Title 12--Banks and Banking CHAPTER II--FEDERAL RESERVE SYSTEM PART 213--CONSUMER LEASING (REGULATION M) |
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(a) Authority. The regulation in this part, known as Regulation M,
is issued by the Board of Governors of the Federal Reserve System 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 regulation 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 7100-0202.
(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. 213.2(e)(1) and (h). 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.
[Reg. M, 61 FR 52258, Oct. 7, 1996, as amended at 62 FR 15367, Apr. 1,
1997]
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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) Board refers to the Board of Governors of the Federal Reserve
System.
(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 $25,000,
whether or not the lessee has the option to purchase or otherwise become
the owner of the property at the expiration of the 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
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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.
[Reg. M, 61 FR 52258, Oct. 7, 1996, as amended at 62 FR 15367, Apr. 1,
1997]
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(a) General requirements. A lessor shall make the disclosures
required by Sec. 213.4, as applicable. The disclosures shall be made
clearly and conspicuously in writing in a form the consumer may keep, in
accordance with this section.
(1) Form of disclosures. The disclosures required by Sec. 213.4
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 provided in the lease contract or other
document evidencing the lease. In a lease of multiple items, the
property description required by Sec. 213.4(a) may be given in a
separate statement that is incorporated by reference 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: Secs. 213.4(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. 213.4
may be made
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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.
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Sec. 213.4 Content of disclosures. |
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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
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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.
(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
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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.
[Reg. M, 61 FR 52258, Oct. 7, 1996, as amended at 62 FR 15367, Apr. 1,
1997; 63 FR 52109, Sept. 29, 1998]
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Sec. 213.5 Renegotiations, extensions, and
assumptions. |
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(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;
(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.
[Reg. M, 61 FR 52258, Oct. 7, 1996, as amended at 62 FR 15367, Apr. 1,
1997] |
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Sec. 213.7 Advertising. |
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(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. 213.4, with the exception of the notice in
Sec. 213.4(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 and multipage advertisements. A catalog or other
multipage advertisement 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;
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(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.
[Reg. M, 61 FR 52258, Oct. 7, 1996, as amended at 62 FR 15368, Apr. 1,
1997; 63 FR 52109, Sept. 29, 1998] |
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Sec. 213.8 Record retention. |
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A lessor shall retain evidence of compliance with the requirements imposed by this part, other than the advertising requirements under Sec. 213.7, 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. |
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Sec. 213.9 Relation to state laws. |
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(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
Board for a preemption determination.
(b) Exemptions.--(1) Application. A state may apply to the Board for
an exemption from the requirements of the act and this part for any
class of lease transactions within the state. The Board will grant such
an exemption if the Board 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 213--Model Forms
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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
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[GRAPHIC] [TIFF OMITTED] TR29SE98.000
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[GRAPHIC] [TIFF OMITTED] TR29SE98.001
[Reg. M, 63 FR 52110, Sept. 29, 1998]
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[GRAPHIC] [TIFF OMITTED] TR29SE98.002
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[GRAPHIC] [TIFF OMITTED] TR29SE98.003
[Reg. M, 63 FR 52112, Sept. 29, 1998]
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[GRAPHIC] [TIFF OMITTED] TR29SE98.004
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[GRAPHIC] [TIFF OMITTED] TR29SE98.005
[Reg. M, 63 FR 52114, Sept. 29, 1998]
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Appendix B to Part 213--Federal Enforcement Agencies
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The following list indicates which federal agency enforces
Regulation M (12 CFR Part 213) for particular classes of business. Any
questions concerning compliance by a particular business should be
directed to the appropriate enforcement agency. Terms that are not
defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall
have the meaning given to them in the International Banking Act of 1978
(12 U.S.C. 3101).
1. National banks and federal branches and federal agencies of foreign
banks
District office of the Office of the Comptroller of the Currency for
the district in which the institution is located.
2. State member banks, branches and agencies of foreign banks (other
than federal branches, federal agencies, and insured state
branches of foreign banks), commercial lending companies owned
or controlled by foreign banks, and organizations operating
under section 25 or 25A of the Federal Reserve Act
Federal Reserve Bank serving the District in which the institution
is located.
3. Nonmember insured banks and insured state branches of foreign banks
Federal Deposit Insurance Corporation Regional Director for the
region in which the institution is located.
4. Savings institutions insured under the Savings Association Insurance
Fund of the FDIC and federally chartered savings banks insured
under the Bank Insurance Fund of the FDIC (but not including
state-chartered savings banks insured under the Bank Insurance
Fund)
Office of Thrift Supervision regional director for the region in
which the institution is located.
5. Federal credit unions
Regional office of the National Credit Union Administration serving
the area in which the federal credit union is located.
6. Air carriers
Assistant General Counsel for Aviation Enforcement and Proceedings,
Department of Transportation, 400 Seventh Street, S.W., Washington, DC
20590
7. Those subject to Packers and Stockyards Act
Nearest Packers and Stockyards Administration area supervisor.
8. Federal Land Banks, Federal Land Bank Associations, Federal
Intermediate Credit Banks, and Production Credit Associations
Farm Credit Administration, 490 L'Enfant Plaza, S.W., Washington, DC
20578
9. All other lessors (lessors operating on a local or regional basis
should use the address of the FTC regional office in which
they operate)
Division of Credit Practices, Bureau of Consumer Protection, Federal
Trade Commission, Washington, DC 20580
Appendix C to Part 213--Issuance of Staff Interpretations
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Officials in the Board's Division of Consumer and Community Affairs
are authorized to issue official staff interpretations of this
Regulation M (12 CFR Part 213). These interpretations 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 staff interpretations
will be issued approving lessor's forms, statements, or calculation
tools or methods.
Supplement I to Part 213--Official Staff Commentary to Regulation M
Return to top
Introduction
1. Official status. The commentary in Supplement I is the vehicle by
which the Division of Consumer and Community Affairs of the Federal
Reserve Board issues official staff interpretations of Regulation M (12
CFR part 213). 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 a duly authorized official or employee of
the Federal Reserve System.
2. Procedures for requesting interpretations. Under appendix C of
Regulation M, anyone may request an official staff interpretation.
Interpretations that are adopted will be incorporated in this commentary
following publication in the Federal Register. No official staff
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. 213.4(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
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are introduced by phrases such as ``including,'' ``such as,'' ``to
illustrate,'' and ``for example.''
Section 213.1--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. 213.2(p). 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 213.2--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. On-line 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. 213.7(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. 213.4(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
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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 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. 213.2(e).
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 automobile dealer who, 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 automobile dealer who, 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. 213.3(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. 213.2(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.
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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. 213.4(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 regulation.
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 regulation.
Section 213.3--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 Secs. 213.4 (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 (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.
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3(a)(2) Segregation of Certain Disclosures
1. Location. The segregated disclosures referred to in
Sec. 213.3(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. 213.9 as long as, in accordance with the
standard set forth in Sec. 213.3(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
3(d)(1) Standard
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. 213.4(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. 213.4(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. Labelling estimates. Generally, only the disclosure for which the
exact information is unknown is labelled as an estimate. Nevertheless,
when several disclosures are affected because of the unknown
information, the lessor has the option of labelling 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.
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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. 213.5.
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 213.4--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. 213.3(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. 213.4(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. 213.4(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 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. 213.4(c).
4(d) Other charges
1. Coverage. Section 213.4(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. 213.4(d) or the segregation rule under Sec. 213.3(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. 213.4(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. 213.4. 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. 213.4(c) or in states where MBP is regarded as insurance, the cost
is be disclosed in accordance with Sec. 213.4(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. 213.4(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. 213.4(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. 213.4(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
[[Page 354]]
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. 213.4(q).
4(e) Total of payments
1. Open-end lease. The additional statement is required under
Sec. 213.4(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. 213.4(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. 213.4, but it may not be included among the segregated disclosures.
4(f)(7) Total of Base Periodic Payment
1. Accuracy of disclosure. If the periodic payment calculation under
Sec. 213.4(f) has been calculated correctly, the amount disclosed under
Sec. 213.4(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. 213.4(f)(9) multiplied by the number of
lease payments disclosed under Sec. 213.4(f)(8), when the difference is
due to rounding.
4(f)(8) Lease Payment
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. 213.4(q).
2. Description of the method. Section 213.4(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. 213.4(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. 213.4(g)(1). See the
commentary to Sec. 213.4(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. 213.4(g)(1).
[[Page 355]]
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.
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. 213.4(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. 213.4(i), not Sec. 213.4(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. 213.4(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. 213.4(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. 213.4(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. 213.4(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. 213.4(l).
3. Retail or wholesale. In providing the disclosures in
Sec. 213.4(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 213.4(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. 213.4(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. 213.4(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
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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. 213.4(n), but there are
exceptions. To illustrate:
i. Taxes paid by lease signing or delivery are disclosed under
Sec. 213.4(b) and Sec. 213.4(n).
ii. Taxes that are part of the scheduled payments are reflected in
the disclosure under Sec. 213.4(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. 213.4(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. 213.4(i), not Sec. 213.4(n).
2. Estimates. In disclosing the total amount of fees and taxes under
Sec. 213.4(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. 213.4(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. 213.4(o) disclosures are not required. In such cases the lessor
may, however, disclose this information in accordance with the
additional information provision in Sec. 213.3(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. 213.4(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. 213.3(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 Sec. 213.4(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. 213.4(g)(1). The Sec. 213.4(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
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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. 213.4(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. 213.4(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. 213.2(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. 213.3(a)(2).
Section 213.5--Renegotiations, Extensions and Assumptions
1. Coverage. Section 213.5 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. 213.2(e). Whether and when a lease is satisfied and replaced by
a new lease is determined by state or other applicable law.
5(a) Renegotiations
1. Basis of disclosures. Lessors have flexibility in making
disclosures so long as they reflect the legal obligation under the
renegotiated lease. For example, assume that a 24-month lease is
replaced by a 36-month lease. The initial lease began on January 1,
1998, and was renegotiated and replaced on July 1, 1998, so that the new
lease term ends on January 1, 2001.
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. 213.4(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) Extensions
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 213.7--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. 213.2(h). Thus, automobile dealers, merchants, and others
who are not
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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 213.7(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.
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. 213.4.
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. 213.4(s), the rate cannot be
more prominent than any Sec. 213.4 disclosure stated in the
advertisement.
7(c) Catalogs and Multi-Page Advertisements
1. General rule. The multiple-page advertisements referred to in
Sec. 213.7(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.
12. Cross-references. A multiple-page advertisement is a single
advertisement (requiring only one set of lease disclosures) if it
contains a table, chart, or schedule with the disclosures required under
Sec. 213.7(d)(2) (i) through (v). If one of the triggering terms listed
in Sec. 213.7(d)(1) appears in a catalog or other multiple-page
advertisement, the page on which the triggering term is used must
clearly refer to the specific page where the table, chart, or schedule
begins.
7(d)(1) Triggering Terms
1. Typical example. When any triggering term appears in a lease
advertisement, the additional terms enumerated in Sec. 213.7(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. 213.7(f)(1)(ii).
2. Toll-free number, local or collect calls. In complying with the
disclosure requirements of Sec. 213.7(f)(1)(i), a lessor must provide a
toll-free number for nonlocal calls made from an
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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 213.8--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 213.9--Relation to State Laws
1. Exemptions granted. Effective October 1, 1982, the Board 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.
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. 213.4 (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. 213.4(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. 213.4(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.
[Reg. M, 62 FR 16058, Apr. 4, 1997, as amended at 63 FR 52115, Sept. 29,
1998; 64 FR 16613, 16614, Apr. 6, 1999] |
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