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Truth in Lending: Regulatory History

The Consumer Financial Protection Bureau (CFPB) Official Interpretations on Regulation M, as amended by: 62 Fed. Reg. 16,058 (Apr. 4, 1997); 63 Fed. Reg. 52,115 (Sept. 29, 1998); 64 Fed. Reg. 16,613, 16,614 (Apr. 6, 1999); 66 Fed. Reg. 17,328 Mar. 30, 2001); 66 Fed. Reg. 41,440 (Aug. 8, 2001); 72 Fed. Reg. 63,461 (Nov. 9, 2007); 76 Fed. Reg. 18353 (Apr. 4, 2011); 76 Fed. Reg. 35,721 (June 20, 2011); 76 Fed. Reg. 44,242 (July 22, 2011); 76 Fed. Reg. 78,502 (Dec. 19, 2011); 76 Fed. Reg. 81,790 (Dec. 29, 2011); 77 Fed. Reg. 69,736 (Nov. 21, 2012); 78 Fed. Reg. 70,194 (Nov. 25, 2013); 79 Fed.

Truth in Lending: Introduction

INTRODUCTION

1. Official status. The commentary in Supplement I is the vehicle by which the Bureau of Consumer Financial Protection issues official interpretations of Regulation M (12 CFR part 1013). Good faith compliance with this commentary affords protection from liability under section 130(f) of the Truth in Lending Act (15 U.S.C. 1640(f)). Section 130(f) protects lessors from civil liability for any act done or omitted in good faith in conformity with any interpretation issued by the Bureau.

Truth in Lending: Section 1013.1 Authority, Scope, Purpose, and Enforcement [213.1]

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 § 1013.2(p), except persons excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, 124 Stat. 1376. The regulation does not apply to a foreign branch of a U.S.

Truth in Lending: 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.

Truth in Lending: 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.

Truth in Lending: 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.

Truth in Lending: 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:

Truth in Lending: 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.

Truth in Lending: 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.

Truth in Lending: 2(o) Security Interest and Security

1. Disclosable interests. For purposes of disclosure, a security interest is an interest taken by the lessor to secure performance of the lessee’s obligation. For example, if a bank that is not a lessor makes a loan to a leasing company and takes assignments of consumer leases generated by that company to secure the loan, the bank’s security interest in the lessor’s receivables is not a security interest for purposes of this part.

Truth in Lending: 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 §§ 1013.4 (g)(1), (k) and (l).

Truth in Lending: 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.

Truth in Lending: 3(a)(2) Segregation of Certain Disclosures

1. Location. The segregated disclosures referred to in § 1013.3(a)(2) may be provided on a separate document and the other required disclosures may be provided in the lease contract, so long as all disclosures are given at the same time. Alternatively, all disclosures may be provided in a separate document or in the lease contract.

Truth in Lending: 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 § 1013.9 as long as, in accordance with the standard set forth in § 1013.3(b) for additional information, the state law disclosures are not used or placed to mislead or confuse or detract from any disclosure required by the regulation.

Truth in Lending: 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.

Truth in Lending: 3(d) Use of Estimates

1. Time of estimated disclosure. The lessor may, after making a reasonable effort to obtain information, use estimates to make disclosures if necessary information is unknown or unavailable at the time the disclosures are made.

Truth in Lending: 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.

Truth in Lending: 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.

Truth in Lending: 4(b) Amount Due at Lease Signing or Delivery

1. Consummation. See commentary to § 1013.3(a)(3).

2. Capitalized cost reduction. A capitalized cost reduction is a payment in the nature of a downpayment on the leased property that reduces the amount to be capitalized over the term of the lease. This amount does not include any amounts included in a periodic payment paid at lease signing or delivery.

Truth in Lending: 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 § 1013.4(c).

Truth in Lending: 4(d) Other Charges

1. Coverage. Section 1013.4(d) requires the disclosure of charges that are anticipated by the parties incident to the normal operation of the lease agreement. If a lessor is unsure whether a particular fee is an “other charge,” the lessor may disclose the fee as such without violating § 1013.4(d) or the segregation rule under § 1013.3(a)(2).

Truth in Lending: 4(e) Total of Payments

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