[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Rules and Regulations]
[Pages 78500-78520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31723]



[[Page 78500]]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1013

[Docket No. CFPB-2011-0026]
RIN 3170-AA06


Consumer Leasing (Regulation M)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

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SUMMARY: Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) transferred rulemaking authority for a 
number of consumer financial protection laws from seven Federal 
agencies to the Bureau of Consumer Financial Protection (Bureau) as of 
July 21, 2011. The Bureau is in the process of republishing the 
regulations implementing those laws with technical and conforming 
changes to reflect the transfer of authority and certain other changes 
made by the Dodd-Frank Act. In light of the transfer of the Board of 
Governors of the Federal Reserve System's (Board's) rulemaking 
authority for the Consumer Leasing Act of 1976 (CLA) to the Bureau, the 
Bureau is publishing for public comment an interim final rule 
establishing a new Regulation M (Consumer Leasing). This interim final 
rule does not impose any new substantive obligations on persons subject 
to the existing Regulation M, previously published by the Board.

DATES: This interim final rule is effective December 30, 2011. Comments 
must be received on or before February 17, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0026 or RIN 3170-AA06, by any of the following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Bureau of Consumer Financial Protection, 1500 Pennsylvania Avenue NW., 
(Attn: 1801 L Street), Washington, DC 20220.
     Hand Delivery/Courier in Lieu of Mail: Monica Jackson, 
Office of the Executive Secretary, Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20006.
    All submissions must include the agency name and docket number or 
Regulatory Information Number (RIN) for this rulemaking. In general, 
all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public 
inspection and copying at 1700 G Street NW., Washington, DC 20006, on 
official business days between the hours of 10 a.m. and 5 p.m. Eastern 
Time. You can make an appointment to inspect the documents by 
telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Courtney Jean or Priscilla Walton-
Fein, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Background

    The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted 
in 1976 as an amendment to the Truth in Lending Act (TILA), 15 U.S.C. 
1601 et seq. The purpose of the CLA is to ensure meaningful and 
accurate disclosure of the terms of personal property leases for 
personal, family, or household use. The CLA and Regulation M require 
lessors to provide consumers with uniform cost and other disclosures 
about consumer lease transactions. The statute and the regulation 
generally apply to consumer leases for the use of personal property in 
which the contractual obligation has a term of more than four months 
and the lessee's total contractual obligation under the lease exceeds a 
specified dollar threshold. Historically, the CLA has been implemented 
in Regulation M of the Board of Governors of the Federal Reserve System 
(Board), 12 CFR Part 213. The Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) \1\ amended a number of 
consumer financial protection laws, including the CLA. In addition to 
various substantive amendments, the Dodd-Frank Act transferred 
rulemaking authority for the CLA to the Bureau of Consumer Financial 
Protection (Bureau), effective July 21, 2011.\2\ See sections 1061, 
1100A, and 1100E of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act 
and the CLA, as amended, the Bureau is publishing for public comment an 
interim final rule establishing a new Regulation M (Consumer Leasing), 
12 CFR Part 1013, implementing the CLA (except with respect to persons 
excluded from the Bureau's rulemaking authority by section 1029 of the 
Dodd-Frank Act).
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Section 1029 of the Dodd-Frank Act generally excludes from 
this transfer of authority, subject to certain exceptions, any 
rulemaking authority over a motor vehicle dealer that is 
predominantly engaged in the sale and servicing of motor vehicles, 
the leasing and servicing of motor vehicles, or both.
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II. Summary of the Interim Final Rule

A. General

    The interim final rule substantially duplicates the Board's 
Regulation M as the Bureau's new Regulation M, 12 CFR Part 1013, making 
only certain non-substantive, technical, formatting, and stylistic 
changes. To minimize any potential confusion, the Bureau is preserving 
the numbering of the Board's Regulation M, other than the new part 
number. While this interim final rule generally incorporates the 
Board's existing regulatory text, appendices (including model forms and 
clauses), and supplements, as amended,\3\ the rule has been edited as 
necessary to reflect nomenclature and other technical amendments 
required by the Dodd-Frank Act. Notably, this interim final rule does 
not impose any new substantive obligations on regulated entities.
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    \3\ See 76 FR 35721 (June 20, 2011).
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B. Specific Changes

    The Bureau has made certain nomenclature and other non-substantive 
changes consistently throughout Regulation M. References to the Board 
and its administrative structure have been replaced with references to 
the Bureau. Conforming edits have been made to internal cross-
references and to reflect the scope of the Bureau's authority pursuant 
to the CLA, as amended by the Dodd-Frank Act. Appendix B, entitled 
``Federal Enforcement Agencies,'' has been eliminated, because it was 
designed to be informational only and is unnecessary for purposes of 
implementing the CLA, as amended. Historical references that are no 
longer applicable, and references to effective dates that have passed, 
have been removed as appropriate.

III. Legal Authority

A. Rulemaking Authority

    The Bureau is issuing this interim final rule pursuant to its 
authority under the CLA and the Dodd-Frank Act. Effective July 21, 
2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the 
``consumer financial protection functions'' previously vested in 
certain other Federal agencies. The term ``consumer financial 
protection function'' is defined to include ``all authority to 
prescribe rules or issue orders or guidelines pursuant to any

[[Page 78501]]

Federal consumer financial law, including performing appropriate 
functions to promulgate and review such rules, orders, and 
guidelines.'' \4\ The CLA is a Federal consumer financial law.\5\ 
Accordingly, effective July 21, 2011, except with respect to persons 
excluded from the Bureau's rulemaking authority by section 1029 of the 
Dodd-Frank Act, the authority of the Board to issue regulations 
pursuant to the CLA transferred to the Bureau.\6\
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    \4\ Public Law 111-203, section 1061(a)(1). Effective on the 
designated transfer date, July 21, 2011, the Bureau was also granted 
``all powers and duties'' vested in each of the Federal agencies, 
relating to the consumer financial protection functions, on the day 
before the designated transfer date. Until this and other interim 
final rules take effect, existing regulations for which rulemaking 
authority transferred to the Bureau continue to govern persons 
covered by this rule. See 76 FR 43569 (July 21, 2011).
    \5\ Public Law 111-203, section 1002(14) (defining ``Federal 
consumer financial law'' to include the ``enumerated consumer 
laws''); id. Section 1002(12) (defining ``enumerated consumer laws'' 
to include the Consumer Leasing Act of 1976).
    \6\ Section 1066 of the Dodd-Frank Act grants the Secretary of 
the Treasury interim authority to perform certain functions of the 
Bureau. Pursuant to that authority, Treasury is publishing this 
interim final rule on behalf of the Bureau.
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    The CLA, as amended, authorizes the Bureau to prescribe regulations 
to update and clarify the requirements and definitions applicable to 
lease disclosures and contracts, and any other issues specifically 
related to consumer leasing, to the extent the Bureau determines such 
action necessary to carry out the purposes, prevent the circumvention, 
or facilitate compliance with the requirements of the CLA.\7\ These 
regulations may contain such classifications and differentiations, or 
provide for such adjustments and exceptions for any class of 
transactions, that the Bureau considers appropriate.\8\ The CLA also 
directs the Bureau to establish and publish model forms to facilitate 
compliance with the disclosure requirements of the CLA and to aid 
consumers in understanding the transactions to which the disclosure 
forms relate.\9\ Section 1100E of the Dodd-Frank Act directs the Bureau 
to adjust the dollar threshold for covered consumer lease transactions 
annually for inflation by the annual percentage increase in the 
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-
W), as published by the Bureau of Labor Statistics.\10\ In its existing 
regulation, the Board used its CLA authority to establish rules to 
promote meaningful and accurate disclosure in consumer lease 
transactions.\11\
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    \7\ Id. Section 1100A(10); 15 U.S.C. 1667f(a).
    \8\ Id.
    \9\ Id.
    \10\ Public Law 111-203, section 1100E.
    \11\ See Regulation M, 12 CFR Part 213.
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B. Authority To Issue an Interim Final Rule Without Prior Notice and 
Comment

    The Administrative Procedure Act (APA) \12\ generally requires 
public notice and an opportunity to comment before promulgation of 
regulations.\13\ The APA provides exceptions to notice-and-comment 
procedures, however, where an agency for good cause finds that such 
procedures are impracticable, unnecessary, or contrary to the public 
interest or when a rulemaking relates to agency organization, 
procedure, and practice.\14\ The Bureau finds that there is good cause 
to conclude that providing notice and opportunity for comment would be 
unnecessary and contrary to the public interest under these 
circumstances. In addition, substantially all the changes made by this 
interim final rule, which were necessitated by the Dodd-Frank Act's 
transfer of CLA authority from the Board to the Bureau, relate to 
agency organization, procedure, and practice and are thus exempt from 
the APA's notice-and-comment requirements.
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    \12\ 5 U.S.C. 551 et seq.
    \13\ 5 U.S.C. 553(b), (c).
    \14\ 5 U.S.C. 553(b)(3)(A), (B).
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    The Bureau's good cause findings are based on the following 
considerations. As an initial matter, the Board's existing regulation 
was a result of notice-and-comment rulemaking to the extent required. 
Moreover, the interim final rule published today does not impose any 
new, substantive obligations on regulated entities. Rather, the interim 
final rule makes only non-substantive, technical changes to the 
existing text of the regulation, such as renumbering, changing internal 
cross-references, and replacing appropriate nomenclature to reflect the 
transfer of authority to the Bureau. Given the technical nature of 
these changes, and the fact that the interim final rule does not impose 
any additional substantive requirements on covered entities, an 
opportunity for prior public comment is unnecessary. In addition, 
recodifying the Board's regulation to reflect the transfer of authority 
to the Bureau will help facilitate compliance with the CLA and its 
implementing regulation, and will help reduce uncertainty regarding the 
applicable regulatory framework. Using notice-and-comment procedures 
would delay this process and thus be contrary to the public interest.
    The APA generally requires that rules be published not less than 30 
days before their effective dates. See 5 U.S.C. 553(d). As with the 
notice and comment requirement, however, the APA allows an exception 
when ``otherwise provided by the agency for good cause found and 
published with the rule.'' 5 U.S.C. 553(d)(3). The Bureau finds that 
there is good cause for providing less than 30 days notice here. A 
delayed effective date would harm consumers and regulated entities by 
needlessly perpetuating discrepancies between the amended statutory 
text and the implementing regulation, thereby hindering compliance and 
prolonging uncertainty regarding the applicable regulatory 
framework.\15\
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    \15\ This interim final rule is one of 14 companion rulemakings 
that together restate and recodify the implementing regulations 
under 14 existing consumer financial laws (part III.C, below, lists 
the 14 laws involved). In the interest of proper coordination of 
this overall regulatory framework, which includes numerous cross-
references among some of the regulations, the Bureau is establishing 
the same effective date of December 30, 2011 for those rules 
published on or before that date and making those published 
thereafter (if any) effective immediately.
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    In addition, delaying the effective date of the interim final rule 
for 30 days would provide no practical benefit to regulated entities in 
this context and in fact could operate to their detriment. As discussed 
above, the interim final rule published today does not impose any new, 
substantive obligations on regulated entities. Instead, the rule makes 
only non-substantive, technical changes to the existing text of the 
regulation. Thus, regulated entities that are already in compliance 
with the existing rules will not need to modify business practices as a 
result of this rule.

C. Section 1022(b)(2) of the Dodd-Frank Act

    In developing the interim final rule, the Bureau has conducted an 
analysis of potential benefits, costs, and impacts.\16\ The Bureau 
believes that the interim final rule will benefit consumers and

[[Page 78502]]

covered persons by updating and recodifying Regulation M to reflect the 
transfer of authority to the Bureau and certain other changes mandated 
by the Dodd-Frank Act. This will help facilitate compliance with the 
CLA and its implementing regulations and help reduce any uncertainty 
regarding the applicable regulatory framework. As discussed below, the 
interim final rule will not impose any new substantive obligations on 
consumers or covered persons and is not expected to have any impact on 
consumers' access to consumer financial products and services.
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    \16\ Section 1022(b)(2)(A) of the Dodd-Frank Act addresses the 
consideration of the potential benefits and costs of regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services; the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas. Section 
1022(b)(2)(B) requires that the Bureau ``consult with the 
appropriate prudential regulators or other Federal agencies prior to 
proposing a rule and during the comment process regarding 
consistency with prudential, market, or systemic objectives 
administered by such agencies.'' The manner and extent to which 
these provisions apply to interim final rules and to benefits, 
costs, and impacts that are compelled by statutory changes rather 
than discretionary Bureau action is unclear. Nevertheless, to inform 
this rulemaking more fully, the Bureau performed the described 
analyses and consultations.
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    Although not required by the interim final rule, covered persons 
may incur some costs in updating compliance manuals and related 
materials to reflect the new numbering and other technical changes 
reflected in the new Regulation M. The Bureau has worked to reduce any 
such burden by preserving the existing numbering to the extent possible 
and believes that such costs will likely be minimal. These changes 
could be handled in the short term by providing a short, standalone 
summary alerting users to the changes and in the long term could be 
combined with other updates at the firm's convenience. The Bureau 
intends to continue investigating the possible costs to affected 
entities of updating manuals and related materials to reflect these 
changes and solicits comments on this and other issues discussed in 
this section.
    The interim final rule will have no unique impact on depository 
institutions or credit unions with $10 billion or less in assets as 
described in section 1026(a) of the Dodd-Frank Act. Also, the interim 
final rule will have no unique impact on rural consumers.
    In undertaking the process of recodifying Regulation M, as well as 
regulations implementing thirteen other existing consumer financial 
laws,\17\ the Bureau consulted the Federal Deposit Insurance 
Corporation, the Office of the Comptroller of the Currency, the 
National Credit Union Administration, the Board of Governors of the 
Federal Reserve System, the Federal Trade Commission, and the 
Department of Housing and Urban Development, including with respect to 
consistency with any prudential, market, or systemic objectives that 
may be administered by such agencies.\18\ The Bureau also has consulted 
with the Office of Management and Budget for technical assistance. The 
Bureau expects to have further consultations with the appropriate 
Federal agencies during the comment period.
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    \17\ The fourteen laws implemented by this and its companion 
rulemakings are: the Consumer Leasing Act, the Electronic Fund 
Transfer Act (except with respect to section 920 of that Act), the 
Equal Credit Opportunity Act, the Fair Credit Reporting Act (except 
with respect to sections 615(e) and 628 of that act), the Fair Debt 
Collection Practices Act, Subsections (b) through (f) of section 43 
of the Federal Deposit Insurance Act, sections 502 through 509 of 
the Gramm-Leach-Bliley Act (except for section 505 as it applies to 
section 501(b)), the Home Mortgage Disclosure Act, the Real Estate 
Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the 
Truth in Lending Act, the Truth in Savings Act, section 626 of the 
Omnibus Appropriations Act, 2009, and the Interstate Land Sales Full 
Disclosure Act.
    \18\ In light of the technical but voluminous nature of this 
recodification project, the Bureau focused the consultation process 
on a representative sample of the recodified regulations, while 
making information on the other regulations available. The Bureau 
expects to conduct differently its future consultations regarding 
substantive rulemakings.
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IV. Request for Comment

    Although notice and comment rulemaking procedures are not required, 
the Bureau invites comments on this notice. Commenters are specifically 
encouraged to identify any technical issues raised by the rule. The 
Bureau is also seeking comment in response to a notice published at 76 
FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities 
for streamlining regulations that it has inherited from other Federal 
agencies to address provisions that are outdated, unduly burdensome, or 
unnecessary.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\19\ The RFA generally requires an 
agency to conduct an initial regulatory flexibility analysis (IRFA) and 
a final regulatory flexibility analysis (FRFA) of any rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities.\20\ The Bureau also is subject to 
certain additional procedures under the RFA involving the convening of 
a panel to consult with small business representatives prior to 
proposing a rule for which an IRFA is required.\21\
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    \19\ 5 U.S.C. 601 et seq.
    \20\ 5 U.S.C. 603, 604.
    \21\ 5 U.S.C. 609.
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    The IRFA and FRFA requirements described above apply only where a 
notice of proposed rulemaking is required,\22\ and the panel 
requirement applies only when a rulemaking requires an IRFA.\23\ As 
discussed above in part III, a notice of proposed rulemaking is not 
required for this rulemaking.
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    \22\ 5 U.S.C. 603(a), 604(a); 5 U.S.C. 553(b)(B).
    \23\ 5 U.S.C. 609(b).
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    In addition, as discussed above, this interim final rule has only a 
minor impact on entities subject to Regulation M. The rule imposes no 
new, substantive obligations on covered entities. Accordingly, the 
undersigned certifies that this interim final rule will not have a 
significant economic impact on a substantial number of small entities.

VI. Paperwork Reduction Act

    The Bureau may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
This rule contains information collection requirements under the 
Paperwork Reduction Act (PRA), which have been previously approved by 
OMB, and the ongoing PRA burden for which is unchanged by this rule. 
There are no new information collection requirements in this interim 
final rule. The Bureau's OMB control number for this information 
collection is: 3170-0006.

List of Subjects in 12 CFR Part 1013

    Advertising, Reporting and recordkeeping requirements, Truth in 
Lending.

Authority and Issuance

0
For the reasons set forth above, the Bureau of Consumer Financial 
Protection adds Part 1013 to Chapter X in Title 12 of the Code of 
Federal Regulations to read as follows:

PART 1013--CONSUMER LEASING (REGULATION M)

Sec.
1013.1 Authority, scope, purpose, and enforcement.
1013.2 Definitions.
1013.3 General disclosure requirements.
1013.4 Content of disclosures.
1013.5 Renegotiations, extensions, and assumptions.
1013.6 [Reserved]
1013.7 Advertising.
1013.8 Record retention.
1013.9 Relation to state laws.
Appendix A to Part 1013--Model Forms
Appendix B to Part 1013--[Reserved]
Appendix C to Part 1013--Issuance of Official Interpretations
Supplement I to Part 1013--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1604, 1667f.

[[Page 78503]]

Sec.  1013.1  Authority, scope, purpose, and enforcement.

    (a) Authority. The regulation in this part, known as Regulation M, 
is issued by the Bureau of Consumer Financial Protection to implement 
the consumer leasing provisions of the Truth in Lending Act, which is 
Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. 
1601 et seq.). Information collection requirements contained in this 
part have been approved by the Office of Management and Budget under 
the provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB 
control number 3170-0006.
    (b) Scope and purpose. This part applies to all persons that are 
lessors of personal property under consumer leases as those terms are 
defined in Sec.  1013.2(e)(1) and (h), except persons excluded from 
coverage of this part by section 1029 of the Consumer Financial 
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 
Stat. 1376. The purpose of this part is:
    (1) To ensure that lessees of personal property receive meaningful 
disclosures that enable them to compare lease terms with other leases 
and, where appropriate, with credit transactions;
    (2) To limit the amount of balloon payments in consumer lease 
transactions; and
    (3) To provide for the accurate disclosure of lease terms in 
advertising.
    (c) Enforcement and liability. Section 108 of the Act contains the 
administrative enforcement provisions. Sections 112, 130, 131, and 185 
of the Act contain the liability provisions for failing to comply with 
the requirements of the Act and this part.


Sec.  1013.2  Definitions.

    For the purposes of this part the following definitions apply:
    (a) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.) and 
the Consumer Leasing Act is Chapter 5 of the Truth in Lending Act.
    (b) Advertisement means a commercial message in any medium that 
directly or indirectly promotes a consumer lease transaction.
    (c) Bureau refers to the Bureau of Consumer Financial Protection.
    (d) Closed-end lease means a consumer lease other than an open-end 
lease as defined in this section.
    (e)(1) Consumer lease means a contract in the form of a bailment or 
lease for the use of personal property by a natural person primarily 
for personal, family, or household purposes, for a period exceeding 
four months and for a total contractual obligation not exceeding the 
applicable threshold amount, whether or not the lessee has the option 
to purchase or otherwise become the owner of the property at the 
expiration of the lease. The threshold amount is adjusted annually to 
reflect increases in the Consumer Price Index for Urban Wage Earners 
and Clerical Workers, as applicable. See the official commentary to 
this paragraph (e) for the threshold amount applicable to a specific 
consumer lease. Unless the context indicates otherwise, in this part 
``lease'' means ``consumer lease.''
    (2) The term does not include a lease that meets the definition of 
a credit sale in Regulation Z (12 CFR 226.2(a)). It also does not 
include a lease for agricultural, business, or commercial purposes or a 
lease made to an organization.
    (3) This part does not apply to a lease transaction of personal 
property which is incident to the lease of real property and which 
provides that:
    (i) The lessee has no liability for the value of the personal 
property at the end of the lease term except for abnormal wear and 
tear; and
    (ii) The lessee has no option to purchase the leased property.
    (f) Gross capitalized cost means the amount agreed upon by the 
lessor and the lessee as the value of the leased property and any items 
that are capitalized or amortized during the lease term, including but 
not limited to taxes, insurance, service agreements, and any 
outstanding prior credit or lease balance. Capitalized cost reduction 
means the total amount of any rebate, cash payment, net trade-in 
allowance, and noncash credit that reduces the gross capitalized cost. 
The adjusted capitalized cost equals the gross capitalized cost less 
the capitalized cost reduction, and is the amount used by the lessor in 
calculating the base periodic payment.
    (g) Lessee means a natural person who enters into or is offered a 
consumer lease.
    (h) Lessor means a person who regularly leases, offers to lease, or 
arranges for the lease of personal property under a consumer lease. A 
person who has leased, offered, or arranged to lease personal property 
more than five times in the preceding calendar year or more than five 
times in the current calendar year is subject to the Act and this part.
    (i) Open-end lease means a consumer lease in which the lessee's 
liability at the end of the lease term is based on the difference 
between the residual value of the leased property and its realized 
value.
    (j) Organization means a corporation, trust, estate, partnership, 
cooperative, association, or government entity or instrumentality.
    (k) Person means a natural person or an organization.
    (l) Personal property means any property that is not real property 
under the law of the state where the property is located at the time it 
is offered or made available for lease.
    (m) Realized value means:
    (1) The price received by the lessor for the leased property at 
disposition;
    (2) The highest offer for disposition of the leased property; or
    (3) The fair market value of the leased property at the end of the 
lease term.
    (n) Residual value means the value of the leased property at the 
end of the lease term, as estimated or assigned at consummation by the 
lessor, used in calculating the base periodic payment.
    (o) Security interest and security mean any interest in property 
that secures the payment or performance of an obligation.
    (p) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.


Sec.  1013.3  General disclosure requirements.

    (a) General requirements. A lessor shall make the disclosures 
required by Sec.  1013.4, as applicable. The disclosures shall be made 
clearly and conspicuously in writing in a form the consumer may keep, 
in accordance with this section. The disclosures required by this part 
may be provided to the lessee in electronic form, subject to compliance 
with the consumer consent and other applicable provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.). For an advertisement accessed by the consumer 
in electronic form, the disclosures required by Sec.  1013.7 may be 
provided to the consumer in electronic form in the advertisement, 
without regard to the consumer consent or other provisions of the E-
Sign Act.
    (1) Form of disclosures. The disclosures required by Sec.  1013.4 
shall be given to the lessee together in a dated statement that 
identifies the lessor and the lessee; the disclosures may be made 
either in a separate statement that identifies the consumer lease 
transaction or in the contract or other document evidencing the lease. 
Alternatively, the disclosures required to be segregated from other 
information under paragraph (a)(2) of this section may be provided in a 
separate dated statement that identifies the lease, and the other 
required disclosures may be

[[Page 78504]]

provided in the lease contract or other document evidencing the lease. 
In a lease of multiple items, the property description required by 
Sec.  1013.4(a) may be given in a separate statement that is included 
in the disclosure statement required by this paragraph.
    (2) Segregation of certain disclosures. The following disclosures 
shall be segregated from other information and shall contain only 
directly related information: Sec. Sec.  1013.4(b) through (f), (g)(2), 
(h)(3), (i)(1), (j), and (m)(1). The headings, content, and format for 
the disclosures referred to in this paragraph (a)(2) shall be provided 
in a manner substantially similar to the applicable model form in 
Appendix A of this part.
    (3) Timing of disclosures. A lessor shall provide the disclosures 
to the lessee prior to the consummation of a consumer lease.
    (4) Language of disclosures. The disclosures required by Sec.  
1013.4 may be made in a language other than English provided that they 
are made available in English upon the lessee's request.
    (b) Additional information; nonsegregated disclosures. Additional 
information may be provided with any disclosure not listed in paragraph 
(a)(2) of this section, but it shall not be stated, used, or placed so 
as to mislead or confuse the lessee or contradict, obscure, or detract 
attention from any disclosure required by this part.
    (c) Multiple lessors or lessees. When a transaction involves more 
than one lessor, the disclosures required by this part may be made by 
one lessor on behalf of all the lessors. When a lease involves more 
than one lessee, the lessor may provide the disclosures to any lessee 
who is primarily liable on the lease.
    (d) Use of estimates. If an amount or other item needed to comply 
with a required disclosure is unknown or unavailable after reasonable 
efforts have been made to ascertain the information, the lessor may use 
a reasonable estimate that is based on the best information available 
to the lessor, is clearly identified as an estimate, and is not used to 
circumvent or evade any disclosures required by this part.
    (e) Effect of subsequent occurrence. If a required disclosure 
becomes inaccurate because of an event occurring after consummation, 
the inaccuracy is not a violation of this part.
    (f) Minor variations. A lessor may disregard the effects of the 
following in making disclosures:
    (1) That payments must be collected in whole cents;
    (2) That dates of scheduled payments may be different because a 
scheduled date is not a business day;
    (3) That months have different numbers of days; and
    (4) That February 29 occurs in a leap year.


Sec.  1013.4  Content of disclosures.

    For any consumer lease subject to this part, the lessor shall 
disclose the following information, as applicable:
    (a) Description of property. A brief description of the leased 
property sufficient to identify the property to the lessee and lessor.
    (b) Amount due at lease signing or delivery. The total amount to be 
paid prior to or at consummation or by delivery, if delivery occurs 
after consummation, using the term ``amount due at lease signing or 
delivery.'' The lessor shall itemize each component by type and amount, 
including any refundable security deposit, advance monthly or other 
periodic payment, and capitalized cost reduction; and in motor vehicle 
leases, shall itemize how the amount due will be paid, by type and 
amount, including any net trade-in allowance, rebates, noncash credits, 
and cash payments in a format substantially similar to the model forms 
in Appendix A of this part.
    (c) Payment schedule and total amount of periodic payments. The 
number, amount, and due dates or periods of payments scheduled under 
the lease, and the total amount of the periodic payments.
    (d) Other charges. The total amount of other charges payable to the 
lessor, itemized by type and amount, that are not included in the 
periodic payments. Such charges include the amount of any liability the 
lease imposes upon the lessee at the end of the lease term; the 
potential difference between the residual and realized values referred 
to in paragraph (k) of this section is excluded.
    (e) Total of payments. The total of payments, with a description 
such as ``the amount you will have paid by the end of the lease.'' This 
amount is the sum of the amount due at lease signing (less any 
refundable amounts), the total amount of periodic payments (less any 
portion of the periodic payment paid at lease signing), and other 
charges under paragraphs (b), (c), and (d) of this section. In an open-
end lease, a description such as ``you will owe an additional amount if 
the actual value of the vehicle is less than the residual value'' shall 
accompany the disclosure.
    (f) Payment calculation. In a motor vehicle lease, a mathematical 
progression of how the scheduled periodic payment is derived, in a 
format substantially similar to the applicable model form in Appendix A 
of this part, which shall contain the following:
    (1) Gross capitalized cost. The gross capitalized cost, including a 
disclosure of the agreed upon value of the vehicle, a description such 
as ``the agreed upon value of the vehicle [state the amount] and any 
items you pay for over the lease term (such as service contracts, 
insurance, and any outstanding prior credit or lease balance),'' and a 
statement of the lessee's option to receive a separate written 
itemization of the gross capitalized cost. If requested by the lessee, 
the itemization shall be provided before consummation.
    (2) Capitalized cost reduction. The capitalized cost reduction, 
with a description such as ``the amount of any net trade-in allowance, 
rebate, noncash credit, or cash you pay that reduces the gross 
capitalized cost.''
    (3) Adjusted capitalized cost. The adjusted capitalized cost, with 
a description such as ``the amount used in calculating your base 
[periodic] payment.''
    (4) Residual value. The residual value, with a description such as 
``the value of the vehicle at the end of the lease used in calculating 
your base [periodic] payment.''
    (5) Depreciation and any amortized amounts. The depreciation and 
any amortized amounts, which is the difference between the adjusted 
capitalized cost and the residual value, with a description such as 
``the amount charged for the vehicle's decline in value through normal 
use and for any other items paid over the lease term.''
    (6) Rent charge. The rent charge, with a description such as ``the 
amount charged in addition to the depreciation and any amortized 
amounts.'' This amount is the difference between the total of the base 
periodic payments over the lease term minus the depreciation and any 
amortized amounts.
    (7) Total of base periodic payments. The total of base periodic 
payments with a description such as ``depreciation and any amortized 
amounts plus the rent charge.''
    (8) Lease payments. The lease payments with a description such as 
``the number of payments in your lease.''
    (9) Base periodic payment. The total of the base periodic payments 
divided by the number of payment periods in the lease.
    (10) Itemization of other charges. An itemization of any other 
charges that are part of the periodic payment.
    (11) Total periodic payment. The sum of the base periodic payment 
and any other charges that are part of the periodic payment.

[[Page 78505]]

    (g) Early termination--(1) Conditions and disclosure of charges. A 
statement of the conditions under which the lessee or lessor may 
terminate the lease prior to the end of the lease term; and the amount 
or a description of the method for determining the amount of any 
penalty or other charge for early termination, which must be 
reasonable.
    (2) Early termination notice. In a motor vehicle lease, a notice 
substantially similar to the following: ``Early Termination. You may 
have to pay a substantial charge if you end this lease early. The 
charge may be up to several thousand dollars. The actual charge will 
depend on when the lease is terminated. The earlier you end the lease, 
the greater this charge is likely to be.''
    (h) Maintenance responsibilities. The following provisions are 
required:
    (1) Statement of responsibilities. A statement specifying whether 
the lessor or the lessee is responsible for maintaining or servicing 
the leased property, together with a brief description of the 
responsibility;
    (2) Wear and use standard. A statement of the lessor's standards 
for wear and use (if any), which must be reasonable; and
    (3) Notice of wear and use standard. In a motor vehicle lease, a 
notice regarding wear and use substantially similar to the following: 
``Excessive Wear and Use. You may be charged for excessive wear based 
on our standards for normal use.'' The notice shall also specify the 
amount or method for determining any charge for excess mileage.
    (i) Purchase option. A statement of whether or not the lessee has 
the option to purchase the leased property, and:
    (1) End of lease term. If at the end of the lease term, the 
purchase price; and
    (2) During lease term. If prior to the end of the lease term, the 
purchase price or the method for determining the price and when the 
lessee may exercise this option.
    (j) Statement referencing nonsegregated disclosures. A statement 
that the lessee should refer to the lease documents for additional 
information on early termination, purchase options and maintenance 
responsibilities, warranties, late and default charges, insurance, and 
any security interests, if applicable.
    (k) Liability between residual and realized values. A statement of 
the lessee's liability, if any, at early termination or at the end of 
the lease term for the difference between the residual value of the 
leased property and its realized value.
    (l) Right of appraisal. If the lessee's liability at early 
termination or at the end of the lease term is based on the realized 
value of the leased property, a statement that the lessee may obtain, 
at the lessee's expense, a professional appraisal by an independent 
third party (agreed to by the lessee and the lessor) of the value that 
could be realized at sale of the leased property. The appraisal shall 
be final and binding on the parties.
    (m) Liability at end of lease term based on residual value. If the 
lessee is liable at the end of the lease term for the difference 
between the residual value of the leased property and its realized 
value:
    (1) Rent and other charges. The rent and other charges, paid by the 
lessee and required by the lessor as an incident to the lease 
transaction, with a description such as ``the total amount of rent and 
other charges imposed in connection with your lease [state the 
amount].''
    (2) Excess liability. A statement about a rebuttable presumption 
that, at the end of the lease term, the residual value of the leased 
property is unreasonable and not in good faith to the extent that the 
residual value exceeds the realized value by more than three times the 
base monthly payment (or more than three times the average payment 
allocable to a monthly period, if the lease calls for periodic payments 
other than monthly); and that the lessor cannot collect the excess 
amount unless the lessor brings a successful court action and pays the 
lessee's reasonable attorney's fees, or unless the excess of the 
residual value over the realized value is due to unreasonable or 
excessive wear or use of the leased property (in which case the 
rebuttable presumption does not apply).
    (3) Mutually agreeable final adjustment. A statement that the 
lessee and lessor are permitted, after termination of the lease, to 
make any mutually agreeable final adjustment regarding excess 
liability.
    (n) Fees and taxes. The total dollar amount for all official and 
license fees, registration, title, or taxes required to be paid in 
connection with the lease.
    (o) Insurance. A brief identification of insurance in connection 
with the lease including:
    (1) Through the lessor. If the insurance is provided by or paid 
through the lessor, the types and amounts of coverage and the cost to 
the lessee; or
    (2) Through a third party. If the lessee must obtain the insurance, 
the types and amounts of coverage required of the lessee.
    (p) Warranties or guarantees. A statement identifying all express 
warranties and guarantees from the manufacturer or lessor with respect 
to the leased property that apply to the lessee.
    (q) Penalties and other charges for delinquency. The amount or the 
method of determining the amount of any penalty or other charge for 
delinquency, default, or late payments, which must be reasonable.
    (r) Security interest. A description of any security interest, 
other than a security deposit disclosed under paragraph (b) of this 
section, held or to be retained by the lessor; and a clear 
identification of the property to which the security interest relates.
    (s) Limitations on rate information. If a lessor provides a 
percentage rate in an advertisement or in documents evidencing the 
lease transaction, a notice stating that ``this percentage may not 
measure the overall cost of financing this lease'' shall accompany the 
rate disclosure. The lessor shall not use the term ``annual percentage 
rate,'' ``annual lease rate,'' or any equivalent term.
    (t) Non-motor vehicle open-end leases. Non-motor vehicle open-end 
leases remain subject to section 182(10) of the Act regarding end of 
term liability.


Sec.  1013.5  Renegotiations, extensions, and assumptions.

    (a) Renegotiation. A renegotiation occurs when a consumer lease 
subject to this part is satisfied and replaced by a new lease 
undertaken by the same consumer. A renegotiation requires new 
disclosures, except as provided in paragraph (d) of this section.
    (b) Extension. An extension is a continuation, agreed to by the 
lessor and the lessee, of an existing consumer lease beyond the 
originally scheduled end of the lease term, except when the 
continuation is the result of a renegotiation. An extension that 
exceeds six months requires new disclosures, except as provided in 
paragraph (d) of this section.
    (c) Assumption. New disclosures are not required when a consumer 
lease is assumed by another person, whether or not the lessor charges 
an assumption fee.
    (d) Exceptions. New disclosures are not required for the following, 
even if they meet the definition of a renegotiation or an extension:
    (1) A reduction in the rent charge;
    (2) The deferment of one or more payments, whether or not a fee is 
charged;

[[Page 78506]]

    (3) The extension of a lease for not more than six months on a 
month-to-month basis or otherwise;
    (4) A substitution of leased property with property that has a 
substantially equivalent or greater economic value, provided no other 
lease terms are changed;
    (5) The addition, deletion, or substitution of leased property in a 
multiple-item lease, provided the average periodic payment does not 
change by more than 25 percent; or
    (6) An agreement resulting from a court proceeding.


Sec.  1013.6  [Reserved]


Sec.  1013.7  Advertising.

    (a) General rule. An advertisement for a consumer lease may state 
that a specific lease of property at specific amounts or terms is 
available only if the lessor usually and customarily leases or will 
lease the property at those amounts or terms.
    (b) Clear and conspicuous standard. Disclosures required by this 
section shall be made clearly and conspicuously.
    (1) Amount due at lease signing or delivery. Except for the 
statement of a periodic payment, any affirmative or negative reference 
to a charge that is a part of the disclosure required under paragraph 
(d)(2)(ii) of this section shall not be more prominent than that 
disclosure.
    (2) Advertisement of a lease rate. If a lessor provides a 
percentage rate in an advertisement, the rate shall not be more 
prominent than any of the disclosures in Sec.  1013.4, with the 
exception of the notice in Sec.  1013.4(s) required to accompany the 
rate; and the lessor shall not use the term ``annual percentage rate,'' 
``annual lease rate,'' or equivalent term.
    (c) Catalogs or other multipage advertisements; electronic 
advertisements. A catalog or other multipage advertisement, or an 
electronic advertisement (such as an advertisement appearing on an 
Internet Web site), 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 the table or 
schedule appears.
    (d) Advertisement of terms that require additional disclosure. (1) 
Triggering terms. An advertisement that states any of the following 
items shall contain the disclosures required by paragraph (d)(2) of 
this section, except as provided in paragraphs (e) and (f) of this 
section:
    (i) The amount of any payment; or
    (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.
    (2) Additional terms. An advertisement stating any item listed in 
paragraph (d)(1) of this section shall also state the following items:
    (i) That the transaction advertised is a lease;
    (ii) The total amount due prior to or at consummation or by 
delivery, if delivery occurs after consummation;
    (iii) The number, amounts, and due dates or periods of scheduled 
payments under the lease;
    (iv) A statement of whether or not a security deposit is required; 
and
    (v) A statement that an extra charge may be imposed at the end of 
the lease term where the lessee's liability (if any) is based on the 
difference between the residual value of the leased property and its 
realized value at the end of the lease term.
    (e) Alternative disclosures--merchandise tags. A merchandise tag 
stating any item listed in paragraph (d)(1) of this section may comply 
with paragraph (d)(2) of this section by referring to a sign or display 
prominently posted in the lessor's place of business that contains a 
table or schedule of the required disclosures.
    (f) Alternative disclosures--television or radio advertisements--
(1) Toll-free number or print advertisement. An advertisement made 
through television or radio stating any item listed in paragraph (d)(1) 
of this section complies with paragraph (d)(2) of this section if the 
advertisement states the items listed in paragraphs (d)(2)(i) through 
(iii) of this section, and:
    (i) Lists a toll-free telephone number along with a reference that 
such number may be used by consumers to obtain the information required 
by paragraph (d)(2) of this section; or
    (ii) Directs the consumer to a written advertisement in a 
publication of general circulation in the community served by the media 
station, including the name and the date of the publication, with a 
statement that information required by paragraph (d)(2) of this section 
is included in the advertisement. The written advertisement shall be 
published beginning at least three days before and ending at least ten 
days after the broadcast.
    (2) Establishment of toll-free number. (i) The toll-free telephone 
number shall be available for no fewer than ten days, beginning on the 
date of the broadcast.
    (ii) The lessor shall provide the information required by paragraph 
(d)(2) of this section orally, or in writing upon request.


Sec.  1013.8  Record retention.

    A lessor shall retain evidence of compliance with the requirements 
imposed by this part, other than the advertising requirements under 
Sec.  1013.7, for a period of not less than two years after the date 
the disclosures are required to be made or an action is required to be 
taken.


Sec.  1013.9  Relation to state laws.

    (a) Inconsistent state law. A state law that is inconsistent with 
the requirements of the Act and this part is preempted to the extent of 
the inconsistency. If a lessor cannot comply with a state law without 
violating a provision of this part, the state law is inconsistent 
within the meaning of section 186(a) of the Act and is preempted, 
unless the state law gives greater protection and benefit to the 
consumer. A state, through an official having primary enforcement or 
interpretative responsibilities for the state consumer leasing law, may 
apply to the Bureau for a preemption determination.
    (b) Exemptions--(1) Application. A state may apply to the Bureau 
for an exemption from the requirements of the Act and this part for any 
class of lease transactions within the state. The Bureau will grant 
such an exemption if the Bureau determines that:
    (i) The class of leasing transactions is subject to state law 
requirements substantially similar to the Act and this part or that 
lessees are afforded greater protection under state law; and
    (ii) There is adequate provision for state enforcement.
    (2) Enforcement and liability. After an exemption has been granted, 
the requirements of the applicable state law (except for additional 
requirements not imposed by Federal law) will constitute the 
requirements of the Act and this part. No exemption will extend to the 
civil liability provisions of sections 130, 131, and 185 of the Act.

Appendix A to Part 1013--Model Forms

A-1--Model Open-End or Finance Vehicle Lease Disclosures
A-2--Model Closed-End or Net Vehicle Lease Disclosures
A-3--Model Furniture Lease Disclosures
BILLING CODE 4810-AM-P

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[[Page 78513]]



Appendix B to Part 1013--[Reserved]

Appendix C to Part 1013--Issuance of Official Interpretations

    Interpretations of this part issued by officials of the Bureau 
provide the formal protection afforded under section 130(f) of the 
Act. Except in unusual circumstances, interpretations will not be 
issued separately but will be incorporated in an official commentary 
to Regulation M (Supplement I of this part), which will be amended 
periodically. No official interpretations will be issued approving a 
lessor's forms, statements, or calculation tools or methods.

Supplement I to Part 1013--Official Interpretations

Introduction

    1. Official status. The commentary in Supplement I is the 
vehicle by which the Bureau of Consumer Financial Protection issues 
official interpretations of Regulation M (12 CFR part 1013). Good 
faith compliance with this commentary affords protection from 
liability under section 130(f) of the Truth in Lending Act (15 
U.S.C. 1640(f)). Section 130(f) protects lessors from civil 
liability for any act done or omitted in good faith in conformity 
with any interpretation issued by the Bureau.
    2. Procedures for requesting interpretations. Under Appendix C 
of Regulation M, anyone may request an official interpretation. 
Interpretations that are adopted will be incorporated in this 
commentary following publication in the Federal Register. No 
official interpretations are expected to be issued other than by 
means of this commentary.
    3. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph that 
it interprets. The comments are designated with as much specificity 
as possible according to the particular regulatory provision 
addressed. For example, some of the comments to Sec.  1013.4(f) are 
further divided by subparagraph, such as comment 4(f)(1)-1 and 
comment 4(f)(2)-1. In other cases, comments have more general 
application and are designated, for example, as comment 4(a)-1. This 
introduction may be cited as comments I-1 through I-4. An appendix 
may be cited as comment app. A-1.
    4. Illustrations. Lists that appear in the commentary may be 
exhaustive or illustrative; the appropriate construction should be 
clear from the context. Illustrative lists are introduced by phrases 
such as ``including,'' ``such as,'' ``to illustrate,'' and ``for 
example.''

Section 1013.1--Authority, Scope, Purpose, and Enforcement

    1. Foreign applicability. Regulation M applies to all persons 
(including branches of foreign banks or leasing companies located in 
the United States) that offer consumer leases to residents of any 
state (including foreign nationals) as defined in Sec.  1013.2(p), 
except persons excluded from coverage of this part by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 
111-203, 124 Stat. 1376. The regulation does not apply to a foreign 
branch of a U.S. bank or to a leasing company leasing to a U.S. 
citizen residing or visiting abroad or to a foreign national abroad.

Section 1013.2--Definitions

2(b) Advertisement

    1. Coverage. The term advertisement includes messages inviting, 
offering, or otherwise generally announcing to prospective customers 
the availability of consumer leases, whether in visual, oral, print 
or electronic media. Examples include:
    i. Messages in newspapers, magazines, leaflets, catalogs, and 
fliers.
    ii. Messages on radio, television, and public address systems.
    iii. Direct mail literature.
    iv. Printed material on any interior or exterior sign or 
display, in any window display, in any point-of-transaction 
literature or price tag that is delivered or made available to a 
lessee or prospective lessee in any manner whatsoever.
    v. Telephone solicitations.
    vi. Online messages, such as those on the Internet.
    2. Exclusions. The term does not apply to the following:
    i. Direct personal contacts, including follow-up letters, cost 
estimates for individual lessees, or oral or written communications 
relating to the negotiation of a specific transaction.
    ii. Informational material distributed only to businesses.
    iii. Notices required by Federal or state law, if the law 
mandates that specific information be displayed and only the 
mandated information is included in the notice.
    iv. News articles controlled by the news medium.
    v. Market research or educational materials that do not solicit 
business.
    3. Persons covered. See the commentary to Sec.  1013.7(a).

2(d) Closed-End Lease

    1. General. In closed-end leases, sometimes referred to as 
``walk-away'' leases, the lessee is not responsible for the residual 
value of the leased property at the end of the lease term.

2(e) Consumer Lease

    1. Primary purposes. A lessor must determine in each case if the 
leased property will be used primarily for personal, family, or 
household purposes. If a question exists as to the primary purpose 
for a lease, the fact that a lessor gives disclosures is not 
controlling on the question of whether the transaction is covered. 
The primary purpose of a lease is determined before or at 
consummation and a lessor need not provide Regulation M disclosures 
where there is a subsequent change in the primary use.
    2. Period of time. To be a consumer lease, the initial term of 
the lease must be more than four months. Thus, a lease of personal 
property for four months, three months or on a month-to-month or 
week-to-week basis (even though the lease actually extends beyond 
four months) is not a consumer lease and is not subject to the 
disclosure requirements of the regulation. However, a lease that 
imposes a penalty for not continuing the lease beyond four months is 
considered to have a term of more than four months. To illustrate:
    i. A three-month lease extended on a month-to-month basis and 
terminated after one year is not subject to the regulation.
    ii. A month-to-month lease with a penalty, such as the 
forfeiture of a security deposit for terminating before one year, is 
subject to the regulation.
    3. Total contractual obligation. The total contractual 
obligation is not necessarily the same as the total of payments 
disclosed under Sec.  1013.4(e). The total contractual obligation 
includes nonrefundable amounts a lessee is contractually obligated 
to pay to the lessor, but excludes items such as:
    i. Residual value amounts or purchase-option prices;
    ii. Amounts collected by the lessor but paid to a third party, 
such as taxes, licenses, and registration fees.
    4. Credit sale. The regulation does not cover a lease that meets 
the definition of a credit sale in Regulation Z, 12 CFR 
226.2(a)(16), which is defined, in part, as a bailment or lease 
(unless terminable without penalty at any time by the consumer) 
under which the consumer:
    i. Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
services involved; and
    ii. Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the 
property upon compliance with the agreement.
    5. Agricultural purpose. Agricultural purpose means a purpose 
related to the production, harvest, exhibition, marketing, 
transportation, processing, or manufacture of agricultural products 
by a natural person who cultivates, plants, propagates, or nurtures 
those agricultural products, including but not limited to the 
acquisition of personal property and services used primarily in 
farming. Agricultural products include horticultural, viticultural, 
and dairy products, livestock, wildlife, poultry, bees, forest 
products, fish and shellfish, and any products thereof, including 
processed and manufactured products, and any and all products raised 
or produced on farms and any processed or manufactured products 
thereof.
    6. Organization or other entity. A consumer lease does not 
include a lease made to an organization such as a corporation or a 
government agency or instrumentality. Such a lease is not covered by 
the regulation even if the leased property is used (by an employee, 
for example) primarily for personal, family or household purposes, 
or is guaranteed by or subsequently assigned to a natural person.
    7. Leases of personal property incidental to a service. The 
following leases of personal property are deemed incidental to a 
service and thus are not subject to the regulation:
    i. Home entertainment systems requiring the consumer to lease 
equipment that enables

[[Page 78514]]

a television to receive the transmitted programming.
    ii. Security alarm systems requiring the installation of leased 
equipment intended to monitor unlawful entries into a home and in 
some cases to provide fire protection.
    iii. Propane gas service where the consumer must lease a propane 
tank to receive the service.
    8. Safe deposit boxes. The lease of a safe deposit box is not a 
consumer lease under Sec.  1013.2(e).
    9. Threshold amount. A consumer lease is exempt from the 
requirements of this part if the total contractual obligation 
exceeds the threshold amount in effect at the time of consummation. 
The threshold amount in effect during a particular time period is 
the amount stated below for that period. The threshold amount is 
adjusted effective January 1 of each year by any annual percentage 
increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) that was in effect on the preceding June 1. 
This comment will be amended to provide the threshold amount for the 
upcoming year after the annual percentage change in the CPI-W that 
was in effect on June 1 becomes available. Any increase in the 
threshold amount will be rounded to the nearest $100 increment. For 
example, if the annual percentage increase in the CPI-W would result 
in a $950 increase in the threshold amount, the threshold amount 
will be increased by $1,000. However, if the annual percentage 
increase in the CPI-W would result in a $949 increase in the 
threshold amount, the threshold amount will be increased by $900. If 
a consumer lease is exempt from the requirements of this part 
because the total contractual obligation exceeds the threshold 
amount in effect at the time of consummation, the lease remains 
exempt regardless of a subsequent increase in the threshold amount.
    i. Prior to July 21, 2011, the threshold amount is $25,000.
    ii. From July 21, 2011 through December 31, 2011, the threshold 
amount is $50,000.

2(g) Lessee

    1. Guarantors. Guarantors are not lessees for purposes of the 
regulation.

2(h) Lessor

    1. Arranger of a lease. To ``arrange'' for the lease of personal 
property means to provide or offer to provide a lease that is or 
will be extended by another person under a business or other 
relationship pursuant to which the person arranging the lease (a) 
receives or will receive a fee, compensation, or other consideration 
for the service or (b) has knowledge of the lease terms and 
participates in the preparation of the contract documents required 
in connection with the lease. To illustrate:
    i. An entity that, pursuant to a business relationship, 
completes the necessary lease agreement before forwarding it for 
execution to the leasing company (to whom the obligation is payable 
on its face) is ``arranging'' for the lease.
    ii. An entity that, without receiving a fee for the service, 
refers a customer to a leasing company that will prepare all 
relevant contract documents is not ``arranging'' for the lease.
    2. Consideration. The term ``other consideration'' as used in 
comment 2(h)-1 refers to an actual payment corresponding to a fee or 
similar compensation and not to intangible benefits, such as the 
advantage of increased business, which may flow from the 
relationship between the parties.
    3. Assignees. An assignee may be a lessor for purposes of the 
regulation in circumstances where the assignee has substantial 
involvement in the lease transaction. See cf. Ford Motor Credit Co. 
v. Cenance, 452 U.S. 155 (1981) (held that an assignee was a 
creditor for purposes of the pre-1980 Truth in Lending Act and 
Regulation Z because of its substantial involvement in the credit 
transaction).
    4. Multiple lessors. See the commentary to Sec.  1013.3(c).

2(j) Organization

    1. Coverage. The term ``organization'' includes joint ventures 
and persons operating under a business name.

2(l) Personal Property

    1. Coverage. Whether property is personal property depends on 
state or other applicable law. For example, a mobile home or 
houseboat may be considered personal property in one state but real 
property in another.

2(m) Realized Value

    1. General. Realized value refers to either the retail or 
wholesale value of the leased property at early termination or at 
the end of the lease term. It is not a required disclosure. Realized 
value is relevant only to leases in which the lessee's liability at 
early termination or at the end of the lease term typically is based 
on the difference between the residual value (or the adjusted lease 
balance) of the leased property and its realized value.
    2. Options. Subject to the contract and to state or other 
applicable law, the lessor may calculate the realized value in 
determining the lessee's liability at the end of the lease term or 
at early termination in one of the three ways stated in Sec.  
1013.2(m). If the lessor sells the property prior to making the 
determination about liability, the price received for the property 
(or the fair market value) is the realized value. If the lessor does 
not sell the property prior to making that determination, the 
highest offer or the fair market value is the realized value.
    3. Determination of realized value. Disposition charges are not 
subtracted in determining the realized value but amounts 
attributable to taxes may be subtracted.
    4. Offers. In determining the highest offer for disposition, the 
lessor may disregard offers that an offeror has withdrawn or is 
unable or unwilling to perform.
    5. Lessor's appraisal. See commentary to Sec.  1013.4(l).

2(o) Security Interest and Security

    1. Disclosable interests. For purposes of disclosure, a security 
interest is an interest taken by the lessor to secure performance of 
the lessee's obligation. For example, if a bank that is not a lessor 
makes a loan to a leasing company and takes assignments of consumer 
leases generated by that company to secure the loan, the bank's 
security interest in the lessor's receivables is not a security 
interest for purposes of this part.
    2. General coverage. An interest the lessor may have in leased 
property must be disclosed only if it is considered a security 
interest under state or other applicable law. The term includes, but 
is not limited to, security interests under the Uniform Commercial 
Code; real property mortgages, deeds of trust, and other consensual 
or confessed liens whether or not recorded; mechanic's, 
materialman's, artisan's, and other similar liens; vendor's liens in 
both real and personal property; liens on property arising by 
operation of law; and any interest in a lease when used to secure 
payment or performance of an obligation.
    3. Insurance exception. The lessor's right to insurance proceeds 
or unearned insurance premiums is not a security interest for 
purposes of this part.

Section 1013.3--General Disclosure Requirements

3(a) General Requirements

    1. Basis of disclosures. Disclosures must reflect the terms of 
the legal obligation between the parties. For example:
    i. In a three-year lease with no penalty for termination after a 
one-year minimum term, disclosures are based on the full three-year 
term of the lease. The one-year minimum term is only relevant to the 
early termination provisions of Sec. Sec.  1013.4 (g)(1), (k) and 
(l).
    2. Clear and conspicuous standard. 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.
    3. Multipurpose disclosure forms. A lessor may use a 
multipurpose disclosure form provided the lessor is able to 
designate the specific disclosures applicable to a given 
transaction, consistent with the requirement that disclosures be 
clearly and conspicuously provided.
    4. Number of transactions. Lessors have flexibility in handling 
lease transactions that may be viewed as multiple transactions. For 
example:
    i. When a lessor leases two items to the same lessee on the same 
day, the lessor may disclose the leases as either one or two lease 
transactions.
    ii. When a lessor sells insurance or other incidental services 
in connection with a lease, the lessor may disclose in one of two 
ways: As a single lease transaction (in which case Regulation M, not 
Regulation Z, disclosures are required) or as a lease transaction 
and a credit transaction.
    iii. When a lessor includes an outstanding lease or credit 
balance in a lease transaction, the lessor may disclose the 
outstanding balance as part of a single lease transaction

[[Page 78515]]

(in which case Regulation M, not Regulation Z, disclosures are 
required) or as a lease transaction and a credit transaction.

3(a)(1) Form of Disclosures

    1. Cross-references. Lessors may include in the nonsegregated 
disclosures a cross-reference to items in the segregated disclosures 
rather than repeat those items. A lessor may include in the 
segregated disclosures numeric or alphabetic designations as cross-
references to related information so long as such references do not 
obscure or detract from the segregated disclosures.
    2. Identification of parties. While disclosures must be made 
clearly and conspicuously, lessors are not required to use the word 
``lessor'' and ``lessee'' to identify the parties to the lease 
transaction.
    3. Lessor's address. The lessor must be identified by name; an 
address (and telephone number) may be provided.
    4. Multiple lessors and lessees. In transactions involving 
multiple lessors and multiple lessees, a single lessor may make all 
the disclosures to a single lessee as long as the disclosure 
statement identifies all the lessors and lessees.
    5. Lessee's signature. The regulation does not require that the 
lessee sign the disclosure statement, whether disclosures are 
separately provided or are part of the lease contract. Nevertheless, 
to provide evidence that disclosures are given before a lessee 
becomes obligated on the lease transaction, the lessor may, for 
example, ask the lessee to sign the disclosure statement or an 
acknowledgement of receipt, may place disclosures that are included 
in the lease documents above the lessee's signature, or include 
instructions alerting a lessee to read the disclosures prior to 
signing the lease.

3(a)(2) Segregation of Certain Disclosures

    1. Location. The segregated disclosures referred to in Sec.  
1013.3(a)(2) may be provided on a separate document and the other 
required disclosures may be provided in the lease contract, so long 
as all disclosures are given at the same time. Alternatively, all 
disclosures may be provided in a separate document or in the lease 
contract.
    2. Additional information among segregated disclosures. The 
disclosures required to be segregated may contain only the 
information required or permitted to be included among the 
segregated disclosures.
    3. Substantially similar. See commentary to Appendix A of this 
part.

3(a)(3) Timing of Disclosures

    1. Consummation. When a contractual relationship is created 
between the lessor and the lessee is a matter to be determined under 
state or other applicable law.

3(b) Additional Information; Nonsegregated Disclosures

    1. State law disclosures. A lessor may include in the 
nonsegregated disclosures any state law disclosures that are not 
inconsistent with the Act and regulation under Sec.  1013.9 as long 
as, in accordance with the standard set forth in Sec.  1013.3(b) for 
additional information, the state law disclosures are not used or 
placed to mislead or confuse or detract from any disclosure required 
by the regulation.

3(c) Multiple Lessors or Lessees

    1. Multiple lessors. If a single lessor provides disclosures to 
a lessee on behalf of several lessors, all disclosures for the 
transaction must be given, even if the lessor making the disclosures 
would not otherwise have been obligated to make a particular 
disclosure.

3(d) Use of Estimates

    1. Time of estimated disclosure. The lessor may, after making a 
reasonable effort to obtain information, use estimates to make 
disclosures if necessary information is unknown or unavailable at 
the time the disclosures are made.
    2. Basis of estimates. Estimates must be made on the basis of 
the best information reasonably available at the time disclosures 
are made. The ``reasonably available'' standard requires that the 
lessor, acting in good faith, exercise due diligence in obtaining 
information. The lessor may rely on the representations of other 
parties. For example, the lessor might look to the consumer to 
determine the purpose for which leased property will be used, to 
insurance companies for the cost of insurance, or to an automobile 
manufacturer or dealer for the date of delivery. See commentary to 
Sec.  1013.4(n) for estimating official fees and taxes.
    3. Residual value of leased property at termination. In an open-
end lease where the lessee's liability at the end of the lease term 
is based on the residual value of the leased property as determined 
at consummation, the estimate of the residual value must be 
reasonable and based on the best information reasonably available to 
the lessor (see Sec.  1013.4(m)). A lessor should generally use an 
accepted trade publication listing estimated current or future 
market prices for the leased property unless other information or a 
reasonable belief based on its experience provides the better 
information. For example:
    i. An automobile lessor offering a three-year open-end lease 
assigns a wholesale value to the vehicle at the end of the lease 
term. The lessor may disclose as an estimate a wholesale value 
derived from a generally accepted trade publication listing current 
wholesale values.
    ii. Same facts as above, except that the lessor discloses an 
estimated value derived by adjusting the residual value quoted in 
the trade publication because, in its experience, the trade 
publication values either understate or overstate the prices 
actually received in local used vehicle markets. The lessor may 
adjust estimated values quoted in trade publications if the lessor 
reasonably believes based on its experience that the values are 
understated or overstated.
    4. Retail or wholesale value. The lessor may choose either a 
retail or a wholesale value in estimating the value of leased 
property at termination of an open-end lease provided the choice is 
consistent with the lessor's general practice when determining the 
value of the property at the end of the lease term. The lessor 
should indicate whether the value disclosed is a retail or wholesale 
value.
    5. Labeling estimates. Generally, only the disclosure for which 
the exact information is unknown is labeled as an estimate. 
Nevertheless, when several disclosures are affected because of the 
unknown information, the lessor has the option of labeling as an 
estimate every affected disclosure or only the disclosure primarily 
affected.

3(e) Effect of Subsequent Occurrence

    1. Subsequent occurrences. Examples of subsequent occurrences 
include:
    i. An agreement between the lessee and lessor to change from a 
monthly to a weekly payment schedule.
    ii. An increase in official fees or taxes.
    iii. An increase in insurance premiums or coverage caused by a 
change in the law.
    iv. Late delivery of an automobile caused by a strike.
    2. Redisclosure. When a disclosure becomes inaccurate because of 
a subsequent occurrence, the lessor need not make new disclosures 
unless new disclosures are required under Sec.  1013.5.
    3. Lessee's failure to perform. The lessor does not violate the 
regulation if a previously given disclosure becomes inaccurate when 
a lessee fails to perform obligations under the contract and a 
lessor takes actions that are necessary and proper in such 
circumstances to protect its interest. For example, the addition of 
insurance or a security interest by the lessor because the lessee 
has not performed obligations contracted for in the lease is not a 
violation of the regulation.

Section 1013.4--Content of Disclosures

4(a) Description of Property

    1. Placement of description. Although the description of leased 
property may not be included among the segregated disclosures, a 
lessor may choose to place the description directly above the 
segregated disclosures.

4(b) Amount Due at Lease Signing or Delivery

    1. Consummation. See commentary to Sec.  1013.3(a)(3).
    2. Capitalized cost reduction. A capitalized cost reduction is a 
payment in the nature of a downpayment on the leased property that 
reduces the amount to be capitalized over the term of the lease. 
This amount does not include any amounts included in a periodic 
payment paid at lease signing or delivery.
    3. ``Negative'' equity trade-in allowance. If an amount owed on 
a prior lease or credit balance exceeds the agreed upon value of a 
trade-in, the difference is not reflected as a negative trade-in 
allowance under Sec.  1013.4(b). The lessor may disclose the trade-
in allowance as zero or not applicable, or may leave a blank line.
    4. Rebates. Only rebates applied toward an amount due at lease 
signing or delivery are required to be disclosed under Sec.  
1013.4(b).
    5. Balance sheet approach. In motor vehicle leases, the total 
for the column labeled ``total amount due at lease signing or 
delivery'' must equal the total for the column labeled ``how the 
amount due at lease signing or delivery will be paid.''
    6. Amounts to be paid in cash. The term cash is intended to 
include payments by check or other payment methods in addition

[[Page 78516]]

to currency; however, a lessor may add a line item under the column 
``how the amount due at lease signing or delivery will be paid'' for 
non-currency payments such as credit cards.

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.  1013.4(c).

4(d) Other Charges

    1. Coverage. Section 1013.4(d) requires the disclosure of 
charges that are anticipated by the parties incident to the normal 
operation of the lease agreement. If a lessor is unsure whether a 
particular fee is an ``other charge,'' the lessor may disclose the 
fee as such without violating Sec.  1013.4(d) or the segregation 
rule under Sec.  1013.3(a)(2).
    2. Excluded charges. This section does not require disclosure of 
charges that are imposed when the lessee terminates early, fails to 
abide by, or modifies the terms of the existing lease agreement, 
such as charges for:
    i. Late payment.
    ii. Default.
    iii. Early termination.
    iv. Deferral of payments.
    v. Extension of the lease.
    3. Third-party fees and charges. Third-party fees or charges 
collected by the lessor on behalf of third parties, such as taxes, 
are not disclosed under Sec.  1013.4(d).
    4. Relationship to other provisions. The other charges mentioned 
in this paragraph are charges that are not required to be disclosed 
under some other provision of Sec.  1013.4. To illustrate:
    i. The price of a mechanical breakdown protection (MBP) contract 
is sometimes disclosed as an ``other charge.'' Nevertheless, the 
price of MBP is sometimes reflected in the periodic payment 
disclosure under Sec.  1013.4(c) or in states where MBP is regarded 
as insurance, the cost is be disclosed in accordance with Sec.  
1013.4(o).
    5. Lessee's liabilities at the end of the lease term. 
Liabilities that the lessor imposes upon the lessee at the end of 
the scheduled lease term and that must be disclosed under Sec.  
1013.4(d) include disposition and ``pick-up'' charges.
    6. Optional ``disposition'' charges. Disposition and similar 
charges that are anticipated by the parties as an incident to the 
normal operation of the lease agreement must be disclosed under 
Sec.  1013.4(d). If, under a lease agreement, a lessee may return 
leased property to various locations, and the lessor charges a 
disposition fee depending upon the location chosen, under Sec.  
1013.4(d), the lessor must disclose the highest amount charged. In 
such circumstances, the lessor may also include a brief explanation 
of the fee structure in the segregated disclosure. For example, if 
no fee or a lower fee is imposed for returning a leased vehicle to 
the originating dealer as opposed to another location, that fact may 
be disclosed. By contrast, if the terms of the lease treat the 
return of the leased property to a location outside the lessor's 
service area as a default, the fee imposed is not disclosed as an 
``other charge,'' although it may be required to be disclosed under 
Sec.  1013.4(q).

4(e) Total of Payments

    1. Open-end lease. The additional statement is required under 
Sec.  1013.4(e) for open-end leases because, with some limitations, 
a lessee is liable at the end of the lease term for the difference 
between the residual and realized values of the leased property.

4(f) Payment Calculation

    1. Motor vehicle lease. Whether leased property is a motor 
vehicle is determined by state or other applicable law.
    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 Sec.  1013.4(f). See comment 3(a)-4 
regarding disclosure of multiple transactions.

4(f)(1) Gross Capitalized Cost

    1. Agreed upon value of the vehicle. The agreed upon value of a 
motor vehicle includes the amount of capitalized items such as 
charges for vehicle accessories and options, and delivery or 
destination charges. The lessor may also include taxes and fees for 
title, licenses, and registration that are capitalized. Charges for 
service or maintenance contracts, insurance products, guaranteed 
automobile protection, or an outstanding balance on a prior lease or 
credit transaction are not included in the agreed upon value.
    2. Itemization of the gross capitalized cost. The lessor may 
choose to provide the itemization of the gross capitalized cost only 
on request or may provide the itemization as a matter of course. In 
the latter case, the lessor need not provide a statement of the 
lessee's option to receive an itemization. The gross capitalized 
cost must be itemized by type and amount. The lessor may include in 
the itemization an identification of the items and amounts of some 
or all of the items contained in the agreed upon value of the 
vehicle. The itemization must be provided at the same time as the 
other disclosures required by Sec.  1013.4, but it may not be 
included among the segregated disclosures.

4(f)(7) Total of Base Periodic Payments

    1. Accuracy of disclosure. If the periodic payment calculation 
under Sec.  1013.4(f) has been calculated correctly, the amount 
disclosed under Sec.  1013.4(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.  
1013.4(f)(9) multiplied by the number of lease payments disclosed 
under Sec.  1013.4(f)(8), when the difference is due to rounding.

4(f)(8) Lease Payments

    1. Lease Term. The lease term may be disclosed among the 
segregated disclosures.

4(g) Early Termination

4(g)(1) Conditions and Disclosure of Charges

    1. Reasonableness of charges. See the commentary to Sec.  
1013.4(q).
    2. Description of the method. Section 1013.4(g)(1) requires a 
full description of the method of determining an early termination 
charge. The lessor should attempt to provide consumers with clear 
and understandable descriptions of its early termination charges. 
Descriptions that are full, accurate, and not intended to be 
misleading will comply with Sec.  1013.4(g)(1), even if the 
descriptions are complex. In providing a full description of an 
early termination method, a lessor may use the name of a generally 
accepted method of computing the unamortized cost portion (also 
known as the ``adjusted lease balance'') of its early termination 
charges. For example, a lessor may state that the ``constant yield'' 
method will be utilized in obtaining the adjusted lease balance, but 
must specify how that figure, and any other term or figure, is used 
in computing the total early termination charge imposed upon the 
consumer. Additionally, if a lessor refers to a named method in this 
manner, the lessor must provide a written explanation of that method 
if requested by the consumer. The lessor has the option of providing 
the explanation as a matter of course in the lease documents or on a 
separate document.
    3. Timing of written explanation of a named method. While a 
lessor may provide an address or telephone number for the consumer 
to request a written explanation of the named method used to 
calculate the adjusted leased balance, if at consummation a consumer 
requests such an explanation, the lessor must provide a written 
explanation at that time. If a consumer requests an explanation 
after consummation, the lessor must provide a written explanation 
within a reasonable time after the request is made.
    4. Default. When default is a condition for early termination of 
a lease, default charges must be disclosed under Sec.  1013.4(g)(1). 
See the commentary to Sec.  1013.4(q).
    5. Lessee's liability at early termination. When the lessee is 
liable for the difference between the unamortized cost and the 
realized value at early termination, the method of determining the 
amount of the difference must be disclosed under Sec.  1013.4(g)(1).

4(h) Maintenance Responsibilities

    1. Standards for wear and use. No disclosure is required if a 
lessor does not set standards or impose charges for wear and use 
(such as excess mileage).

4(i) Purchase Option

    1. Mandatory disclosure of no purchase option. Generally the 
lessor need only make the specific required disclosures that apply 
to a transaction. In the case of a purchase option disclosure, 
however, a lessor must disclose affirmatively that the lessee has no 
option to purchase the leased property if the purchase option is 
inapplicable.

[[Page 78517]]

    2. Existence of purchase option. Whether a purchase option 
exists under the lease is determined by state or other applicable 
law. The lessee's right to submit a bid to purchase property at 
termination of the lease is not an option to purchase under Sec.  
1013.4(i) if the lessor is not required to accept the lessee's bid 
and the lessee does not receive preferential treatment.
    3. Purchase-option fee. A purchase-option fee is disclosed under 
Sec.  1013.4(i), not Sec.  1013.4(d). The fee may be separately 
itemized or disclosed as part of the purchase-option price.
    4. Official fees and taxes. Official fees such as those for 
taxes, licenses, and registration charged in connection with the 
exercise of a purchase option may be disclosed under Sec.  1013.4(i) 
as part of the purchase-option price (with or without a reference to 
their inclusion in that price) or may be separately disclosed and 
itemized by category. Alternatively, a lessor may provide a 
statement indicating that the purchase-option price does not include 
fees for tags, taxes, and registration.
    5. Purchase-option price. Lessors must disclose the purchase-
option price as a sum certain or as a sum certain to be determined 
at a future date by reference to a readily available independent 
source. The reference should provide sufficient information so that 
the lessee will be able to determine the actual price when the 
option becomes available. Statements of a purchase price as the 
``negotiated price'' or the ``fair market value'' do not comply with 
the requirements of Sec.  1013.4(i).

4(j) Statement Referencing Nonsegregated Disclosures

    1. Content. A lessor may delete inapplicable items from the 
disclosure. For example, if a lease contract does not include a 
security interest, the reference to a security interest may be 
omitted.

4(l) Right of Appraisal

    1. Disclosure inapplicable. The lessee does not have the right 
to an independent appraisal merely because the lessee is liable at 
the end of the lease term or at early termination for unreasonable 
wear or use. Thus, the disclosure under Sec.  1013.4(l) does not 
apply. For example:
    i. The automobile lessor might expect a lessee to return an 
undented car with four good tires at the end of the lease term. Even 
though it may hold the lessee liable for the difference between a 
dented car with bald tires and the value of a car in reasonably good 
repair, the disclosure under Sec.  1013.4(l) is not required.
    2. Lessor's appraisal. If the lessor obtains an appraisal of the 
leased property to determine its realized value, that appraisal does 
not suffice for purposes of section 183(c) of the Act; the lessor 
must disclose the lessee's right to an independent appraisal under 
Sec.  1013.4(l).
    3. Retail or wholesale. In providing the disclosures in Sec.  
1013.4(l), a lessor must indicate whether the wholesale or retail 
appraisal value will be used.
    4. Time restriction on appraisal. The regulation does not 
specify a time period in which the lessee must exercise the 
appraisal right. The lessor may require a lessee to obtain the 
appraisal within a reasonable time after termination of the lease.

4(m) Liability at End of Lease Term Based on Residual Value

    1. Open-end leases. Section 1013.4(m) applies only to open-end 
leases.
    2. Lessor's payment of attorney's fees. Section 183(a) of the 
Act requires that the lessor pay the lessee's attorney's fees in all 
actions under Sec.  1013.4(m), whether successful or not.

4(m)(1) Rent and Other Charges

    1. General. This disclosure is intended to represent the cost of 
financing an open-end lease based on charges and fees that the 
lessor requires the lessee to pay. Examples of disclosable charges, 
in addition to the rent charge, include acquisition, disposition, or 
assignment fees. Charges imposed by a third party whose services are 
not required by the lessor (such as official fees and voluntary 
insurance) are not included in the Sec.  1013.4(m)(1) disclosure.

4(m)(2) Excess Liability

    1. Coverage. The disclosure limiting the lessee's liability for 
the value of the leased property does not apply in the case of early 
termination.
    2. Leases with a minimum term. If a lease has an alternative 
minimum term, the disclosures governing the liability limitation are 
not applicable for the minimum term.
    3. Charges not subject to rebuttable presumption. The limitation 
on liability applies only to liability at the end of the lease term 
that is based on the difference between the residual value of the 
leased property and its realized value. The regulation does not 
preclude a lessor from recovering other charges from the lessee at 
the end of the lease term. Examples of such charges include:
    i. Disposition charges.
    ii. Excess mileage charges.
    iii. Late payment and default charges.
    iv. In simple-interest accounting leases, amount by which the 
unamortized cost exceeds the residual value because the lessee has 
not made timely payments.

4(n) Fees and Taxes

    1. Treatment of certain taxes. Taxes paid in connection with the 
lease are generally disclosed under Sec.  1013.4(n), but there are 
exceptions. To illustrate:
    i. Taxes paid by lease signing or delivery are disclosed under 
Sec.  1013.4(b) and Sec.  1013.4(n).
    ii. Taxes that are part of the scheduled payments are reflected 
in the disclosure under Sec.  1013.4(c), (f), and (n).
    iii. A tax payable by the lessor that is passed on to the 
consumer and is reflected in the lease documentation must be 
disclosed under Sec.  1013.4(n). A tax payable by the lessor and 
absorbed as a cost of doing business need not be disclosed.
    iv. Taxes charged in connection with the exercise of a purchase 
option are disclosed under Sec.  1013.4(i), not Sec.  1013.4(n).
    2. Estimates. In disclosing the total amount of fees and taxes 
under Sec.  1013.4(n), lessors may need to base the disclosure on 
estimated tax rates or amounts and are afforded great flexibility in 
doing so. Where a rate is applied to the future value of leased 
property, lessors have flexibility in estimating that value, 
including, but not limited to, using the mathematical average of the 
agreed upon value and the residual value or published valuation 
guides; or a lessor could prepare estimates using the agreed upon 
value and disclose a reasonable estimate of the total fees and 
taxes. Lessors may include a statement that the actual total of fees 
and taxes may be higher or lower depending on the tax rates in 
effect or the value of the leased property at the time a fee or tax 
is assessed.

4(o) Insurance

    1. Coverage. If insurance is obtained through the lessor, 
information on the type and amount of insurance coverage (whether 
voluntary or required) as well as the cost, must be disclosed.
    2. Lessor's insurance. Insurance purchased by the lessor 
primarily for its own benefit, and absorbed as a business expense 
and not separately charged to the lessee, need not be disclosed 
under Sec.  1013.4(o) even if it provides an incidental benefit to 
the lessee.
    3. Mechanical breakdown protection and other products. Whether 
products purchased in conjunction with a lease, such as mechanical 
breakdown protection (MBP) or guaranteed automobile protection 
(GAP), should be treated as insurance is determined by state or 
other applicable law. In states that do not treat MBP or GAP as 
insurance, Sec.  1013.4(o) disclosures are not required. In such 
cases the lessor may, however, disclose this information in 
accordance with the additional information provision in Sec.  
1013.3(b). For MBP insurance contracts not capped by a dollar 
amount, lessors may describe coverage by referring to a limitation 
by mileage or time period, for example, by indicating that the 
mechanical breakdown contract insures parts of the automobile for up 
to 100,000 miles.

4(p) Warranties or Guarantees

    1. Brief identification. The statement identifying warranties 
may be brief and need not describe or list all warranties applicable 
to specific parts such as for air conditioning, radio, or tires in 
an automobile. For example, manufacturer's warranties may be 
identified simply by a reference to the standard manufacturer's 
warranty. If a lessor provides a comprehensive list of warranties 
that may not all apply, to comply with Sec.  1013.4(p) the lessor 
must indicate which warranties apply or, alternatively, which 
warranties do not apply.
    2. Warranty disclaimers. Although a disclaimer of warranties is 
not required by the regulation, the lessor may give a disclaimer as 
additional information in accordance with Sec.  1013.3(b).
    3. State law. Whether an express warranty or guaranty exists is 
determined by state or other law.

4(q) Penalties and Other Charges for Delinquency

    1. Collection costs. The automatic imposition of collection 
costs or attorney fees upon default must be disclosed under

[[Page 78518]]

Sec.  1013.4(q). Collection costs or attorney fees that are not 
imposed automatically, but are contingent upon expenditures in 
conjunction with a collection proceeding or upon the employment of 
an attorney to effect collection, need not be disclosed.
    2. Charges for early termination. When default is a condition 
for early termination of a lease, default charges must also be 
disclosed under Sec.  1013.4(g)(1). The Sec.  1013.4(q) and (g)(1) 
disclosures may, but need not, be combined. Examples of combined 
disclosures are provided in the model lease disclosure forms in 
Appendix A.
    3. Simple-interest leases. In a simple-interest accounting 
lease, the additional rent charge that accrues on the lease balance 
when a periodic payment is made after the due date does not 
constitute a penalty or other charge for late payment. Similarly, 
continued accrual of the rent charge after termination of the lease 
because the lessee fails to return the leased property does not 
constitute a default charge. But in either case, if the additional 
charge accrues at a rate higher than the normal rent charge, the 
lessor must disclose the amount of or the method of determining the 
additional charge under Sec.  1013.4(q).
    4. Extension charges. Extension charges that exceed the rent 
charge in a simple-interest accounting lease or that are added 
separately are disclosed under Sec.  1013.4(q).
    5. Reasonableness of charges. Pursuant to section 183(b) of the 
Act, penalties or other charges for delinquency, default, or early 
termination may be specified in the lease but only in an amount that 
is reasonable in light of the anticipated or actual harm caused by 
the delinquency, default, or early termination, the difficulties of 
proof of loss, and the inconvenience or nonfeasibility of otherwise 
obtaining an adequate remedy.

4(r) Security Interest

    1. Disclosable security interests. See Sec.  1013.2(o) and 
accompanying commentary to determine what security interests must be 
disclosed.

4(s) Limitations on Rate Information

    1. Segregated disclosures. A lease rate may not be included 
among the segregated disclosures referenced in Sec.  1013.3(a)(2).

Section 1013.5--Renegotiations, Extensions, and Assumptions

    1. Coverage. Section 1013.5 applies only to existing leases that 
are covered by the regulation. It does not apply to the 
renegotiation or extension of leases with an initial term of four 
months or less, because such leases are not covered by the 
definition of consumer lease in Sec.  1013.2(e). Whether and when a 
lease is satisfied and replaced by a new lease is determined by 
state or other applicable law.

5(a) Renegotiation

    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.
    i. 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. In this example, since the renegotiated 
lease covers a 36-month period beginning January 1, 1998, the 
disclosures must reflect payments made since that date. On the model 
form, the ``total of base periodic payments'' disclosed under Sec.  
1013.4(f)(7) should reflect periodic payments to be made over the 
entire 36-month term. Payments received since January 1, 1998, are 
added as a new line item disclosed as ``total of payments received'' 
and are subtracted from the ``total of base periodic payments'' in 
calculating a new item disclosed as the ``total of base periodic 
payments remaining.'' For example, if 6 monthly payments of $300 
were received since January 1, 1998, the disclosure form should 
include a ``total of base periodic payments'' line from which $1,800 
is subtracted to arrive at the ``total of base periodic payments 
remaining.'' The remainder of the disclosures would not change.
    ii. 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) Extension

    1. Time of extension disclosures. If a consumer lease is 
extended for a specified term greater than six months, new 
disclosures are required at the time the extension is agreed upon. 
If the lease is extended on a month-to-month basis and the 
cumulative extensions exceed six months, new disclosures are 
required at the commencement of the seventh month and at the 
commencement of each seventh month thereafter for as long as the 
extensions continue. If a consumer lease is extended for terms of 
varying durations, one of which will exceed six months beyond the 
originally scheduled termination date of the lease, new disclosures 
are required at the commencement of the term that will exceed six 
months beyond the originally scheduled termination date.
    2. Content of disclosures for month-to-month extensions. The 
disclosures for a lease extended on a month-to-month basis for more 
than six months should reflect the month-to-month nature of the 
transaction.
    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.

Section 1013.6--[Reserved]

Section 1013.7--Advertising

7(a) General Rule

    1. Persons covered. All ``persons'' must comply with the 
advertising provisions in this section, not just those that meet the 
definition of a lessor in Sec.  1013.2(h). Thus, automobile dealers 
(to the extent they are not excluded from the Bureau's rulemaking 
authority by section 1029 of the Dodd-Frank Act), merchants, and 
others who are not themselves lessors must comply with the 
advertising provisions of the regulation if they advertise consumer 
lease transactions. Pursuant to section 184(b) of the Act, however, 
owners and personnel of the media in which an advertisement appears 
or through which it is disseminated are not subject to civil 
liability for violations under section 185(b) of the Act.
    2. ``Usually and customarily.'' Section 1013.7(a) does not 
prohibit the advertising of a single item or the promotion of a new 
leasing program, but prohibits the advertising of terms that are not 
and will not be available. Thus, an advertisement may state terms 
that will be offered for only a limited period or terms that will 
become available at a future date.
    3. Total contractual obligation of advertised lease. Section 
1013.7 applies to advertisements for consumer leases, as defined in 
Sec.  1013.2(e). Under Sec.  1013.2(e), a consumer lease is exempt 
from the requirements of this part if the total contractual 
obligation exceeds the threshold amount in effect at the time of 
consummation. See comment 2(e)-9. Accordingly, Sec.  1013.7 does not 
apply to an advertisement for a specific consumer lease if the total 
contractual obligation for that lease exceeds the threshold amount 
in effect when the advertisement is made. If a lessor promotes 
multiple consumer leases in a single advertisement, the entire 
advertisement must comply with Sec.  1013.7 unless all of the 
advertised leases are exempt under Sec.  1013.2(e). For example:
    i. Assume that, in an advertisement, a lessor states that 
certain terms apply to a consumer lease for a specific automobile. 
The total contractual obligation of the advertised lease exceeds the 
threshold amount in effect when the advertisement is made. Although 
the advertisement does not refer to any other lease, some or all of 
the advertised terms for the exempt lease also apply to other leases 
offered by the lessor with total contractual obligations that do not 
exceed the applicable threshold amount. The advertisement is not 
required to comply with Sec.  1013.7 because it refers only to an 
exempt lease.
    ii. Assume that, in an advertisement, a lessor states certain 
terms (such as the amount due at lease signing) that will apply to 
consumer leases for automobiles of a particular brand. However, the 
advertisement does not refer to a specific lease. The total 
contractual obligations of the leases for some of the automobiles 
will exceed the threshold amount in effect when the advertisement is 
made, but the total contractual obligations of the leases for other 
automobiles will not exceed the threshold. The entire advertisement 
must comply with Sec.  1013.7

[[Page 78519]]

because it refers to terms for consumer leases that are not exempt.
    iii. Assume that, in a single advertisement, a lessor states 
that certain terms apply to consumer leases for two different 
automobiles. The total contractual obligation of the lease for the 
first automobile exceeds the threshold amount in effect when the 
advertisement is made, but the total contractual obligation of the 
lease for the second automobile does not exceed the threshold. The 
entire advertisement must comply with Sec.  1013.7 because it refers 
to a consumer lease that is not exempt.

7(b) Clear and Conspicuous Standard

    1. Standard. 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.

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

    1. Itemization not required. Only a total of amounts due at 
lease signing or delivery is required to be disclosed, not an 
itemization of its component parts. Such an itemization is provided 
in any transaction-specific disclosures provided under Sec.  1013.4.
    2. Prominence rule. Except for a periodic payment, oral or 
written references to components of the total due at lease signing 
or delivery (for example, a reference to a capitalized cost 
reduction, where permitted) may not be more prominent than the 
disclosure of the total amount due at lease signing or delivery.

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.  
1013.4(s), the rate cannot be more prominent than any other Sec.  
1013.4 disclosure stated in the advertisement.

7(c) Catalogs or Other Multi-Page Advertisements; Electronic 
Advertisements

    1. General rule. The multiple-page advertisements referred to in 
Sec.  1013.7(c) are advertisements consisting of a series of 
numbered pages--for example, a supplement to a newspaper. A mailing 
comprising several separate flyers or pieces of promotional material 
in a single envelope is not a single multiple-page advertisement.
    2. Cross references. A catalog or other multiple-page 
advertisement or an electronic advertisement (such as an 
advertisement appearing on an internet Web site) 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.  1013.7(d)(2)(i) through (v). If one of the triggering 
terms listed in Sec.  1013.7(d)(1) appears in a catalog, or in a 
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.

7(d)(1) Triggering Terms

    1. Typical example. When any triggering term appears in a lease 
advertisement, the additional terms enumerated in Sec.  
1013.7(d)(2)(i) through (v) must also appear. In a multi-lease 
advertisement, an example of one or more typical leases with a 
statement of all the terms applicable to each may be used. The 
examples must be labeled as such and must reflect representative 
lease terms that are made available by the lessor to consumers.

7(d)(2) Additional Terms

    1. Third-party fees that vary by state or locality. The 
disclosure of a periodic payment or 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.

7(e) Alternative Disclosures--Merchandise Tags

    1. Multiple-item leases. Multiple-item leases that utilize 
merchandise tags requiring additional disclosures may use the 
alternate disclosure rule.

7(f) Alternative Disclosures--Television or Radio Advertisements

7(f)(1) Toll-Free Number or Print Advertisement

    1. Publication in general circulation. A reference to a written 
advertisement appearing in a newspaper circulated nationally, for 
example, USA Today or the Wall Street Journal, may satisfy the 
general circulation requirement in Sec.  1013.7(f)(1)(ii).
    2. Toll-free number, local or collect calls. In complying with 
the disclosure requirements of Sec.  1013.7(f)(1)(i), a lessor must 
provide a toll-free number 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 
reverse the phone charges when calling for information.
    3. Multi-purpose number. When an advertised toll-free number 
responds with a recording, lease disclosures must be provided early 
in the sequence to ensure that the consumer receives the required 
disclosures. For example, in providing several dialing options--such 
as providing directions to the lessor's place of business--the 
option allowing the consumer to request lease disclosures should be 
provided early in the telephone message to ensure that the option to 
request disclosures is not obscured by other information.
    4. Statement accompanying toll free number. Language must 
accompany a telephone and television number indicating that 
disclosures are available by calling the toll-free number, such as 
``call 1-(800) 000-0000 for details about costs and terms.''

Section 1013.8--Record Retention

    1. Manner of retaining evidence. A lessor must retain evidence 
of having performed required actions and of having made required 
disclosures. Such records may be retained in paper form, on 
microfilm, microfiche, or computer, or by any other method designed 
to reproduce records accurately. The lessor need retain only enough 
information to reconstruct the required disclosures or other 
records.

Section 1013.9--Relation to State Laws

    1. Exemptions granted. The Bureau recognizes exemptions granted 
by the Board of Governors of the Federal Reserve System prior to 
July 21, 2011, until and unless the Bureau makes and publishes any 
contrary determination. Effective October 1, 1982, the Board of 
Governors of the Federal Reserve System granted the following 
exemptions from portions of the Consumer Leasing Act:
    i. Maine. Lease transactions subject to the Maine Consumer 
Credit Code and its implementing regulations are exempt from 
Chapters 2, 4, and 5 of the Federal act. (The exemption does not 
apply to transactions in which a federally chartered institution is 
a lessor.)
    ii. Oklahoma. Lease transactions subject to the Oklahoma 
Consumer Credit Code are exempt from Chapters 2 and 5 of the Federal 
act. (The exemption does not apply to sections 132 through 135 of 
the Federal act, nor does it apply to transactions in which a 
federally chartered institution is a lessor.)

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.
    2. Examples of acceptable changes.
    i. Using the first person, instead of the second person, in 
referring to the lessee.
    ii. Using ``lessee,'' ``lessor,'' or names instead of pronouns.
    iii. Rearranging the sequence of the nonsegregated disclosures.
    iv. Incorporating certain state ``plain English'' requirements.

[[Page 78520]]

    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).
    vi. Adding language or symbols to indicate estimates.
    vii. Adding numeric or alphabetic designations.
    viii. Rearranging the disclosures into vertical columns, except 
for Sec.  1013.4(b) through (e) disclosures.
    ix. Using icons and other graphics.
    3. Model closed-end or net vehicle lease disclosure. Model A-2 
is designed for a closed-end or net vehicle lease. Under the ``Early 
Termination and Default'' provision a reference to the lessee's 
right to an independent appraisal of the leased vehicle under Sec.  
1013.4(l) is included for those closed-end leases in which the 
lessee's liability at early termination is based on the vehicle's 
realized value.
    4. Model furniture lease disclosures. Model A-3 is a closed-end 
lease disclosure statement designed for a typical furniture lease. 
It does not include a disclosure of the appraisal right at early 
termination required under Sec.  1013.4(l) because few closed-end 
furniture leases base the lessee's liability at early termination on 
the realized value of the leased property. The disclosure should be 
added if it is applicable.

    Dated: October 24, 2011.
Alastair M. Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the 
Treasury.
[FR Doc. 2011-31723 Filed 12-16-11; 8:45 am]
BILLING CODE 4810-AM-P