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Truth in Lending: 4.2.6.1 General

The statute requires that the disclosures listed in section 1638(a) must be “grouped together” and “segregated from everything else, and shall not contain any information not directly related” to this closed list.172 This requirement was aimed at ensuring that the consumer receives the important, required information and is not distracted by excess verbiage or information.173 Exceptions to the segregation rule obviously apply to disclosures that must be given post-consummation.

Truth in Lending: 4.2.6.2 How to Segregate the Disclosures

There are a variety of ways to group the disclosures together and segregate them. The official interpretations give a few examples: outlining them in a box, using bold dividing lines, different color backgrounds, or different type faces.181 The most common method used by creditors is the box, sometimes known as the federal box, the method used in the model forms.182

Truth in Lending: 4.2.6.3 Exceptions to the Segregation Rule

The itemization of the amount financed, even though required by Regulation Z § 1026.18,186 may not be included with the segregated disclosures. It must be disclosed separately.187

The creditor may exclude, at its option, any or all of the following disclosures from the segregated disclosures (although if excluded the disclosures must be made elsewhere), even though these disclosures are required by section 1026.18 of the regulation:

Truth in Lending: 13.2.1 Lease Must Exceed Four Months; Coverage of Rent-to-Own, Other Terminable Leases

The Consumer Leasing Act (CLA) applies to leases greater than four months in duration.8 The CLA does not apply to a lease that is terminable without penalty during its first four months.9 For example, a majority of courts hold that the Act does not apply to rent-to-own (RTO) leases that are terminable at will without penalty.10 Similarly, the CLA does not apply to a four month lease with an option to extend, if there is no penalty for termination at the end

Truth in Lending: 13.2.2.1 General

The CLA does not apply to leases where the total contractual obligation exceeds a specified dollar amount. “Total contractual obligation” is not necessarily the total of payments,14 it is not defined in Regulation M, and the term’s meaning is thus somewhat uncertain. In general, it is payments that must be made to the lessor over the term of the lease, but not those forwarded to third parties.

Truth in Lending: 13.2.2.2 Inclusion of Down Payment and Trade-In Amounts

“Total contractual obligation” is not defined in the CLA, but probably includes the total of lease payments plus a portion of down payments and trade-ins. Courts find two reasons to include these amounts.28 First, without the down payment, the monthly charges would have to be higher. Second, in enacting the CLA, the House of Representatives receded to the Senate in using the term “total contractual obligation” instead of the term “rent.”29

Truth in Lending: 13.2.2.3 Inclusion of Taxes and Other Third-Party Payments

The official interpretations define total contractual obligation as excluding amounts the lessor collects and pays to a third party, such as taxes, licenses, and registration fees.33 Amounts paid to third parties for service contracts, credit insurance, GAP insurance, and similar charges, and arguably bank fees and other amounts paid to the assignee should also be excluded.34

Truth in Lending: 13.2.4 Consumer Must Be Natural Person Leasing Property for Consumer Purposes

The CLA applies to “consumer leases,” defined as being primarily for personal, family, or household purposes.48 The CLA does not apply to leases for agricultural, business, or commercial purposes.49 A consumer can prove that a lease is primarily for personal purposes even when the lease itself states that the lease has a business purpose.50 Conversely, the mere fact that the lessor has given disclosures does not prove that a lease is for consumer purpose

Truth in Lending: 13.2.6 Real Property Leases Are Not Covered

The CLA applies to personal property and not real property leases.70 Whether manufactured homes, houseboats, or other items are real or personal property is based on the law of the state where the property is situated at the time the property is offered for lease.71 If two conditions are met, the CLA does not apply to personal property leased incidentally to a real property lease, such as where a refrigerator is included with an apartment lease.

Truth in Lending: 13.2.7 Other Exempt Property

The official interpretations of Regulation M exempt from CLA coverage safety deposit box leases,73 home entertainment systems requiring the consumer to lease equipment that enables a television to receive the transmitted programming, propane gas service where the consumer must lease a propane tank to receive the service, and burglar alarm systems requiring the installation of leased equipment that triggers a telephone call when a home is burglarized.74

Truth in Lending: 13.3.1.1 Federal Requirements

Regulation M sets out detailed lease disclosure requirements, certain of which apply only to motor vehicle leases, only to open-end leases,75 or only to open-end non-vehicle leases. Whether property is a motor vehicle is determined by state or other applicable law.76 Unless noted otherwise, each disclosure requirement discussed infra applies to all leases within the Act’s scope.

Truth in Lending: 13.3.2.2 Type of Document Containing the Disclosures

The disclosures must be dated112 and in writing in a form the consumer may keep.113 The copy of the disclosure document the consumer receives must have all disclosures included—the consumer’s copy should be identical to the original.114 The lessor has a choice of incorporating the disclosures in a separate written statement that identifies the consumer lease transaction or in the contract or other document evidencing the lease.

Truth in Lending: 13.3.2.3 Disclosures Not Made in English

The disclosures may be made in a language other than English, provided that they are made available in English upon the consumer’s request.117 Regulation M does not mandate Spanish disclosures in a transaction conducted solely in Spanish, but permits the lessor to do so. State leasing statutes or other state law may provide additional rights. For example, Hawaii law requires the lease to be in the language used in the negotiation.118

Truth in Lending: 13.3.2.4 Electronic Disclosures

Regulation M119 allows disclosures to be provided in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce (E-Sign) Act,120 which validates electronic signatures, electronic documents, and electronic disclosures.121 As long as the lessor meets E-Sign requirements, including the consumer consent and confirmation-of-consent requirements, E-Sign all

Truth in Lending: 13.3.2.6 Whether Renegotiations, Extensions, or Assumptions Require New Disclosures

An assumption of a lease by another lessee does not require new disclosures, whether or not the lessor charges an assumption fee.130 Neither does an extension of a lease for not more than six months, whether month-to-month or otherwise.131 If a lease is extended for four months, with an option for a second three month extension, no disclosure is necessary; but when the lease is in fact extended that second time for another three months (for a total of seven months), disclosures are required at t

Truth in Lending: 13.3.4.1 Segregated Disclosures

Certain disclosures must be segregated from other required disclosures and lease information. The segregated disclosure (commonly called the federal box) must contain only the following information: