[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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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