Circular
Consumer Leasing
October 31, 1996
Circular No. 10884

Revision of Regulation M

Effective October 31, 1996 -- Compliance Optional Until October 1, 1997

To All Depository Institutions, and Others Concerned, in the Second Federal Reserve District:

The following is from a statement issued by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has issued its final regulation to simplify and clarify required disclosures for car leasing and other types of consumer lease transactions.

This new version of Regulation M stems from the increased use of automobile leasing over the last several years and the Board's review of the regulation in accordance with its policy of periodically examining its regulations to carry out the purpose of the underlying law more effectively.

The new regulation, which carries out provisions of the Consumer Leasing Act, is effective october 1, 1997, as set by the statute, but voluntary compliance is acceptable at any time prior to that date.

In general, the revisions to Regulation M:

  • Adopt a revised disclosure format, including the segregation of certain disclosures. Adopt a total of payments disclosure to facilitate comparisons.
  • Revise the disclosure of costs paid at lease signing to make it easier for a consumer to understand the amounts to be paid and how they are allocated.
  • Require a mathematical progression that shows how the monthly lease payment is calculated, and the relationship of terms such as the "capitalized cost" and the "residual value" of the leased property.
  • Require narrative warnings about possible charges for terminating a lease early and for excess wear and tear.
  • Require changes in advertising rules to implement statutory amendments, simplify disclosure requirements, and deter misleading advertising.
  • Require a disclosure to accompany any percentage rate indicating the limitations of rate information.

The Board will publish an updated proposal to the commentary in mid-November 1996. The proposal will include material that was published for comment in September 1995 (60 FR 48769), and will incorporate guidance contained in the section-by-section discussion that accompanies the final rule.

The revision of Regulation M, as published in the Federal Register of October 7 is available. Questions on this matter may be directed to Janice A. Oser, Supervising Examiner, Compliance Examinations Department.