[Federal Register Volume 68, Number 237 (Wednesday, December 10, 2003)]
[Proposed Rules]
[Pages 68791-68793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29944]


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FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R-1170]


Consumer Leasing

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to amend Regulation M, which implements 
the Consumer Leasing Act, and the staff commentary to the regulation. 
Regulation M would be revised to define more specifically the standard 
for providing ``clear and conspicuous'' disclosures, and to provide a 
more uniform standard among the Board's regulations. The staff 
commentary would be revised to include examples of how to meet this 
standard. Similar proposed revisions to Regulations B, E, Z and DD 
appear elsewhere in today's Federal Register. These revisions are 
intended to help ensure that consumers receive noticeable and 
understandable information that is required by law in connection with 
obtaining consumer financial products and services. In addition, 
consistency among the regulations should facilitate compliance by 
institutions.

DATES: Comments must be received on or before January 30, 2004.

ADDRESSES: Comments should refer to Docket No. R-1170 and should be 
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. However, because paper mail in the Washington 
area and at the Board of Governors is subject to delay, please consider 
submitting your comments by e-mail to [email protected], 
or faxing them to the Office of the Secretary at (202) 452-3819 or 452-
3102. Members of the public may inspect comments in Room MP-500 of the 
Martin Building between 9 a.m. and 5 p.m. on weekdays pursuant to Sec.  
261.12, except as provided in Sec.  261.14, of the Board's Rules 
Regarding Availability of Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Jane E. Ahrens, Senior Counsel, and 
David A. Stein, Counsel, Division of Consumer and Community Affairs, 
Board of Governors of the Federal Reserve System, at (202) 452-3667 or 
452-2412; for users of Telecommunications Device for the Deaf (``TDD'') 
only, contact (202) 263-4869.

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 lessees with 
uniform cost and other disclosures about certain consumer lease 
transactions. Disclosures are provided to consumers before they enter 
into lease transactions, when they renegotiate or extend a lease, and 
in advertisements that state the availability of consumer leases on 
particular terms. The act and regulation generally apply 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 regulation. The CLA is implemented by the Board's Regulation M (12 
CFR part 213). An official staff commentary interprets the requirements 
of Regulation M (12 CFR part 213 (Supp. I)).

II. Proposed Revisions

Section 213.2--Definitions

2(q) Clear and Conspicuous
    Section 182 of the CLA requires that lessors provide consumers with 
disclosures in a clear and conspicuous manner. See 15 U.S.C. 1667a. 
This standard is incorporated in Regulation M. See Sec. Sec.  213.3(a) 
and 213.7(b). Guidance on how lessors may comply with the clear and 
conspicuous standard is contained in the staff commentary. See comments 
3(a)-2 and 7(b)-1. The commentary states that under this standard, 
disclosures must be in a reasonably understandable form.
    Consumer financial services and fair lending laws and the Board 
regulations that implement them contain similar but not identical 
standards for providing disclosures that consumers will notice and 
understand. Generally, disclosures must be ``clear and conspicuous'' 
under Regulations B (Equal Credit Opportunity), M (Consumer Leasing), 
Regulation P (Privacy of Consumer Financial Information), Z (Truth in 
Lending) and DD (Truth in Savings), and ``clear and readily 
understandable'' under Regulation E (Electronic Fund Transfers). In 
interpreting the ``clear and conspicuous'' standard, the staff 
commentaries to Regulations B, M and Z provide that disclosures must be 
``in a reasonably understandable'' form; similarly, under Regulation DD 
disclosures must be in a format that allows consumers ``to readily 
understand the terms of their account.'' For purposes of the 
disclosures provided with credit card solicitations and applications, 
the commentary to Regulation Z provides more specifically that those 
disclosures must also be ``readily noticeable to the consumer.'' In 
contrast, the Board's Regulation P (Privacy of Consumer Financial 
Information) defines the ``clear and conspicuous'' standard to mean 
that a disclosure is ``reasonably understandable and designed to call 
attention to the nature and significance

[[Page 68792]]

of the information'' in the disclosure. 12 CFR 216.3(b)(1). Regulation 
P also provides examples of how to satisfy the standard. 12 CFR 
216.3(b)(2).
    The Board believes that the recently implemented standard in 
Regulation P (65 FR 35162, June 1, 2000), articulates with greater 
precision than the other regulations the concepts underlying the duty 
to provide disclosures that consumers will notice and understand. 
Therefore, to provide consistent guidance on the clear and conspicuous 
standard among its regulations, the Board is proposing to amend 
Regulation M by adding a definition for clear and conspicuous in Sec.  
213.2(q), consistent with the ``clear and conspicuous'' definition in 
Regulation P. The staff commentary to Regulation M also would be 
revised to add comments 2(q)-1 and -2, consistent with Regulation P's 
examples of how to meet the clear and conspicuous standard. Similar 
proposed revisions to Regulations B, E, Z and DD appear elsewhere in 
today's Federal Register. These revisions are intended to help ensure 
that consumers receive noticeable and understandable information that 
is required by law in connection with obtaining consumer financial 
products and services. In addition, consistency among the regulations 
should facilitate compliance by institutions.
    The Board also proposes to adopt for Regulations B, E, M, Z and DD, 
guidance concerning type-sizes that are deemed to meet the ``clear and 
conspicuous'' standard and those that would likely be too small (this 
guidance currently applies only to credit card solicitations and 
applications under Regulation Z). See proposed comment 2(q)-2(ii).
    The proposal does not add special format requirements to the 
regulation where none currently exist. Accordingly, even though the 
revisions clarify that type size can be one factor to consider in 
determining whether a disclosure is conspicuous, the proposal would not 
add a specific type-size requirement. The proposal also would not 
affect other format rules, such as the existing requirement for 
segregating disclosures. See 12 CFR 213.3(a)(2).
    To eliminate redundancy with proposed Sec.  213.2(q) and its 
accompanying commentary, the Board also proposes to revise comment 
3(a)-2 and 7(b)-1. Guidance regarding the ``clear and conspicuous'' 
standard for disclosures transmitted by electronic communication will 
be considered in the context of rulemakings dealing specifically with 
electronic delivery of disclosures.

III. Form of Comment Letters

    Comment letters should refer to Docket No. R-1170 and, when 
possible, should use a standard typeface with a font size of 10 or 12; 
this will enable the Board to convert text submitted in paper form to 
machine-readable form through electronic scanning, and will facilitate 
automated retrieval of comments for review. Comments may be mailed 
electronically to [email protected].

IV. Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comments on whether 
the proposed rules are clearly stated and effectively organized, and 
how the Board might make the proposed text easier to understand.

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. The 
proposed amendments are not expected to have any significant impact on 
small entities. 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 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 part 213. This collection is mandatory (15 U.S.C. 1667 
et seq. and Pub. L. 104-208, 110 Stat. 3009) to evidence compliance 
with the requirements of Regulation M and the Consumer Leasing Act 
(CLA). The respondents are individuals or businesses that regularly 
lease, offer to lease, or arrange for the lease of personal property 
under a consumer lease. Records, required in order to evidence 
compliance with the regulation, must be retained for twenty-four 
months. Regulation M applies to all types of lessors of personal 
property, not just state member banks; however, under the Paperwork 
Reduction Act regulations, the Federal Reserve accounts for the 
paperwork burden 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 provide lessors with a more uniform 
definition of providing ``clear and conspicuous'' disclosures and 
examples of how to satisfy the clear and conspicuous standard. While 
the proposal would amend Regulation M and the staff commentary, it is 
expected that these revisions would not increase the paperwork burden 
of lessors. With respect to state member banks, there are 310 
respondents and recordkeepers. Current annual burden is estimated to be 
11,179 hours for state member banks.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality arises under the Freedom of Information Act.
    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 
Cynthia Ayouch, Federal Reserve Board Clearance Officer, Division of 
Research and Statistics, Mail Stop 41, Board of Governors of the 
Federal Reserve System, Washington, DC 20551.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside bold-faced arrows while 
language that would be deleted is set off with bold-faced brackets.

List of Subjects in 12 CFR Part 213

    Advertising, Federal Reserve System, Reporting and record keeping 
requirements, Truth in Lending.

    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 continues to read as 
follows:

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

    2. Section 213.2 is amended by adding a new paragraph (q) to read 
as follows:

[[Page 68793]]

Sec.  213.2  Definitions.

    For the purposes of this part the following definitions apply:
* * * * *
    (q) Clear and conspicuous means that a disclosure is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the disclosure.
    3. In Supplement I to Part 213:
    a. Under Section 213.2--Definitions, a new paragraph title 2(q) 
Clear and conspicuous is added, and new paragraphs (q)1. and (q)2. are 
added.
    b. Under Section 213.3--General Disclosure Requirements, under 3(a) 
General Requirements, paragraph 2. is revised.
    c. Under Section 213.7--Advertising, under 7(b) Clear and 
Conspicuous Standard, paragraph 1. is revised.

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

* * * * *

Section 213.2--Definitions

* * * * *

2(q) Clear and Conspicuous

    1. Reasonably understandable. Examples of disclosures that are 
reasonably understandable include disclosures that:
    i. Present the information in the disclosure in clear, concise 
sentences, paragraphs, and sections;
    ii. Use short explanatory sentences or bullet lists whenever 
possible;
    iii. Use definite, concrete, everyday words and active voice 
whenever possible;
    iv. Avoid multiple negatives;
    v. Avoid legal and highly technical business terminology 
whenever possible; and
    vi. Avoid explanations that are imprecise and readily subject to 
different interpretations.
    2. Designed to call attention. Examples of disclosures that are 
designed to call attention to the nature and significance of the 
information include disclosures that:
    i. Use a plain-language heading to call attention to the 
disclosure;
    ii. Use a typeface and type size that are easy to read. 
Disclosures in 12-point type generally meet this standard. 
Disclosures printed in less than 12-point type do not automatically 
violate the standard; however, disclosures in less than 8-point type 
would likely be too small to satisfy the standard;
    iii. Provide wide margins and ample line spacing;
    iv. Use boldface or italics for key words; and
    v. In a document that combines disclosures with other 
information, use distinctive type size, style, and graphic devices, 
such as shading or sidebars, to call attention to the disclosures.
* * * * *

Section 213.3--General Disclosure Requirements

3(a) General Requirements

* * * * *
    2. Clear and conspicuous standard. See Sec.  213.2(q) and 
accompanying comments. [The clear and conspicuous standard requires 
that disclosures be reasonably understandable. For example, the 
disclosures must be presented in a way that does not obscure the 
relationship of the terms to each other; appendix A of this part 
contains model forms that meet this standard. In addition, although 
no minimum typesize is required, the disclosures must be legible, 
whether typewritten, handwritten, or printed by computer.]
* * * * *

Section 213.7--Advertising

* * * * *

7(b) Clear and Conspicuous Standard

    1. Standard. See Sec.  213.2(q) and accompanying comments. [The 
disclosures in an advertisement in any media must be reasonably 
understandable. For example,] Very fine print in a television 
advertisement or detailed and very rapidly stated information in a 
radio advertisement does not meet the clear[-]and[-]conspicuous 
standard if consumers cannot see and read or hear, and cannot 
comprehend, the information required to be disclosed.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, November 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-29944 Filed 12-9-03; 8:45 am]
BILLING CODE 6210-01-P