deliver 
disclosures on periodic statements. For ease of reference, the Board 
has assigned new docket numbers to the modified proposals published 
today.

III. Section-by-Section Analysis

    Pursuant to its authority under section 187 of the CLA, the Board 
proposes to amend Regulation M to permit lessors to use electronic 
communication to provide the disclosures required by Sec. 213.4. Below 
is a section-by-section analysis of the rules for providing disclosures 
by electronic communication, including references to proposed 
commentary provisions.
    The March 1998 proposed rule addressed electronic communication in 
Sec. 213.3 of the regulation, which contains the general disclosure 
requirements. In the revised proposal, the rules on electronic 
communications are contained in Sec. 213.6 for easier reference and to 
avoid complicating the general Regulation M disclosure requirements.

Section 213.6  Requirements for Electronic Communication

6(a)  Definition
    The definition of the term ``electronic communication'' in the 
March 1998 proposed rule remains unchanged. Section 213.6(a) limits the 
term to a message transmitted electronically that can be displayed on 
equipment as visual text, such as a message that is displayed on a 
computer monitor screen. Most commenters supported the term as defined 
in the proposed rule. Some commenters favored a more expansive 
definition that would encompass communications such as audio and voice 
response telephone systems. Because the proposal is intended to permit 
electronic communication to satisfy the statutory requirement for 
written disclosures, the Board believes visual text is an essential 
element of the definition.
    Commenters asked the Board to clarify the coverage of certain types 
of communications. A few commenters asked about communication by 
facsimile. Facsimiles are initially transmitted electronically; the 
information may be received either in paper form or electronically 
through software that allows a consumer to capture the facsimile, 
display it on a monitor, and store it on a computer diskette or drive. 
Thus, information sent by facsimile may be subject to the provisions 
governing electronic communication. When disclosures are sent by 
facsimile, a lessor should comply with the requirements for electronic 
communication unless it knows that the disclosures will be received in 
paper form. Proposed comment 6(a)-1 contains this guidance.
6(b)  Electronic Communication Between Lessor and Consumer
    Section 213.6(b)(1) would permit lessors to provide disclosures 
using electronic communication, if the lessor complies with provisions 
in new Sec. 213.6(c), discussed below.
    1. Presenting disclosures in a clear and conspicuous format. The 
Board does not intend to discourage or encourage specific types of 
technologies. Regardless of the technology, however, disclosures 
provided electronically must be presented in a clear and conspicuous 
format as is the case for all written disclosures under the act and 
regulation. See Sec. 213.3(a).
    When consumers consent to receive disclosures electronically and 
they confirm that they have the equipment to do so, lessors generally 
would have no further duty to determine that consumers are able to 
receive the disclosures. Lessors do have the responsibility of ensuring 
the proper equipment is in place in instances where the lessor controls 
the equipment.
    2. Providing disclosures in a form the consumer may keep. As with 
other written disclosures, information provided by electronic 
communication must be in a form the consumer can retain. Under the 1998 
proposals and interim rule, a lessor would satisfy this requirement by 
providing information that can be printed or downloaded. The modified 
proposal adopts the same approach but also provides that the 
information must be sent to a specified location to ensure that 
consumers have an adequate opportunity to retain the information.
    Consumers communicate electronically with lessors through a variety 
of means and from various locations. Depending on the location (at 
home, at work, in a public place such as a library), a consumer may not 
have the ability at a given time to preserve CLA disclosures presented 
on-screen. Therefore, when a lessor provides disclosures by electronic 
communication, to satisfy the retention requirements, the lessor must 
send the disclosures to a consumer's e-mail address or other location 
where

[[Page 49716]]

information may be retrieved at a later date. Proposed comment 6(b)-1 
contains this guidance; see also the discussion under Sec. 213.6(d), 
below. If a lessor controlled an electronic terminal used to provide 
electronic disclosures, a lessor could provide equipment for the 
consumer to print a paper copy in lieu of sending the information to 
the consumer's electronic mail address or posting the information at 
another location such as the lessor's website.
    3. Timing. Lessors must ensure that electronic disclosures comply 
with all relevant timing requirements of the regulation. For example, 
disclosures must be provided prior to consummation of a lease. The rule 
ensures that consumers have an opportunity to read important 
information about costs and other terms before becoming obligated.
    To illustrate the timing requirements for electronic communication, 
assume that a consumer is interested in leasing a vehicle on-line and 
uses a personal computer at home to access the lessor's website on the 
Internet. The lessor provides disclosures to the consumer about the 
delivery of Regulation M disclosures by electronic communication (the 
Sec. 213.6(c) disclosures discussed below) and the consumer responds 
affirmatively. If the lessor's procedures permit the consumer to lease 
a vehicle at that time, disclosures required under Sec. 213.4 would 
have to be provided before the consumer becomes obligated on-line. 
Thus, the disclosures must automatically appear on the screen or the 
consumer must be required to access the information before consummating 
the lease on-line. The timing requirements for providing disclosures 
would not be met if, in this example, the lessor permitted the consumer 
to consummate the lease on-line and sent disclosures to an e-mail 
address thereafter. Proposed comment 6(b)-2 contains this guidance.
    On the other hand, assume that a consumer applies for a lease on-
line and the lessor delays processing the consumer's request until the 
required disclosures have been delivered by e-mail. In that case the 
information would not have to also appear on the screen; delivery to 
the consumer's e-mail address would be sufficient. In either case, the 
consumer must be given the opportunity to receive the disclosures 
before consummation.
6(b)(2)  In-Person Exception
    The proposal contains an exception to the general rule allowing 
information required by Regulation M to be provided by electronic 
communication; in these cases, paper disclosures would be required. The 
exception, contained in Sec. 213.6(b)(2), seeks to address concerns 
about potential abuses where consumers are transacting business in 
person but are offered disclosures in electronic form. In such 
transactions, there is an expectation that consumers would have to be 
given paper copies of disclosures along with paper copies of other 
documents evidencing the transaction.
    Under Sec. 213.6(b)(2), if a consumer consummates a lease in 
person, the lessor must generally provide disclosures in paper form. 
For example, if a consumer goes to a lessor's place of business to 
consummate a lease, disclosures are required before consummation and 
they must be provided in paper form; directing the consumer to 
disclosures posted on the lessor's website would not be sufficient. If, 
however, a consumer applies for a lease on the Internet, a lessor may 
send disclosures electronically at or around that time, even though the 
lessor's procedures require the consumer to visit the lessor at a later 
time to complete the transaction (for example, to sign a lease 
agreement). Proposed comment 6(b)(2)-1 contains this guidance.
6(c)  Disclosure Notice
    Section 213.6(c) would identify the specific steps required before 
a lessor could use electronic communication to satisfy the regulation's 
disclosure requirements. Proposed Model Forms A-4 and A-5, and Sample 
Forms A-7 and A-8 are published to aid compliance with these 
requirements.
6(c)(1)  Notice by Lessor
    Section 213.6(c)(1) outlines the information that lessors must 
provide before electronic disclosures can be given. The lessor must: 
(1) Describe the information to be provided electronically and specify 
whether the information is also available in paper form or whether the 
lease is offered only with electronic disclosures; (2) identify the 
address or location where the information will be provided 
electronically; and if it will be available at a location other than 
the consumer's electronic address, specify for how long and where it 
can be obtained once that period ends; (3) specify any technical 
requirements for receiving and retaining information sent 
electronically, and provide a means for the consumer to confirm the 
availability of equipment meeting those requirements; and (4) provide a 
toll-free telephone number and, at the lessor's option, an electronic 
or a postal address for questions about receiving electronic 
disclosures and for seeking assistance with technical or other 
difficulties (see proposed comments to 6(c)(1)). The Board requests 
comment on whether other information should be disclosed regarding the 
use of electronic communication and on any format changes that might 
improve the usefulness of the notice for consumers.
    Under the proposal, the Sec. 213.6(c)(1) disclosures must be 
provided, as applicable, before the lessor uses electronic 
communication to deliver the disclosures required by Sec. 213.4 of the 
regulation. The approach of requiring a standardized disclosure 
statement addresses, in several ways, the concern that consumers may be 
steered into using electronic communication without fully understanding 
the implications. Under this approach, the specific disclosures that 
would be delivered electronically must be identified, and consumers 
must be informed whether there is also an option to receive the 
information in paper form. Consumers must provide an e-mail address 
where one is required. Technical requirements must also be stated, and 
consumers must affirm that their equipment meets the requirements, and 
that they have the capability of retaining electronic disclosures by 
downloading or printing them (see proposed comment 6(c)-1). Thus, 
Sec. 213.6(c)(1) disclosures should allow consumers to make informed 
judgments about receiving electronic disclosures.
    Commenters generally requested guidance on when the consumer 
chooses not to receive information by electronic communication. A 
lessor could offer a consumer the option of receiving disclosures in 
paper form, but it would not be required to do so. For example, a 
lessor could offer particular leases for which disclosures are given 
only by electronic communication. Section 213.6(c)(1)(i) would require 
lessors to tell consumers whether or not they have the option to 
receive disclosures in paper form. Proposed sample disclosure 
statements in which the consumer has an option to receive electronic or 
paper disclosures (Form A-7) or electronic disclosures only (Form A-8) 
are contained in appendix A.
6(c)(2)  Response by Consumer
    Proposed Sec. 213.6(c)(2) would require lessors to provide a means 
for the consumer to affirmatively indicate that disclosures may be 
provided electronically, for example, a ``check box'' on a computer 
screen. The requirement is intended to ensure that consumers' consent 
is established knowingly and voluntarily.

[[Page 49717]]

6(d)  Address or Location To Receive Electronic Communication
    Proposed Sec. 213.6(d) identifies addresses and locations where 
lessors using electronic communication may send information. Lessors 
may send information to a consumer's electronic address, which is 
defined in proposed comment 6(d)(1)-1 as an e-mail address that the 
consumer also may use for receiving communications from parties other 
than the lessor. For example, a lessor's responsibility to provide 
disclosures by electronic communication will be satisfied when the 
information is sent to the consumer's electronic address in accordance 
with the applicable proposed rules concerning delivery of disclosures 
by electronic communication.
    The Board recognizes that currently, because of security and 
privacy concerns associated with data transmissions, a number of 
lessors may choose to provide disclosures at their websites, where the 
consumer may retrieve them under secure conditions. Under 
Sec. 213.6(d), a lessor may make disclosures available to a consumer at 
a location other than the consumer's electronic address. The lessor 
must notify the consumer when the information becomes available and 
identify the lease involved. The notice must be sent to the electronic 
mail address designated by the consumer; the lessor may, at its option, 
permit the consumer to designate a postal address. A proposed model 
form (Model Form A-6) is published below.
    The requirements of the regulation would be met only if the 
required disclosure is posted on the website and the consumer is 
notified of its availability in a timely fashion. For example, lessors 
must provide disclosures to consumers prior to consummation of a lease. 
(12 CFR 213.3(a)(3).)
    There is a variety of circumstances when a consumer may not be able 
immediately to access the information due to illness, travel, or 
computer malfunction, for example. Under Sec. 213.6(d), lessors must 
post information sent to a location other than the consumer's 
electronic address for 90 days. Proposed comment 6(d)(2)-1 contains 
this guidance.
    Under the modified proposal, lessors that post information at a 
location other than the consumer's electronic mail address are 
required--after the 90 day period--to make disclosures available to 
consumers upon request for a period of not less than two years from the 
date disclosures are required to be made, consistent with the record 
retention requirements under Sec. 213.8. The Board requests comments on 
this approach, including suggestions for alternative means for 
providing consumers continuing access to disclosures.

Section 213.7 Advertising

7(b)  Clear and Conspicuous Standard
7(b)(1)  Amount Due at Lease Signing
    Under Sec. 213.7(b)(1), in an advertisement, lessors cannot refer 
to a component of the total amount due prior to or at consummation or 
by delivery (except for the periodic payment amount) more prominently 
than the total amount due. Also, lessors that advertise a percentage 
rate must include a statement about the limitations of the rate, which 
must be as prominent as the rate. Proposed comment 7(b)(1)-3 contains 
guidance on how this rule applies in an electronic advertisement.
7(b)(2)  Advertisement of a Lease Rate
    Under Sec. 213.7(b)(2), if a lessor includes a rate in an 
advertisement, the rate cannot be more prominent than any of the 
disclosures in Sec. 213.4. Comment 7(b)(2)-1 would be revised to 
provide guidance on how this rule applies in an electronic 
advertisement.
7(c)  Catalogs and Multi-Page Advertisement
    Stating certain credit terms in an advertisement for a lease 
triggers the disclosure of additional terms. Section 213.7(c) permits 
lessors using a multiple-page advertisement to state the additional 
disclosures in a table or schedule as long as the triggering lease 
terms appearing anywhere else in the advertisement refer to the page 
where the table or schedule is printed. Several commenters asked the 
Board to clarify the rules for electronic advertisements.
    Section 213.7(c) would be amended to cover electronic 
advertisements. Lessors that advertise using electronic communication 
generally would comply with Sec. 213.7(c) if the table or schedule with 
the additional information is set forth clearly and conspicuously and 
the triggering lease terms appearing anywhere else in the advertisement 
clearly refer to the page or location where the table or schedule 
begins. Proposed comment 7(c)-2 contains this guidance.

Appendix A to Part 213--Model Forms

    The Board solicits comment on three proposed model forms and two 
sample forms for use by lessors to aid compliance with the disclosure 
requirements of Secs. 213.6(c) and 6(c). Model Forms A-4 and A-5 would 
implement Sec. 213.6(c), regarding the notice that lessors must give 
prior to using electronic communication to provide required 
disclosures. Model Form A-6 would implement Sec. 213.6(d), regarding 
notices to consumers about the availability of electronic disclosures 
at locations such as the lessor's website. Use of any modified version 
of these forms would be in compliance as long as the lessor does not 
delete information required by the regulation or rearrange the format 
in a way that affects the substance, clarity, or meaningful sequence of 
the disclosure.
    Sample Form A-7 illustrates the disclosures under Sec. 213.6(a)(3) 
for a vehicle lease transaction. The sample assumes that the lessor 
also offers paper disclosures for consumers who choose not to receive 
electronic disclosures. Sample Form A-8 assumes that consumers must 
accept electronic disclosures if they want to contract for the lease.
Additional Issues Raised by Electronic Communication
Preemption
    A few commenters suggested that any final rule issued by the Board 
permitting electronic disclosures should explicitly preempt any state 
law requiring paper disclosures. Under Sec. 213.9 of the regulation, 
state laws are preempted if they are inconsistent with the act and 
regulation and only to the extent of the inconsistency. The proposed 
rule would provide lessors with the option of giving required 
disclosures by electronic communication as an alternative to paper. 
There is no apparent inconsistency with the act and regulation if state 
laws require paper disclosures. The Board will, however, review 
preemption issues that are brought to the Board's attention. Section 
213.9(b) outlines the Board's procedures for determining whether a 
specific law is preempted, which will guide the Board in any 
determination requested by a state, lessor, or other interested party 
following publication of a final rule regarding electronic 
communication.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-1042 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

[[Page 49718]]

in paper form, comments may be submitted on 3\1/2\-inch computer 
diskettes in any IBM-compatible DOS- or Windows-based format.

V. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act, 
the Board has reviewed the proposed amendments to Regulation M. 
Although the proposal would add disclosure requirements with respect to 
electronic communication, overall, the proposed amendments are not 
expected to have any significant impact on small entities. A lessor's 
use of electronic communication to provide disclosures required by the 
regulation is optional. The proposed rule would 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 the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule 
under the authority delegated to the Board by the Office of Management 
and Budget (OMB). 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 number. The OMB 
control number is 7100-0202.
    The collection of information requirements that are relevant to 
this proposed rulemaking are in 12 CFR 213.3, 213.4, 213.5, 213.7, 
213.8 and in Appendix A. This information is mandatory (15 U.S.C. 1667 
et seq.) to evidence compliance with the requirements of Regulation M 
and the Consumer Leasing Act (CLA). The revised requirements would be 
used to ensure adequate disclosure of basic terms, costs, and rights 
relating to lease transactions, at or before the time lessees enter 
into a consumer lease transaction and when the availability of a 
consumer lease on particular terms is advertised and lessees receive 
certain disclosures by electronic communication. The respondents/
recordkeepers are for-profit lessors, including small businesses. 
Lessors are also required to retain records for 24 months. 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 on their respective constituencies under this 
regulation.
    The proposed revisions would allow lessors the option of using 
electronic communication (for example, via personal computer and modem) 
to provide disclosures required by the regulation. Although the 
proposal would add disclosure requirements with respect to electronic 
communication, the optional use of electronic communication would 
likely reduce the paperwork burden of lessors. With respect to state 
member banks, it is estimated that there are 310 respondents/
recordkeepers subject to the disclosure requirements with an average 
frequency of 37,200 responses per respondent each year. It is also 
estimated of the 310 respondent/recordkeepers, approximately 15 are 
subject to the advertising requirement. This subset of respondent/
recordkeepers has an average frequency of 45 responses per respondent 
each year. Therefore the current amount of annual burden is estimated 
to be 11,179 hours. There is estimated to be no additional annual cost 
burden and no capital or start-up cost.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality under the Freedom of Information Act arises; however, 
any information obtained by the Federal Reserve may be protected from 
disclosure under exemptions (b) (4), (6), and (8) of the Freedom of 
Information Act (5 U.S.C. 522(b) (4), (6) and (8)). The disclosures and 
information about error allegations are confidential between lessors 
and the customer.
    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 
proposed regulation would be effective. Comments are invited on: (a) 
The cost of compliance; (b) ways to enhance the quality, utility, and 
clarity of the information to be disclosed; and (c) ways to minimize 
the burden of disclosure on respondents, including through the use of 
automated disclosure 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 sent to Mary 
M. West, Federal Reserve Board Clearance Officer, Division of Research 
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.

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 proposed changes to 
Regulation M. New language is shown inside bold-faced arrows and 
deletions are shown in bold-faced 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, 1667f.

    2. Section 213.6 is added to read as follows:


Sec. 213.6  Requirements for electronic communication.

    (a) Definition. 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.
    (b) Electronic communication between lessor and consumer. (1) 
General. Except as provided in paragraph (b)(2) of this section, a 
lessor that has complied with paragraph (c) of this section may provide 
by electronic communication the disclosures required by Sec. 213.4. 
Disclosures required under this section must be made clearly and 
conspicuously, in writing or by electronic communication, and in a form 
the consumer may keep.
    (2) In-person exception. Prior to consummation of a lease in 
person, disclosures required under Sec. 213.4 must be provided in paper 
form, unless the consumer requested the transaction by electronic 
communication and the lessor provided disclosures in compliance with 
paragraph (c) (1) and (2) of this section at or around that time.
    (c) Disclosure notice. The disclosure notice required by this 
paragraph shall be provided in a manner substantially similar to the 
applicable model form in Appendix A of this part (Model Forms A-4 and 
A-5).
    (1) Notice by lessor. A lessor shall:
    (i) Describe the information to be provided electronically and 
specify whether the information is also available in paper form or 
whether the lease is offered only with electronic disclosures;

[[Page 49719]]

    (ii) Identify the address or location where the information will be 
provided electronically; and if it is made available at a location 
other than the consumer's electronic address, how long the information 
will be available, and how it can be obtained once that period ends;
    (iii) Specify any technical requirements for receiving and 
retaining information sent electronically, and provide a means for the 
consumer to confirm the availability of equipment meeting those 
requirements; and
    (iv) Provide a toll-free telephone number and, at the lessor's 
option, an address for questions about receiving electronic disclosures 
and for seeking technical or other assistance related to electronic 
communication.
    (2) Response by consumer. A lessor shall provide a means for the 
consumer to accept or reject electronic disclosures.
    (d) Address or location to receive electronic communication. A 
lessor that uses electronic communication to provide the disclosures 
required by Sec. 213.4 shall:
    (1) Send the information to the consumer's electronic address; or
    (2) Post the information for at least 90 days at a location such as 
a website, and send a notice to the consumer when the information 
becomes available. Thereafter the information shall be available upon 
request for a period of not less than two years from the date 
disclosures are required to be made. The notice required by paragraph 
(d)(2) of this section shall identify the lease property in accordance 
with Sec. 213.4(a), shall be sent to an electronic address designated 
by the consumer (or to a postal address, at the lessor's option), and 
shall be substantially similar to the model form set forth in Appendix 
A of this part (Model Form A-6).
    3. Section 213.7 is amended by revising paragraph (c) to read as 
follows:


Sec. 213.7  Advertising.

* * * * *
    (c) Catalogs, [and] multiple-page , and 
electronic advertisements. A catalog or other multiple-page 
advertisement, or an advertisement using electronic 
communication that provides a table or schedule of the 
required disclosures shall be considered a single advertisement if, for 
lease terms that appear without all the required disclosures, the 
advertisement refers to the page or [pages on which]location 
where  the table or schedule appears.
* * * * *
    4. Appendix A to Part 213 is amended by adding a new Appendix A-4, 
Appendix A-5, Appendix A-6, Appendix A-7, and Appendix A-8 to read as 
follows:

Appendix A to Part 213--Model Forms

* * * * *

Appendix A-4  Model Disclosures for Electronic 
Communication (Sec. 213.6(c))

(Disclosures Available in Paper or Electronically)

    You can choose to receive important information required by the 
Consumer Leasing Act in paper or electronically.
    Read this notice carefully and keep a copy for your records.
      You can choose to receive the following information in 
paper form or electronically: (description of Regulation M 
disclosures).
      How would you like to receive this information: ______  
I want paper disclosures. ______  I want electronic disclosures.
      [If you choose electronic disclosures, this 
information will be available at: (specify location) for ______ 
days. After that, the information will be available upon request 
(state how to obtain the information). When the information is 
posted, we will send you a message at the electronic mail address 
you designate here: (consumer's electronic mail address).]
    [If you choose electronic disclosures this information will be 
sent to the electronic mail address that you designate here: 
(consumer's electronic mail address).]
     To receive this information you will need: (list 
hardware and software requirements). Do you have access to a 
computer that satisfies these requirements? ______Yes ______No
     Do you have access to a printer, or the ability to 
download information, in order to keep copies for your records? 
______Yes ______No
     If you have questions about receiving disclosures, or 
need technical or other assistance concerning these disclosures, 
contact us at (telephone number).

A-5  Model Disclosures for Electronic Communication (Sec. 213.6(c))

(Disclosures Available Only Electronically)

    You will receive important information required by the Consumer 
Leasing Act electronically.
    Read this notice carefully and keep a copy for your records.
     The following information will be provided 
electronically: (description of Regulation M disclosures).
     This lease is not available unless you accept 
electronic disclosures.
     [If you choose electronic disclosures, this information 
will be available at: (specify location) for ______ days. After 
that, the information will be available upon request (state how to 
obtain the information). When the information is posted, we will 
send you a message at the electronic mail address you designate 
here: (consumer's electronic mail address).]
    [If you choose electronic disclosures this information will be 
sent to the electronic mail address that you designate here: 
(consumer's electronic mail address).]
     To receive this information you will need: (list 
hardware and software requirements). Do you have access to a 
computer that satisfies these requirements? ______Yes ______No
     Do you have access to a printer, or the ability to 
download information, in order to keep copies for your records? 
______Yes ______No
     Do you want this lease with electronic disclosures? 
______Yes ______No
     If you have questions about receiving disclosures, or 
need technical or other assistance concerning these disclosures, 
contact us at (telephone number).

A-6  Model Notice for Delivery of Information Posted at Certain 
Locations (Sec. 213.6(d))

    Information about your (identify lease) is now available at 
[website address or other location]. The information discusses 
(describe the disclosure). It will be available for ______days.

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    5. In Supplement I to Part 213, a new Section 213.6 Requirements 
for Electronic Communication is added to read as follows:

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

* * * * *

Section 213.6--Requirements for Electronic Communication

6(a)  Definition

    1. Coverage. Information transmitted by facsimile may be 
received in paper form or electronically, although the party 
initiating the transmission may not know at the time the disclosures 
are sent which form will be used. A lessor that provides disclosures 
by facsimile machine should comply with the requirements for 
electronic communication unless the lessor knows that the 
disclosures will be received in paper form.

6(b)  Electronic Communication Between Lessor and Consumer

    1. Retainability. Lessors must provide electronic disclosures in 
a retainable format (for example, they can be printed or 
downloaded). Consumers may communicate electronically with lessors 
through a variety of means and from various locations. Depending on 
the location (at home, at work, in a public place such as a 
library), a consumer may not have the ability at a given time to 
preserve CLA disclosures presented on-screen. To ensure that 
consumers have an adequate opportunity to retain the disclosures, 
the lessor also must send them to the consumer's designated 
electronic mail address or to another location, for example, on the 
lessor's website, where the information may be retrieved at a later 
date.
    2. Timing and delivery. When a consumer becomes obligated for a 
lease transaction on the Internet, for example, in order to meet the 
timing and delivery requirements, lessors must ensure that 
disclosures applicable at that time appear on the screen and are in 
a retainable format. The delivery requirements would not be met if 
disclosures do not either appear on the screen or if the consumer is 
allowed to consummate the lease before receiving the disclosures. 
For example, a lessor can provide a link to electronic disclosures 
appearing on a separate page as long as consumers cannot bypass the 
link and they are required to access the disclosures before becoming 
obligated on the lease.

6(b)(2)  In-Person Exception

    1. Disclosures in paper form. If a consumer consummates a lease 
in person, the lessor must generally provide disclosures in paper 
form. For example, if a consumer goes to a lessor's place of 
business to consummate a lease, disclosures are required before 
consummation and they must be provided in paper form; directing the 
consumer to disclosures posted on the lessor's website would not be 
sufficient. If, however, a consumer applies for a lease on the 
Internet, a lessor may send disclosures electronically at or around 
that time even though the lessor's procedures require the consumer 
to visit the lessor at a later time to complete the transaction (for 
example, to sign a lease agreement).

6(c)  Disclosure Notice

    1. Consumer's affirmative responses. Even though a consumer 
accepts electronic disclosures in accordance with Sec. 213.6(c)(2), 
a lessor may deliver disclosures by electronic communication only if 
the consumer provides an electronic address where one is required, 
and responds affirmatively to questions about technical requirements 
and the ability to print or download information (see sample forms 
A-7 and A-8 in appendix A to this part).

6(c)(1)  Notice by Lessor

    1. Toll-free telephone number. The number must be toll-free 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 
telephone number that allows a consumer to call for information and 
reverse the telephone charges.
    2. Lessor's address. Lessors have the option of providing either 
an electronic or postal address for consumers' use in addition to 
the toll-free telephone number.

6(d)  Address or Location To Receive Electronic Communication.

Paragraph 6(d)(1)

    1. Electronic address. A consumer's electronic address is an 
electronic mail address that may be used by the consumer for 
receiving communications transmitted by parties other than the 
lessor.

Paragraph 6(d)(2)

    1. Availability. Information that is not sent to a consumer's 
electronic mail address must be available for at least 90 days from 
the date the information becomes available or from the date the 
notice required by Sec. 213.6(d)(2) is sent to the consumer, 
whichever occurs later.
* * * * *
    6. In Supplement I to Part 213, in Sec. 213.7--Advertising, the 
following amendments are made:
    a. Under 7(b)(1)  Amount due at Lease Signing or Delivery, a new 
paragraph 3. is added;
    b. Under 7(b)(2)  Advertisement of a Lease Rate, paragraph 1. is 
revised; and
    c. Under 7(c)  Catalogs and Multi-Page Advertisements, paragraph 
12 is redesignated as paragraph 2 and revised. The addition and 
revisions read as follows:
* * * * *


Sec. 213.7  Advertising

* * * * *

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

* * * * *
    3. Electronic advertisements. A lessor that has an 
electronic advertisement does not comply with the prominence rule in 
Sec. 213.7(b)(1) if both the triggering terms and the required 
disclosures cannot be viewed simultaneously.

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. A lessor does not 
comply with the prominence rule in Sec. 213.7(b)(2) if a rate 
contained in an electronic advertisement and the required 
disclosures cannot be viewed simultaneously.

7(c)  Catalogs and Multi-Page Advertisements

* * * * *
    2. Cross-references. A catalog, multiple-page, or 
electronic [multi-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 , or 
electronic advertisement,  it must clearly 
direct the consumer to the page or location where the table, chart, 
or schedule begins. For example, in an electronic advertisement, a 
term triggering additional disclosures may be accompanied by a link 
that directly connects the consumer to the additional information 
(but see comments under Sec. 213.7(b) about the prominence 
rule). [the page on which the triggering term is used 
must clearly refer to the specific page where the table, chart, or 
schedule begins.]
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, August 31, 1999.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 99-23141 Filed 9-13-99; 8:45 am]
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