[Federal Register Volume 64, Number 65 (Tuesday, April 6, 1999)]
[Rules and Regulations]
[Pages 16612-16614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8412]
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FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1028]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; official staff interpretation.
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SUMMARY: The Board is publishing revisions to the official staff
commentary to Regulation M, which implements the Consumer Leasing Act.
The commentary applies and interprets the requirements of the
regulation. The update provides guidance on disclosures for lease
renegotiations and extensions, official fees and taxes, multiple-item
leases, and advertisements.
DATES: This rule is effective March 31, 1999. Compliance is optional
until March 31, 2000.
FOR FURTHER INFORMATION CONTACT: Kyung Cho-Miller or Obrea Poindexter,
Staff Attorneys, Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, at (202) 452-3667. For users
of Telecommunications Device for the Deaf (TDD) only, Diane Jenkins at
(202) 452-3544.
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 Board's Regulation M (12 CFR part 213) implements the
act. The CLA requires lessors to provide consumers with uniform cost
and other disclosures about consumer lease transactions. The act
generally applies to consumer leases of personal property in which the
contractual obligation does not exceed $25,000 and has a term of more
than four months. An automobile lease is the most common type of
consumer lease covered by the act.
The commentary (12 CFR Part 213 (Supp. I)) is a substitute for
individual written staff interpretations; it is updated as necessary,
but generally not more frequently than annually, to address significant
questions that arise. This is the first update since the January 1,
1998, effective date for complying with the revised regulation. Except
as discussed below, the interpretations are adopted as proposed, with
some technical edits to address concerns raised by commenters. In
response to concerns about the uncertainty of computer readiness for
the Year 2000 date change, the effective date for mandatory compliance
with the commentary update is March 31, 2000.
In December, the Board published proposed amendments to the
commentary to Regulation M (63 FR 67434, December 7, 1998). The Board
received comments from leasing industry representatives. Overall,
commenters generally supported the proposed amendments, except for the
guidance on estimating official fees and taxes.
II. Commentary Revisions
Section 213.3--General Disclosures Requirements
3(d) Use of Estimates
As proposed, the example about estimating official fees and taxes
in comment 3(d)(1)-1(i) is removed. A cross reference to the commentary
to section 213.4(n), which provides guidance on estimating official
fees and taxes, is added to comment 3(d)(1)-2.
Section 213.4--Content of Disclosures
4(c) Payment Schedule and Total Amount of Periodic Payments
Comment 4(c)-1 is revised to clarify that scheduled payments can
occur at both regular and irregular intervals. A similar revision is
also made in comment 1 to appendix A.
4(f) Payment Calculation
Motor vehicle lease disclosures must include a mathematical
progression of how periodic payments are derived. Comment 4(f)-2 is
added to address lease transactions that involve multiple items of
leased property if one of the items is not a motor vehicle under state
law.
4(n) Fees and Taxes
Lessors must disclose the total amount payable by the lessee during
the lease term for official and license fees, certificate of title
fees, registration, and taxes. Commenters supported the need for
guidance about this disclosure but thought proposed comment 4(n)-2 did
not provide sufficient flexibility given the difficulty in projecting
future fees and taxes on some lease transactions. Fees and taxes may
differ widely, state by state and jurisdiction by jurisdiction. In
addition, some of the taxes and fees being projected may involve
amounts that are billed directly to consumers and not through the
lessor. Comment 4(n)-2 is revised to provide guidance and flexibility
in determining rates and fees.
Section 213.5--Renegotiations, Extensions, and Assumptions
5(a) Renegotiations
A renegotiation occurs where a lease is satisfied and replaced by a
new lease. Under Regulation M, a renegotiation generally triggers new
disclosures. Several commenters requested further guidance on how to
properly complete model forms where, by renegotiation, the initial
lease term is extended and the consummation date remains unchanged from
the initial lease. Comment 5(a)-1 is added to clarify that disclosures
should conform to the
[[Page 16613]]
lessee's legal obligation and to include guidance for using the model
forms.
5(b) Extensions
Comment 5(b)-3 is added to provide guidance on lease extensions,
which sometimes are consummated before the end of the initial lease
term. The comment clarifies that disclosures should be based on the
lessee's obligation for the period of the extension, whether the
extension agreement is consummated during the initial lease term or
afterwards. Any fees required in connection with the extension also
must be reflected in the new disclosures, regardless of when the fees
are paid.
Section 213.7--Advertising
7(d)(2) Additional Terms
Comment 7(d)(2)-1 is revised to provide guidance for advertising
periodic lease payments affected by third-party fees that vary by state
or locality, such as taxes or licenses.
Appendix A--Model Forms
Comment 1 to appendix A is revised to provide additional examples
of permissible changes to the model forms.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and recordkeeping
requirements, Truth in lending.
For the reasons set forth in the preamble, the Board amends 12 CFR
Part 213 as follows:
PART 213--CONSUMER LEASING (REGULATION M)
1. The authority citation for part 213 continues to read as
follows:
Authority: 15 U.S.C. 1604; 1667f.
2. In Supplement I to Part 213, under Section 213.3--General
Disclosure Requirements, under Paragraph 3(d)(1) Standard, paragraph 1.
is amended by removing ``For example:'' from the last line, paragraph
1.i. is removed, and paragraph 2. is amended by adding a new sentence
to the end of the paragraph.
The addition reads as follows:
Supplement I To Part 213--Official Staff Commentary To Regulation M
* * * * *
Section 213.3--General Disclosure Requirements
* * * * *
3(d)(1) Standard
* * * * *
2. Basis of Estimates. * * * See commentary to Sec. 213.4(n) for
estimating official fees and taxes.
* * * * *
3. In Supplement I to Part 213, under Section 213.4--Content of
Disclosures, the following amendments are made:
a. Under 4(c) Payment Schedule and Total Amount of Periodic
Payments, paragraph 1. is revised;
b. Under 4(f) Payment Calculation, a new paragraph 2. is added; and
c. Under 4(n) Fees and Taxes, a new paragraph 2. is added.
The additions and revisions read as follows:
* * * * *
Section 213.4--Content of Disclosures
* * * * *
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(f) Payment Calculation
* * * * *
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(n) Fees and Taxes
* * * * *
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. In Supplement I to Part 213, under Section 213.5--
Renegotiations, Extensions, and Assumptions, the following amendments
are made:
a. A new undesignated heading, 5(a) Renegotiations, and paragraph
1. is added; and
b. Under Paragraph 5(b) Extensions., a new paragraph 3. is added.
The additions read as follows:
* * * * *
Section 213.5--Renegotiations, Extensions, and Assumptions
* * * * *
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.
* * * * *
[[Page 16614]]
5(b) Extensions
* * * * *
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.
* * * * *
5. In Supplement I to Part 213, under Section 213.7--Advertising,
under Paragraph 7(d)(2) Additional Terms., paragraph 1. is revised as
follows:
* * * * *
Section 213.7--Advertising
* * * * *
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.
* * * * *
6. In Supplement I to Part 213, under Appendix A--Model Forms,
paragraph 1. is revised as follows:
* * * * *
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.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority, March 31, 1999.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 99-8412 Filed 4-5-99; 8:45 am]
BILLING CODE 6210-01-P