Financial Update (October-December 1997)

Fed Amends Consumer Leasing Act

R ecent amendments to Federal Reserve Regulation M, which implements the Consumer Leasing Act, take effect Jan. 1, 1998. This law generally applies to consumer leases of personal property in which the contractual liability has a term of more than four months and does not exceed $25,000. A vehicle lease is the most common type of lease covered.

New Disclosures for Leases

Under the amended regulation, lessors must provide uniform cost and other disclosures about consumer lease transactions. Major changes affect a mathematical calculation of how the monthly lease payment is derived and a warning statement about charges for ending a lease early.

The amended leasing law differs from Regulation Z, which covers Truth in Lending and requires the disclosure of the annual percentage rate (a measure of the cost of credit expressed as a yearly rate). In a lease transaction, a lessor is not required to disclose the cost of a lease expressed as a percentage rate. If a lease rate is disclosed, a special notice must accompany the rate stating that it may not measure the overall cost of financing a lease.

Communicating Regulation M Changes

A task force was formed in December 1996 at the Federal Reserve Board of Governors to address leasing education for consumers. This task force is made up of representatives from the Federal Reserve System, the Federal Trade Commission, Cooperative Extension Services, the automobile industry and consumer advocacy groups. To communicate the changes in Regulation M, this group created an informational brochure titled "Keys to Leasing," which includes information on how leasing a vehicle differs from buying one and addresses the costs involved at each stage of the lease. The brochure will be available in mid-December. The next product, a computer program, is expected to be available in the first quarter of 1998.

Questions about Regulation M should be directed to Federal Reserve Examiner Linda Garland at (404) 589-7350.

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