FTC Staff Comment Before the Federal Reserve Concerning Regulation M and the Consumer Leasing Act

I'
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
OFFICE OF THE SECRETARY
February 	4, 	1994
William W. 	Wiles, 	Secretary
Board 	of 	Governors 	of 	the 	Federal 	Reserve 	System
20th Street 	and 	Constitution Avenue 	N.W.
Washington, 	D.C. 	20551
Dear Mr. 	Wiles:
The 	Federal 	Trade 	Commission 	("Commission") 	appreciates 	this
opportunity 	to 	comment 	on 	the 	Federal 	Reserve 	Board's 	("Board")
proposed 	revisions 	to 	Regulation M,l 	which 	implements 	the
Consumer 	Leasing Act 	("CLA").2 	The 	Board 	is 	planning 	to 	review
Regulation M to 	determine 	whether 	it 	can 	be 	simplified 	and
clarified 	to 	carry 	out 	the 	purposes 	of 	the 	CLA more 	effectively
without 	diminishing 	the 	consumer 	protections 	that 	the 	statute
affords. 3 	The 	Board 	is 	presently 	soliciting general 	comment 	on
the 	proposal 	to 	review 	the 	regulation 	as 	well 	as 	comment 	on
several 	specific 	issues. 	The 	Commission's 	comments 	address 	both
of 	these 	topics.
I. 	GENERAL NEED 	FOR REVISION OF REGULATION M
The 	CLA became 	law 	in 	1976, 	based 	on 	Congressional 	findings
that 	there 	was 	a 	trend 	toward 	leasing 	as 	an 	alternative 	to
purchasing 	consumer 	items 	on 	credit 	and 	that 	consumers 	were 	not
receiving 	adequate 	disclosures 	about 	leasing 	costs. 	Regulations
1 	12 	C.F.R. 	§ 	213.
2 	15 	U.S.C. 	§§ 	1667-1667e. 	The 	Commission 	enforces 	the
CLA, 	an 	amendment 	to 	the 	Truth 	in 	Lending Act 	("TILA"), 	15 	U.S.C.
§ 	1601 	et 	seq., 	and 	its 	implementing Regulation 	M, 	for 	leasing
companies, 	finance 	companies 	and 	the 	vast 	majority 	of 	other
nonfederally 	chartered 	or 	nonfederally 	insured 	lessors. 	See
section 	108(c) 	of 	the 	TILA, 	15 	U.S.C. 	§ 	1607(c).
3 	58 	Fed. 	Reg. 	61035 	(November 	19, 	1993).

William W. 	Wiles, 	Secretary
Page 	2
implementing 	the 	CLA's 	lease 	disclosure 	requirements 	(now
contained 	in 	Regulation M) 	were 	enacted 	the 	next 	year. 4
Regulation M mandates 	numerous 	disclosures, 	both 	in
advertising 	and 	before 	a 	lease 	is 	consummated 	(typically, 	when 	a
lease 	is 	signed), 	to 	help 	consumers 	understand 	the 	costs 	and
terms 	that 	lessors 	are 	offering. 	These 	requirements 	are 	intended
to 	ensure 	that 	consumer 	lessees 	are 	given 	"meaningful 	disclosures
of 	lease 	terms 	. 	. 	• 	and 	. 	• 	• 	meaningful 	and 	accurate
disclosures 	of 	lease 	terms 	in 	advertising. H5 	The 	disclosure
requirements 	are 	extensive 	and 	often 	technical. 	Unlike 	their
credit 	counterparts 	in 	the 	TILA 	and 	its 	implementing Regulation
Z, 	the 	lease 	disclosure 	rules 	have 	not 	been 	revisited 	in 	over
seventeen years. 6
During 	the 	intervening 	period, 	the 	lease 	industry 	has 	seen
considerable 	change. 	Since 	the 	CLA was 	enacted, 	leasing
transactions 	have 	increased 	substantially. 	In 	1984, 	only 	11.6
percent 	of 	new 	car 	deliveries 	involved 	leases; 	however, 	by 	1993,
that 	figure 	had 	increased 	to 	almost 	25 	percent. 7 	Lease 	offers
have 	also 	become 	more 	diverse 	as 	the 	lease market 	share 	has
grown. 	Consumers 	are 	now 	even 	offered manufacturer's 	rebates 	and
price 	subsidies 	for 	leases, 	as 	they 	have 	been 	for 	financing
transactions 	for 	many 	years. 8 	Some 	lessors 	provide 	a 	menu 	of
lease 	choices, 	with 	lease 	terms 	ranging 	up 	to 	ten 	years, 	service
and 	maintenance 	options, 	various 	purchase 	options, 	and 	other
special 	offers. 	When 	the 	CLA 	first 	became 	effective, 	leases 	were
4 	The 	lease 	disclosure 	requirements 	were 	initially 	added
to 	RegUlation 	Z. 	When 	the 	Board 	issued 	revised 	Regulation 	Z in
1981, 	the 	lease 	rules 	were 	placed 	in 	new Regulation 	M.
5 	Section 	213.1(b) 	of 	Regulation M, 	12 	C.F.R. 	§ 	213.1(b).
6 	In 	1981, 	the 	Board 	issued 	revised 	Regulation 	Z,
following 	enactment 	of 	the 	Truth 	in 	Lending 	Simplification 	and
Reform 	Act. 	Title 	VI 	of 	the 	Depository 	Institutions 	Deregulation
and 	Monetary 	Control 	Act 	of 	1980 	("Simplification Act"), 	Pub. 	L.
96-221, 	94 	Stat. 	168. 	The 	Simplification Act's 	disclosure
requirements 	were 	implemented 	through 	revised 	RegUlation 	Z. 	46
Fed. 	Reg. 	20848 	(1981).
7 	See 	"Leasing 	is 	Major 	Factor 	in 	Carmakers' 	Comeback,"
Advertising 	Age 	(June 	7, 	1993) 	at 	13.
8 	See,~, 	"For Some 	Pocketbook 	Peace, 	Try 	an
Automobile 	Lease," 	The 	Washington 	Post 	(November 	21, 	1993)
at 	H3.

William W. 	Wiles, 	Secretary
Page 	3
promoted 	primarily 	through 	print 	advertisements: 	today, 	however,
lease 	promotions 	involve 	all 	types 	of 	media, 	including 	print,
radio 	and 	television, 	broadcast 	and 	cable.
For 	these 	reasons, 	the 	Commission 	supports 	the 	Federal
Reserve 	Board's 	decision 	to 	review 	Regulation M. 	In 	view 	of 	the
increase 	in 	lease 	transactions 	and 	other 	changes 	in 	the 	lease
market, 	the 	Board's 	decision 	is 	especially 	timely.
II. 	SPECIFIC 	ISSUES 	UNPER REGULATION M
The 	Board has 	solicited 	comment 	on 	three 	specific 	issues:
disclosure 	of 	early 	termination 	charges: 	broadcast media
advertising: 	and 	segregation 	of 	leasing disclosures. 	The
Commission 	addresses 	these 	issues 	below.
A. 	Early 	Termination 	Charges
Under 	the 	CLA 	and 	Regulation M, 	lessors 	must 	disclose 	either
the 	amount 	of 	charges 	for 	early 	termination 	or 	the 	method 	of
determining 	that 	amount. 9 	Most 	lessors 	choose 	to 	disclose 	the
method, 	rather 	than 	state 	the 	amount 	of 	the 	charges. 	The 	Board
has 	raised 	the 	issue 	of 	early termination 	charges 	in 	response 	to
the 	recent 	decision 	in 	Lundquist v. 	Security 	Pacific. 10 	There,
the 	court 	found 	that 	an 	early 	termination 	formula 	was 	overly
complex 	and 	beyond 	the 	understanding 	of 	the 	average 	consumer, 	and
hence 	violated 	the 	regulation's 	"reasonably understandable"
standard. 11
Some 	lessors 	have 	asked 	the 	Board 	to 	amend 	the 	regulation 	to
permit 	disclosure 	simply 	of 	the 	name 	of 	the 	method 	used 	in
determining 	charges 	for 	early 	termination, 	rather 	than 	a
description 	of 	the 	method. 	Some 	consumer groups 	have 	argued,
however, 	that 	the 	formulas 	could be 	made 	more 	understandable, 	and
that 	allowing 	disclosure 	of 	the 	name 	of 	the 	method 	alone 	would
not 	be 	enough 	to 	enable 	consumers 	themselves 	to 	determine 	the
amount 	of 	early 	termination 	charges. 	The 	Board 	is 	interested 	in
this 	issue, 	including whether disclosure 	of 	the 	name 	of 	the
method 	along with 	a 	representative 	example 	of 	a 	lease 	termination
9 	Section 	182(11) 	of 	the 	CLA, 	15 	U.S.C. 	§ 	1667a(11):
Section 	213.4(g) (12) 	of 	Regulation M, 	12 	C.F.R. 	§ 	213.4(g) (12).
10 	993 	F.2d 	11 	(2d 	Cir. 	1993).
11 	IQ. 	at 	15. 	The 	court 	described 	the 	early 	termination
formula 	as 	"Byzantine." 	Id.

William W. 	Wiles, 	Secretary
Page 	4
charge, 	should 	be 	adequate 	to 	inform consumers 	of 	the
consequences 	of 	terminating 	a 	lease 	early.
Consumers 	may 	terminate 	a 	lease 	transaction 	early 	for 	a
variety 	of 	reasons, 	including 	trade-in 	for 	another vehicle,
dissatisfaction 	with 	the 	lease, 	purchase 	of 	the 	leased 	vehicle,
and 	involuntary 	reasons 	such 	as 	accident 	or 	theft. 	Although
consumers 	may 	intend 	to 	carry 	the 	lease 	through 	its 	full 	term
upon 	signing 	of 	the 	transaction, 	as 	many 	as 	half 	of 	all 	lessees
are 	likely 	to 	terminate 	their 	leases 	prior to 	conclusion 	of 	the
lease 	term. 12 	Thus, 	disclosures 	regarding 	early 	termination
charges 	may 	be 	particularly 	important 	to 	ronny 	consumers.
The 	Commission 	has, 	from 	time 	to 	time, 	received 	consumer
inquiries 	about 	early 	termination 	charges. 13 	Most 	consumers 	who
have 	inquired 	have 	been 	concerned with 	their 	inability 	to
calculate 	accurately 	the 	total 	costs 	of 	terminating 	a 	lease
early. 	Not 	until 	they 	sought 	to 	end 	the 	lease 	did 	they 	discover
the 	true 	termination 	expenses. 	Some 	consumers 	have 	noted 	that,
although 	the 	procedures 	for 	determining 	these 	charges 	were
disclosed, 	they 	were 	scattered 	throughout 	the 	lease 	agreement. 14
As 	a 	result, 	the 	consumers 	failed 	to 	review 	critical
information. 15 	other 	consumers 	have 	questioned 	the 	amount 	of
the 	early 	termination 	charges 	imposed. 16 	The 	offices 	of 	some
12 	~ 	"The True 	Costs 	of 	Leasing," 	Forbes 	(February 	1,
1993) 	at 	98.
13 	The 	number 	of 	complaints 	to 	the 	Commission 	about
leasing 	is 	relatively 	small. 	In 	1993, 	for 	example, 	the
Commission 	received 	72 	complaints 	about 	leasing; 	by 	contrast, 	the
Commission 	received 	17,121 	complaints 	about 	credit 	and 	37,064
complaints 	in 	total. 	Some 	of 	these 	complaints 	involved 	business
leases, 	which 	are 	not 	governed 	by 	the 	CLA. 	Most 	other 	complaints
about 	leasing 	concerned 	contractual issues 	that 	the 	CLA 	and
Regulation M do 	not 	cover, 	such 	as 	insurance 	and 	the 	amount 	of
the 	downpaYment 	and 	certain 	other 	lease 	costs 	or 	charges. 	Lease
complaints 	regarding 	early 	termination 	are 	discussed 	in 	the 	text
above.
14 	See 	Section 	II.C. 	infra.
15 	An 	example 	of 	a 	recent 	complaint 	regarding 	the
difficulty 	of 	understanding 	the 	termination 	formula 	is 	appended
to 	this 	letter 	as 	Attachment 	A.
16 	The 	latter 	issue 	is 	pertinent 	to 	section 	183(b} 	of 	the
CLA, 	15 	U.S.C. 	§ 	1667b, 	which 	requires 	charges 	for 	default,
(continued ... )

William W. 	wiles, 	Secretary
Page 	5
state 	attorneys 	general 	have 	also 	raised 	with 	the 	Commission's
staff 	the 	need 	to 	clarify 	these 	disclosure 	requirements.
One 	alternative, 	suggested by 	the 	Board, 	would 	be 	to 	require
disclosure 	of 	the 	name 	of 	the 	method 	used 	to 	calculate 	the 	early
termination 	charge, 	along 	with 	a 	representative 	example 	of 	such 	a
charge. 	Certainly, 	if 	consumers 	are 	aware 	of, 	or 	have 	access 	to
accurate 	information 	regarding, 	these 	different 	methods, 	this
disclosure 	could 	be 	an 	effective 	approach. 17 Although 	the
Commission has 	limited 	information 	about 	this 	topic, 	the
complaints 	it 	has 	received 	regarding 	early 	termination 	issues
suggest 	that 	consumers 	may 	not 	be well-informed 	about 	payoff
calculation methods. 	The 	Board may, 	therefore, 	want 	to 	consider
gathering 	information 	on 	how much 	consumers 	understand 	about
these 	methods 	in 	determining 	which 	disclosure 	would 	be
appropriate.
Another 	alternative 	that 	the 	Board 	might 	consider 	is 	to
require 	disclosure 	of 	the 	name 	of 	the 	calculation method 	and 	of
the 	name 	and 	amount 	of 	any 	other 	termination 	charges 	imposed.
This 	approach may 	be 	useful 	if 	lessors 	vary 	the 	early 	termination
formula 	by 	adding 	other 	costs 	to 	the 	calculation. 18 	In 	this
event, 	stating 	the 	name 	of 	the 	method 	alone 	might 	not 	ensure 	that
all 	termination 	charges 	are 	adequately 	disclosed, 	even 	if 	an
example 	of 	an 	early 	termination 	charge 	is 	provided. 	If 	the 	Board
requires 	disclosure 	of 	the 	name 	and 	amount 	of 	any 	other 	charges
imposed 	for 	early 	termination, 	as 	well 	as 	disclosure 	of 	the 	name
of 	the 	calculation method 	used, 	it would more 	likely 	ensure 	that
consumers 	are 	apprised 	of 	the 	full 	charges 	imposed 	by 	lessors.
If 	after 	reviewing 	the 	early termination 	issue, 	the 	Board
finds 	that 	consumers 	are 	unfamiliar with 	the 	names 	of 	the 	methods
used 	to 	calculate 	early 	termination 	charges, 	it may 	want 	to
16 ( ••• continued)
delinquency 	and 	early 	termination 	to 	be 	reasonable. 	The
"reasonableness" 	of 	these 	charges 	is 	determined 	on 	a 	case-by-case
basis, 	considering 	the 	anticipated 	or 	actual 	harm 	caused 	by 	the
delinquency, 	default, 	or 	early 	termination, 	the 	difficulties 	of
proof 	of 	loss, 	and 	the 	inconvenience 	or 	nonfeasibility 	of
otherwise 	obtaining 	an 	adequate 	remedy.
17 	There 	is, 	however, 	at 	least 	a 	question 	as 	to 	whether
this 	approach would 	be 	sufficient 	under 	the 	statute, 	as 	the 	CLA
requires 	disclosure 	of 	the 	amount 	of, 	or 	the 	method 	of
determining, 	any 	charge 	for 	early 	termination.
18 	Some 	industry members 	and 	state 	and 	local 	enforcement
agencies 	have 	raised 	this 	issue 	with 	Commission 	staff.

William W. 	Wiles, 	Secretary
Page 	6
retain 	the 	present 	disclosure 	mandate. 	If 	the 	Board 	decides 	to
maintain 	the 	present 	approach, 	the 	current 	early 	termination
disclosure 	would 	be 	more 	effective 	if 	coupled with 	a 	new
segregation 	requirement 	for 	consumer 	lease 	disclosures, 	discussed
below. 19
Finally, 	regardless 	of what 	disclosure 	requirements 	it
ultimately 	adopts, 	the 	Board 	should 	consider 	providing 	an 	example
of 	a 	complying disclosure 	in Regulation M's 	Official 	Staff
Commentary 	("Commentary") 	and model 	forms. 20 	This 	information
would 	facilitate 	reasonable 	uniformity 	among 	disclosures,
fostering 	consumers' 	understanding 	of 	critical 	information 	and
comparison 	of 	costs. 	It would 	also 	give 	lessors 	guidance 	about
the 	type 	of 	textual 	disclosure 	that would 	comply with 	the 	law.
B. 	Broadcast Media 	Adyertising
As 	noted 	by 	the 	Board, 	if 	any 	advertised 	lease 	transaction
states 	certain 	terms 	(such 	as 	the 	amount 	or number 	of 	payments),
as 	many 	as 	five 	additional 	disclosures 	are 	required 	to 	be
included 	in 	the 	promotion. 	Due 	to 	time 	and 	space 	constraints 	in
television 	and 	radio 	advertisements, 	some 	disclosures 	appear 	only
in 	small 	print 	at 	the 	bottom of 	the 	screen 	or at 	the 	end 	of 	the
advertisement. 	The 	Board has 	solicited 	comment 	on 	offering, 	as
an 	alternative, 	a 	requirement 	that 	a 	toll-free 	number 	be 	provided
for 	consumers 	to 	call 	to 	obtain more 	complete 	disclosures, 	in
lieu 	of 	some 	or 	all 	of 	the 	disclosures 	that 	are 	now 	required 	in
the 	advertisement 	itself. 	The 	Board has 	requested views 	on 	this
19 	Another 	possibility might 	be 	to 	develop 	a 	disclosure
that 	apprises 	consumers 	that 	terminating 	a 	lease 	early 	could
result 	in 	substantial 	additional 	costs, 	as 	well 	as 	to 	require
lessors 	to 	provide 	a 	representative 	example 	of 	such a 	charge. 	If
this 	approach 	is 	adopted, 	the 	Board may 	also 	wish 	to 	require
lessors 	to 	provide 	the 	actual 	early 	termination 	costs 	prior 	to
execution 	of 	the 	lease, 	if 	consumers 	request 	this 	information,
and 	to 	notify 	consumers 	of 	their 	right 	to 	do 	so. 	However,
because 	the 	CLA 	-- 	as 	well 	as 	Regulation 	M -- 	require 	disclosure
of 	the 	amount 	or method 	of 	determining 	any 	charge 	for 	early
termination, 	use 	of 	this 	type 	of 	disclosure may 	require 	statutory
changes.
20 	At 	present, 	although 	the 	model 	forms 	to 	Regulation M
provide 	guidance 	to 	lessors 	regarding 	the 	type 	of 	information
required 	under 	the 	early 	termination 	disclosure, 	they 	do 	not
provide 	an 	example 	of 	an 	early 	termination 	calculation method
that 	complies 	with 	the 	law. 	See,~, 	"Item 	13" 	of 	Appendix 	C-2
to 	Regulation 	M.

William W. 	Wiles, 	Secretary
Page 	7
topic, 	although 	it 	believes 	that 	this 	type 	of 	change may 	be more
appropriately 	within 	the 	purview of 	Congress. 21
Under 	both 	Regulation M and 	the 	CLA, 	advertisers 	in 	all
media 	must 	disclose 	specific 	information when 	certain 	terms 	are
stated, 	both 	to 	facilitate 	comparison 	shopping 	and 	to 	prevent 	the
promotion's 	claims 	from 	misstating 	the 	true 	offer. 	Radio 	and
television 	audiences 	may 	depend 	on 	and 	have 	the 	need 	for 	the
information 	provided 	regarding 	lease 	offers, 	just 	as 	do 	consumers
viewing 	lease 	advertisements 	in 	print. 	Certainly, 	consistency
and 	uniformity 	of 	disclosures 	can help 	consumers 	to 	comparison
shop 	for 	lease 	terms 	among 	advertisements, 	regardless 	of media.
Nonetheless. 	the 	Commission 	recognizes 	that 	media 	differ 	in
the 	manner 	in 	which 	they 	convey messages. 	Thus, 	the 	burdens 	of
Regulation 	M's 	current 	disclosure 	requirements 	on 	advertisers 	in
different 	media 	may 	vary. 	Some media, 	such 	as 	radio 	and
television, 	may 	be more 	adversely 	affected 	than 	the 	print media,
particularly 	because 	of 	time 	and 	space 	constraints. 	Indeed, 	many
radio 	and 	television 	advertisers 	provide 	the 	required 	disclosures
about 	lease 	terms 	through 	"rapid 	fire" 	or 	"rapid 	scrolling"
information 	at 	the 	end 	of 	the 	radio 	advertisement 	or 	at 	the
bottom 	of 	the 	television 	screen 	and 	in 	barely visible 	fine
print. 22
21 	Recently, 	the 	United 	States House 	of 	Representatives
passed 	a 	bill 	(H.R. 	3474) 	that would modify 	the 	advertising
disclosure 	requirements 	under 	the TILA, 	CLA and 	Truth 	in 	Savings
Act 	("TISA"). 	This 	bill 	would 	allow a 	toll-free 	telephone
number, 	or 	a 	referral 	to 	a 	print 	advertisement, 	to 	be 	provided 	in
lieu 	of 	certain 	currently 	required 	terms, 	if 	certain 	other
information 	is 	included 	in 	the 	advertisement. 	This 	bill 	applies
only 	to 	radio 	advertisements. 	A somewhat 	similar 	bill 	was
introduced 	in 	the 	Senate 	(S. 	1447) 	that 	would 	modify 	the
advertising 	disclosure 	requirements 	under 	the 	TlLA, 	CLA 	and 	TISA
by 	allowing 	a 	toll-free 	number 	or other means 	to 	provide 	the
required 	disclosures 	prior 	to 	the 	transaction. 	This 	bill 	also
applies 	only 	to 	radio 	promotions.
The 	Commission does 	not 	address 	the 	issue 	of 	the 	Board's
authority 	for 	the 	changes 	being 	considered.
22 	See 	"Now you 	seem them 	. 	• 	. 	Terms 	of 	deal 	go 	by 	in
blink 	of 	an 	eye." 	Chicago Tribune 	(December 	12, 	1993) 	at 	7.
The 	advertising 	disclosures 	required 	by 	the 	CLA 	and
Regulation M must 	be 	provided 	"clearly and 	conspicuously."
Section 	184(a) 	of 	the 	CLA, 	15 	U.S.C. 	§ 	1667c(a); 	Section 	213.5(c)
(continued ... )

"
William W. 	Wiles, 	Secretary
Page 	8
The 	advertising 	disclosure 	requirements 	in 	the 	CLA 	and
Regulation M also 	recognize 	what 	the 	Commission has 	observed
that 	there 	is 	a 	danger 	that 	consumers 	may 	rely 	to 	their 	detriment
on 	incomplete 	or misleading 	advertising 	and 	invest 	considerable
time 	and 	effort 	seeking 	to 	consummate 	a 	lease 	transaction, 	based
on 	representations 	in 	the 	promotion. 	Consumers 	may 	be 	encouraged
by 	advertising 	incentives 	to 	visit 	a 	retailer, 	such 	as 	an
automobile 	dealership, 	only 	to 	discover 	that 	the 	offered 	lease
contains 	material 	terms 	and 	conditions 	that 	the 	advertisement 	had
not 	disclosed. 	Because 	attracting 	showroom visitors 	is 	an
essential 	element 	of 	new'car 	sales, 	these 	practices 	can hinder
competition 	as 	well 	as 	raise 	consumer 	protection 	concerns.
22 ( ••• continued)
of 	Regulation M, 	12 	C.F.R. 	§ 	213.5(c). 	However, 	neither 	the 	CLA
nor 	Regulation M specifies 	any 	particular 	format 	for 	this
standard: 	there 	is 	no 	uniform 	type 	size 	or 	placement 	required 	for
compliance. 	~ 	Section 	213.5(c)-1 	of 	the 	Regulation M
Commentary 	("Commentary"), 	12 	C.F.R. 	§ 	213.5(c)-1, 	Supp.I.
In 	enforcing 	the 	advertising 	requirements, 	the 	Commission
has 	sought 	to 	balance 	the 	need 	to 	provide 	the 	disclosures 	in 	a
manner 	that 	is 	comprehensible 	to 	consumers 	with 	the 	need 	for
flexibility 	in 	the 	manner 	in which 	advertisers 	meet 	those
disclosure 	mandates. 	In 	the 	past, 	and 	in 	the 	absence 	of 	specific
regulatory 	guidance 	on 	"clear 	and 	conspicuous" 	disclosure, 	the
Commission 	has 	applied 	a 	flexible 	standard 	regarding 	this 	issue,
for 	purposes 	of 	compliance with 	the 	TlLA. 	~ 	Chicago Metro.
Pontiac 	Dealer's 	Ass'n, 	101 	F.T.C. 	854 	(1983) 	(consent 	order
requiring 	TlLA 	credit 	disclosures 	to 	appear 	for 	at 	least 	five
seconds 	in 	the 	video 	portion 	of 	television 	advertisements). 	In
Chicago 	Metropolitan 	Pontiac, 	the 	complaint 	charged 	that 	the
required 	credit 	terms 	were 	not 	di$played 	"clearly 	and
conspicuously," 	because 	the 	advertisements 	failed 	to 	display 	the
required 	information 	long 	enough 	for 	viewers 	to 	read 	the
material. 	IQ. 	at 	855.
Since 	that 	time, 	and 	based upon 	the 	lack 	of 	regulatory
standards 	for 	clarity 	and 	conspicuousness, 	the 	five-second
standard 	articulated 	in 	Chicago Metropolitan 	Pontiac 	has
continued 	as 	the 	unwritten 	rule 	for 	both 	credit 	and 	lease
advertisements. 	In 	this 	regard, 	and 	with 	respect 	to 	lease
promotions, 	the 	Commission 	recommends 	that 	the 	Board 	consider
providing 	through 	RegUlation M and 	the 	Commentary 	specific
guidance 	about 	what 	constitutes 	"clear 	and 	conspicuous"
advertising. 	Based 	on 	its 	experience 	generally 	regarding
advertising 	issues, 	the 	Commission would 	be 	pleased 	to 	work with
the 	Board 	in 	developing 	guidelines 	in 	this 	area.

William W. 	Wiles, 	Secretary
Page 	9
Thus, 	the 	disclosure 	requirements 	contained 	in 	the 	CLA 	and
Regulation M are 	designed 	to 	prevent 	consumers 	from 	being
misinformed 	or misled 	about 	lease 	offers, 	as 	well 	as 	to 	foster
informed 	decisionmaking. 	For 	example, 	an 	advertised 	offer 	to
lease 	an 	automobile 	for 	only 	"$150 	per month" 	could mislead
consumers 	if 	other, 	less 	attractive 	terms 	are 	not 	stated 	in 	that
promotion, 	or 	if 	the 	fact 	that 	the 	transaction 	involves 	a 	lease,
rather 	than 	a 	financed 	purchase, 	is 	not 	stated. 23 	Further, 	an
incomplete 	representation could 	also 	divert 	consumers 	from
another 	dealer's 	promotion 	that may 	appear 	less 	advantageous
because 	it 	includes 	all 	required 	disClosures, 	when 	in 	fact 	the
latter 	dealer's 	lease may 	be 	the 	better 	offer. 	There 	are,
therefore, 	advantages 	to 	having 	the 	CLA 	and 	RegUlation 	M's 	rules
apply uniformly 	and 	to 	all 	advertising 	media.
However, 	to 	the 	extent 	that 	there 	are 	other more 	efficient
means 	of 	providing 	disclosures 	that 	are 	effective 	in 	achieving
the 	goals 	of 	the 	CLA and 	Regulation 	H, 	these 	alternatives
certainly 	should 	be 	considered. 	Indeed, 	it may 	be 	that
relatively 	short 	disclosures 	in 	broadcast 	advertisements 	that
apprise-consumers 	of 	the 	need 	to 	seek 	additional 	information may
be 	equally, 	or more, 	effective 	than 	longer, 	more 	elaborate 	ones.
In 	this 	regard, 	the 	Board's 	suggestion 	of 	using 	a 	toll-free
number 	to 	provide 	some 	of 	the 	required 	disclosures 	may warrant
consideration 	if 	there 	is 	enough 	information 	in 	the 	advertisement
to 	facilitate 	comparison 	shopping 	or 	otherwise 	foster 	an
effective 	alternative. 24
23 	Indeed, 	last 	year, 	the 	Commission 	accepted 	a 	consent
agreement 	with 	a 	Kentucky 	auto 	dealership 	that 	involved 	both
credit 	and 	lease 	advertisements 	in 	print, 	radio 	and 	television.
Collins 	Buick 	and 	its 	CEO were 	charged with making 	deceptive
claims 	under 	the 	Federal 	Trade 	Commission Act 	and with 	mUltiple
violations 	of 	both 	the 	TILA and 	CLA. 	Collins 	was 	charged, 	inter
~, 	with 	stating 	certain terms 	in 	the 	promotion 	(such 	as 	low
monthly 	payments) 	but 	failing 	to 	provide 	all 	the 	required 	CLA
disclosures, 	including 	the 	fact 	that 	the 	transaction 	promoted was
a 	lease. 	See 	Collins 	Buick, 	Docket 	No. 	C-3426 	(May 	10, 	1993).
24 	The 	Commission 	does 	question 	whether 	it 	is 	advisable 	to
permit 	all 	mandatory 	lease 	disclosures 	to 	be 	provided 	through 	a
toll-free 	number. 	It 	is 	unclear whether 	consumers 	could 	be
adequately 	protected, 	as 	well 	as 	whether 	the 	purposes 	of 	the 	CLA
could 	be 	served, 	through 	this 	approach. 	Such 	an 	approach 	could
permit 	lessors 	to 	state 	only 	the 	most 	attractive 	terms, 	without
disclosing 	other, 	less 	advantageous 	requirements, 	in 	the
advertisement. 	For 	example, 	automobile 	lessors 	could 	state 	"only
$99 	per month," 	without 	disclosing 	in 	the 	advertisement 	that 	the
(continued ... )

William W. 	Wiles, 	Secretary
Page 	10
Adopting 	such 	an 	approach 	would 	require 	a 	conclusion 	that
consumers 	could be 	adequately 	protected 	by 	requiring 	certain
limited 	information 	in 	the 	advertisement 	and 	requiring 	other more
detailed 	information 	be 	provided 	prior 	to 	purchase. 	In 	some
circumstances, 	this 	conceptual 	approach 	has 	been 	used 	remedially
in 	commission 	orders 	not 	involving 	the 	TILA or 	CLA.~ 	The
commission 	has 	also 	recognized 	in 	other 	circumstances 	that
different 	disclosures 	may 	be 	appropriate 	in 	different 	media. 26
The 	Commission 	had made 	no 	determination 	whether 	this 	type
of 	approach 	would 	be 	appropriate 	in 	the 	context 	of 	the 	CLA 	and
Regulation M. 	Clearly, 	the 	approach 	has 	both 	advantages 	and
disadvantages. 	It might 	allow provision 	of 	disclosures 	at 	lower
cost 	to 	the 	industry, 	but 	it might 	also 	reduce 	communication 	of
important 	information 	to 	consumers 	by 	shifting 	to 	consumers 	the
burden 	of 	obtaining 	that 	information. 	Further, 	consideration
must 	be 	given 	to 	what 	information 	is 	Hessential H or 	"material"
and, 	hence, 	must 	be 	contained 	in 	the 	advertisement 	itself. 27
24( ••• continued)
transaction 	involved 	a 	lease, 	that 	a 	$5,000 	downpaYment 	was
required 	to 	qualify, 	and 	that 	only 	the 	first 	12 	paYments were 	$99
per month, 	while 	the 	remaining 	24 	paYments 	were 	$300 	per month.
Such 	an 	approach 	could mislead 	consumers 	and 	seriously 	detract
from 	comparison 	shopping. 	.
25 	~,~, 	Dollar Rent-A-Car 	Systems. 	Inc., 	C-3421
(March 	29, 	1993), 	and Value 	Rent-A-Car. 	Inc., 	C-3420 	(March 	29,
1993) 	(price 	advertisements 	permitted 	to 	disclose 	that 	"other" 	or
"additional" 	charges 	apply, 	while 	telephone 	and 	rental 	location
discussions 	must 	include 	disclosure 	of 	actual 	cost 	of 	additional
charges); 	Southwest 	sunsites. 	Inc.,. 105 	F.T.C. 	7 	(1985), 	aff'd,
785 	F.2d 	1431 	(9th 	Cir.), 	cert. 	denied, 	479 	U.S. 	828 	(1986)
(brief 	disclosure 	regarding 	risk 	in 	land 	purchases 	allowed 	in
radio, 	TV 	and 	short 	print 	advertisements, 	while 	more 	detailed
disclosures 	required 	in 	larger print 	advertisements, 	promotional
materials 	and 	oral 	sales 	presentations).
26 	~, 	105 	F.T.C. 	7 	(1985). 	See 	also 	Sorga, 	Inc., 	97
F.T.C. 	205 	(1981) 	(more 	detailed 	disclosures 	required 	in 	print
advertisements 	for 	contraceptive 	product, 	while 	fewer 	and 	more
abbreviated 	disclosures 	allowed 	in 	TV 	and 	radio 	advertisements;
radio 	advertisement 	disclosure 	shorter 	than 	TV 	advertisement
disclosure).
27 	This 	approach' could 	require 	inclusion 	in 	the
advertisement 	of 	those 	items 	determined 	to 	involve 	critical 	costs
and 	terms 	of 	the 	lease, 	such 	as 	the 	downpayment 	and 	complete
payment 	schedule.

William W. 	Wiles, 	secretary
Page 	11
These 	and 	other 	costs, 	benefits 	and 	considerations 	would 	need 	to
be 	weighed 	carefully 	in 	making 	such 	a 	change 	to 	Regulation M.
If 	the 	Board 	decides 	that 	the 	advertising 	disclosures
currently 	required 	by 	the 	CLA 	and 	Regulation M should be
modified, 	the 	Board may 	wish 	to 	consider 	conducting 	consumer
research 	on 	these 	issues, 	including 	the 	comprehensibility of 	any
proposed 	changes. 	It 	may want 	to 	ascertain how well 	the 	current
disclosure 	requirements 	are 	achieving 	the 	goals 	of 	the 	CLA and
what 	specific 	types 	of modifications 	to 	these 	disclosures 	might
achieve 	these 	goals 	even more 	efficiently.
C. 	Segregation 	of 	Leasing 	Disclosures
The 	CLA, 	unlike 	most 	consumer credit 	prov~s~ons of 	the 	TILA,
does 	not 	require 	that 	the 	required 	disclosures 	be 	segregated 	from
contractual 	information 	and 	other 	items 	that 	the 	lessor 	provides.
The 	Board has 	asked 	whether 	the 	absence 	of 	a 	segregation
requirement 	limits 	the 	disclosures' 	effectiveness 	in meeting 	the
consumer 	protection 	goals 	of 	the 	CLA. 	The 	Board has 	asked
whether 	a 	segregation 	requirement 	should 	be 	proposed 	for
Regulation M.
Some 	consumers 	have 	telephoned 	the 	Commission's 	staff
regarding 	their 	leases 	and 	complained 	of 	difficulty 	in
understanding 	their 	contracts. 	Some 	have 	expressed 	surprise 	at
how 	leases 	operat~. 	Other 	consumers 	have 	confused 	leases with
credit 	transactions 	and 	had 	difficulty 	locating 	information 	that
would 	clarify 	the 	specific 	requirements 	applicable 	to 	their
lease. 28 	There 	is, 	of 	course, 	no 	one 	place 	that 	the 	disclosures
must 	appear, 	and 	many 	lessors 	intersperse 	lease 	disclosures 	with
related 	contractual 	provisions.
Leases 	are 	distinct 	from 	financing, 	although 	they may 	have
some 	similar provisions. 29 	Generally, 	however, 	different 	types
28 	Some 	consumers 	have made 	statements 	to 	the 	effect 	that
"But 	my 	loan 	[or 	credit 	agreement] 	doesn't 	work 	that 	way." 	Other
consumers 	have 	indicated 	that 	they 	could 	not 	locate 	the 	lease
disclosures 	and 	asked 	the 	Commission's 	staff where 	they 	could 	be
found 	on 	the 	lease 	form.
29 	For 	example, 	both 	credit 	and 	lease 	Obligations
describe 	the 	vehicle model 	and 	type, 	usually 	at 	the 	beginning 	of
the 	form. 	Both 	credit 	and 	leases 	state 	the 	downpayment 	and 	the
payment 	schedule 	(the 	number 	and 	amount 	of 	periodic 	-- 	usually
monthly 	-- 	payments) 	near 	the 	top 	or 	on 	the 	front 	of 	the
contract. 	Both 	credit 	contracts 	and 	leases 	also 	discuss 	default
(continued ... )

William W. 	Wiles, 	Secretary
Page 	12
of 	charges 	may 	be 	imposed 	on 	leases 	than 	credit 	plans.
CertainlY, 	a 	clear 	understanding 	of 	those 	charges 	can 	foster
greater 	appreciation 	of 	the 	true 	and 	complete 	obligation 	under
consideration 	and 	can 	also 	foster 	comparison 	shopping.
In 	contrast, 	Regulation 	Z 	imposes 	a 	segregation 	requirement
for 	most 	credit 	disclosures. 3o 	Thus, 	consumers 	can 	refer 	to 	one
section 	of 	their 	credit 	form 	to 	ascertain 	the 	costs 	and 	terms 	of
their 	credit 	transaction. 	This 	requirement 	serves 	to 	facilitate
understanding 	of 	the 	credit 	transaction 	being 	considered 	and
enhance 	comparison 	shopping 	among 	competing 	lenders. 	As 	a
result, 	even 	if 	other 	contractual 	information 	is 	included 	on 	the
same 	form, 	the 	credit 	disclosures 	required 	under 	the 	TILA 	and
Regulation 	Z are 	prominent 	and 	can be 	easily 	discerned.
From 	the 	standpoint 	of 	consumer 	protection, 	there 	appears 	to
be 	no 	advantage 	to 	permitting 	lease 	disclosures 	to 	be
interspersed 	in 	a 	contractual 	document. 	Indeed, 	segregation 	of
lease 	disclosures 	could 	benefit 	consumers 	by making 	the
information 	provided 	readily 	apparent 	and 	easily 	accessible.
Moreover, 	certainly 	in 	the 	motor vehicle 	industry 	-- 	where
consumer 	leases 	are 	becoming more 	and more 	common 	-- 	consumers
may 	be 	considering both 	credit 	and 	lease 	transactions 	at 	the 	same
time. 31 	In 	this 	context, 	segregation 	of 	the 	disclosures 	could
clarify, 	in 	leases 	as 	it 	already does 	for 	credit 	plans, 	the
transaction's 	specific 	costs 	and 	terms. 	It would 	also 	highlight
that 	the 	obligation being 	signed 	is, 	in 	fact, 	a 	lease.
In 	determining 	the 	particular 	format 	applicable 	to 	a
segregation 	requirement, 	the 	Board may 	also 	wish 	to 	consider
conducting 	consumer 	research 	on 	the 	most 	effective 	approach.
This 	research 	could be 	particularly helpful 	in 	ensuring 	that 	any
29( ••• continued)
or 	delinquency, 	impose 	a 	charge 	for 	late 	paYments, 	and 	discuss
repossession 	of 	the 	vehicle.
30 	~,~, section 	226.17 	of 	Regulation 	Z, 	12 	C.F.R.
§ 	226.17 	(regarding 	closed-end 	format 	requirements).
31 	In 	discussions 	with 	the 	Commission's 	staff, 	some
consumers 	have 	indicated 	that 	they 	first 	sought 	to 	finance 	an
automobile 	purchase, 	but 	after 	talking 	with 	the 	dealer's 	sales
personnel, 	they 	ultimately 	decided 	on 	leasing. 	other 	consumers
have 	discussed 	both 	credit 	and 	lease 	plans 	with 	retailers
(primarily 	automobile 	dealers) 	and 	became 	confused when 	they
ultimately 	signed 	the 	contractual 	documents. 	Although 	these
consumers 	thought 	they 	had 	agreed 	to 	financing, 	they 	actually
signed 	a 	lease 	agreement.

William W. 	Wiles, 	Secretary
Page 	13
revised 	disclosure 	requirements 	under Regulation M are 	useful 	to
less 	financially 	sophisticated 	consumers. 32 	The 	Commission 	also
has 	experience 	regarding 	disclosure 	format 	requirements, 	and 	it
would 	also 	be 	pleased 	to 	work 	with 	the 	Board 	on 	this 	issue.
However, 	adding 	a 	segregation 	requirement 	for 	leases 	would
impose 	a 	one-time 	additional 	cost 	on 	lessors, 	primarily 	related
to 	the 	redesign, 	reprinting 	and 	redistribution 	of 	their 	lease
forms. 33 	The 	Board 	may, 	therefore, 	wish 	to 	obtain 	information
on 	the 	extent 	of 	these 	costs 	in 	considering 	this 	change: 	if 	it
chooses 	to 	amend 	Regulation M to 	require 	segregation 	of
disclosures, 	it 	should 	provide 	sufficient 	lead 	time 	for 	the
leasing 	industry 	to 	implement 	these 	changes.
The 	Commission 	appreciates 	your 	consideration 	of 	these 	views
and 	looks 	forward 	to working 	with 	the 	Board 	in 	its 	continuing
review 	of 	Regulation M.
By direction 	of 	the 	Commission.
Donald S. 	Clark
Secretary
32 	The 	Commission 	notes 	that 	the 	Food 	and 	Drug
Administration 	has 	recently 	conducted 	consumer 	research 	as 	a
basis 	for 	changes 	in 	the 	format 	of 	required 	disclosures 	on 	food
labels. 	See 	58 	Fed. 	Reg. 	2079, 	2115 	(January 	6, 	1993).
33 	Of 	course, 	lessors 	periodically 	revise 	their 	lease
forms 	to 	incorporate 	new 	programs 	and 	address 	changing 	state
requirements.