Regulation M - Consumer
Section 213.1 - Authority,
scope, purpose, and enforcement.
Section 213.2 - Definitions.
Section 213.3 - General disclosure requirements.
Section 213.4 - Content of disclosures.
Section 213.5 - Renegotiations, extensions, and assumptions.
Section 213.6 - [Reserved]
Section 213.7 - Advertising.
Section 213.8 - Record retention.
Section 213.9 - Relation to state laws.
Appendix B to Part 213--Federal Enforcement Agencies
Appendix C to Part 213--Issuance of Staff Interpretations
Sec. 213.1 Authority, scope, purpose, and enforcement.
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.).
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
1) To ensure that lessees of personal
property receive meaningful disclosures that enable them to compare lease
terms with other leases and, where appropriate, with credit transactions;
2) To limit the amount of balloon payments
in consumer lease transactions; and
3) To provide for the accurate disclosure
of lease terms in advertising.
c) Enforcement and liability. Section
108 of the act contains the administrative enforcement provisions. Sections
112, 130, 131, and 185 of the act contain the liability provisions for failing
to comply with the requirements of the act and this part.
Sec. 213.2 Definitions.
For the purposes of this part the following
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
2) The term does not include a lease that
meets the definition of a credit sale in Regulation Z (12 CFR 226.2(a)).
It also does not include a lease for agricultural, business, or commercial
purposes or a lease made to an organization.
3) This part does not apply to a lease
transaction of personal property which is incident to the lease of real
property and which provides that:
i) The lessee has no liability for the
value of the personal property at the end of the lease term except for abnormal
wear and tear; and
ii) The lessee has no option to purchase
the leased property.
f) Gross capitalized cost means the amount
agreed upon by the lessor and the lessee as the value of the leased property
and any items that are capitalized or amortized during the lease term, including
but not limited to taxes, insurance, service agreements, and any outstanding
balance from a prior loan or lease. 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
j) Organization means a corporation, trust,
estate, partnership, cooperative, association, or government entity or instrumentality.
k) Person means a natural person or an
l) Personal property means any property
that is not real property under the law of the state where the property
is located at the time it is offered or made available for lease.
m) Realized value means:
1) The price received by the lessor for
the leased property at disposition;
2) The highest offer for disposition of
the leased property; or
3) The fair market value of the leased
property at the end of the lease term.
n) Residual value means the value of the
leased property at the end of the lease term, as estimated or assigned at
consummation by the lessor, used in calculating the base periodic payment.
o) Security interest and security mean
any interest in property that secures the payment or performance of an obligation.
p) State means any state, the District
of Columbia, the Commonwealth of Puerto Rico, and any territory or possession
of the United States.
Sec. 213.3 General disclosure requirements.
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
4) Language of disclosures. The disclosures
required by Sec. 213.4 may be made in a language other than English provided
that they are made available in English upon the lessee's request.
b) Additional information; nonsegregated
disclosures. Additional information may be provided with any disclosure
not listed in paragraph (a)(2) of this section, but it shall not be stated,
used, or placed so as to mislead or confuse the lessee or contradict, obscure,
or detract attention from any disclosure required by this part.
c) Multiple lessors or lessees. When a
transaction involves more than one lessor, the disclosures required by this
part may be made by one lessor on behalf of all the lessors. When a lease
involves more than one lessee, the lessor may provide the disclosures to
any lessee who is primarily liable on the lease.
d) Use of estimates. If an amount or other
item needed to comply with a required disclosure is unknown or unavailable
after reasonable efforts have been made to ascertain the information, the
lessor may use a reasonable estimate that is based on the best information
available to the lessor, is clearly identified as an estimate, and is not
used to circumvent or evade any disclosures required by this part.
e) Effect of subsequent occurrence. If
a required disclosure becomes inaccurate because of an event occurring after
consummation, the inaccuracy is not a violation of this part.
f) Minor variations. A lessor may disregard
the effects of the following in making disclosures:
1) That payments must be collected in
2) That dates of scheduled payments may
be different because a scheduled date is not a business day;
3) That months have different numbers
of days; and
4) That February 29 occurs in a leap year.
Sec. 213.4 Content of disclosures.
For any consumer lease subject to this
part, the lessor shall disclose the following information, as applicable:
a) Description of property. A brief description
of the leased property sufficient to identify the property to the lessee
b) Amount due at lease signing. The total
amount to be paid prior to or at consummation, using the term ``amount due
at lease signing.'' 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
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
f) Payment calculation. In a motor-vehicle
lease, a mathematical progression of how the scheduled periodic payment
is derived, in a format substantially similar to the applicable model form
in appendix A of this part, which shall contain the following:
1) Gross capitalized cost. The gross capitalized
cost, including a disclosure of the agreed upon value of the vehicle, a
description such as ``the agreed upon value of the vehicle [state the amount]
and any items you pay for over the lease term (such as service contracts,
insurance, and any outstanding prior loan 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
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
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
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
2) Wear and use standard. A statement
of the lessor's standards for wear and use (if any), which must be reasonable;
3) Notice of wear and use standard. In
a motor-vehicle lease, a notice regarding wear and use substantially similar
to the following: ``Excessive Wear and Use. You may be charged for excessive
wear based on our standards for normal use.'' The notice shall also specify
the amount or method for determining any charge for excess mileage.
i) Purchase option. A statement of whether
or not the lessee has the option to purchase the leased property, and:
1) End of lease term. If at the end of
the lease term, the purchase price; and
2) During lease term. If prior to the
end of the lease term, the purchase price or the method for determining
the price and when the lessee may exercise this option.
j) Statement referencing nonsegregated
disclosures. A statement that the lessee should refer to the lease documents
for additional information on early termination, purchase options and maintenance
responsibilities, warranties, late and default charges, insurance, and any
security interests, if applicable.
k) Liability between residual and realized
values. A statement of the lessee's liability, if any, at early termination
or at the end of the lease term for the difference between the residual
value of the leased property and its realized value.
l) Right of appraisal. If the lessee's
liability at early termination or at the end of the lease term is based
on the realized value of the leased property, a statement that the lessee
may obtain, at the lessee's expense, a professional appraisal by an independent
third party (agreed to by the lessee and the lessor) of the value that could
be realized at sale of the leased property. The appraisal shall be final
and binding on the parties.
m) Liability at end of lease term based
on residual value. If the lessee is liable at the end of the lease term
for the difference between the residual value of the leased property and
its realized value:
1) Rent and other charges. The rent and
other charges, paid by the lessee and required by the lessor as an incident
to the lease transaction, with a description such as ``the total amount
of rent and other charges imposed in connection with your lease [state the
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
n) Fees and taxes. The total dollar amount
for all official and license fees, registration, title, or taxes required
to be paid to the lessor in connection with the lease.
o) Insurance. A brief identification of
insurance in connection with the lease including:
1) Voluntary insurance. 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) Required insurance. If the lessee must
obtain the insurance, the types and amounts of coverage required of the
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.
Sec. 213.5 Renegotiations, extensions, and assumptions.
a) Renegotiation. A renegotiation occurs
when a consumer lease subject to this part is satisfied and replaced by
a new lease undertaken by the same consumer. A renegotiation requires new
disclosures, except as provided in paragraph (d) of this section.
b) Extension. An extension is a continuation,
agreed to by the lessor and the lessee, of an existing consumer lease beyond
the originally scheduled end of the lease term, except when the continuation
is the result of a renegotiation. An extension that exceeds six months requires
new disclosures, except as provided in paragraph (d) of this section.
c) Assumption. New disclosures are not
required when a consumer lease is assumed by another person, whether or
not the lessor charges an assumption fee.
d) Exceptions. New disclosures are not
required for the following, even if they meet the definition of a renegotiation
or an extension:
1) A reduction in the lease 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
Sec. 213.6 [Reserved]
Sec. 213.7 Advertising.
a) General rule. An advertisement for
a consumer lease may state that a specific lease of property at specific
amounts or terms is available only if the lessor usually and customarily
leases or will lease the property at those amounts or terms.
b) Clear and conspicuous standard. Disclosures
required by this section shall be made clearly and conspicuously.
1) Amount due at lease signing. Except
for the statement of a periodic payment, any affirmative or negative reference
to a charge that is a part of the total amount due at lease signing under
paragraph (d)(2)(ii) of this section, such as the amount of any capitalized
cost reduction (or no capitalized cost reduction is required), shall not
be more prominent than the disclosure of the total amount due at lease signing.
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
i) The amount of any payment;
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.
iii) A statement of any capitalized cost
reduction or other payment required prior to or at consummation, or that
no payment is required.
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
ii) The total amount due at lease signing,
or that no payment is required;
iii) The number, amounts, due dates or
periods of scheduled payments, and total of such payments under the lease;
iv) A statement of whether or not the
lessee has the option to purchase the leased property, and where the lessee
has the option to purchase at the end of the lease term, the purchase-option
price. The method of determining the purchase-option price may be substituted
in disclosing the lessee's option to purchase the leased property prior
to the end of the lease term;
v) A statement of the amount, or the method
for determining the amount, of the lessee's liability (if any) at the end
of the lease term; and
vi) A statement of the lessee's liability
(if any) for 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
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
Sec. 213.8 Record retention.
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.
Sec. 213.9 Relation to state laws.
a) Inconsistent state law. A state law
that is inconsistent with the requirements of the act and this part is preempted
to the extent of the inconsistency. If a lessor cannot comply with a state
law without violating a provision of this part, the state law is inconsistent
within the meaning of section 186(a) of the act and is preempted, unless
the state law gives greater protection and benefit to the consumer. A state,
through an official having primary enforcement or interpretative responsibilities
for the state consumer leasing law, may apply to the Board for a preemption
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
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 B to Part 213--Federal Enforcement Agencies
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.
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
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
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
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