Consumers planning to lease a car were given assistance today by the Federal Trade Commission and the Federal Reserve Board, which jointly announced a special education campaign designed to assist them in understanding car leasing and new disclosure requirements due to go into effect January 1. The new disclosure requirements give consumers essential and readily understandable information about costs and terms in advertisements and in writing before lease signing.
"Consumer leasing of vehicles is on the rise and promotional lease offers are flooding the media," said Jodie Bernstein, Director of the Bureau of Consumer Protection, at the FTC. "Yet, for many consumers, leasing remains a confusing process. More information -- more understandable information -- about car leasing is essential. Today's effort is a model of government/business/consumer cooperation with a shared goal: making consumers better informed, sharper shoppers."
Bernstein joined Federal Reserve Governor Laurence H. Meyer at the special press briefing that unveiled new informative and understandable educational materials about automobile leasing for consumers. The new material includes the "Keys to Vehicle Leasing" brochure, a glossary of lease terms, and a display of the new federal disclosures that dealers and other lessors must provide to consumers before they sign a lease contact, starting January 1, 1998.
Earlier this year, the Federal Reserve Board issued these new disclosures as part of a revision to Regulation M, which implements the Consumer Leasing Act ("CLA"). The new revisions streamline and update consumer lease disclosures and take effect January 1, 1998.
Some highlights of the new requirements and disclosures that must be provided are:
For Written Lease Disclosures
- Segregation of major lease costs and terms -- Certain important disclosures must be separated from other information, including the gross capitalized cost, amount due at lease signing or delivery, total of payments, payment schedule, rent charge, notice about early termination charge, notice about liability for wear and use, and others.
- Clear and conspicuous disclosure -- All required disclosures must be reasonably understandable and legible.
- Gross capitalized cost -- This includes the agreed-upon value of the leased property and other items that are capitalized over the lease term.
- Amount due at lease signing or delivery -- The total amount consumers must pay at the beginning of the lease.
- Rent charge -- The amount charged in addition to depreciation and any amortized amounts. This figure is similar to interest in a credit transaction.
- Residual value -- The value of the leased property at lease end.
- Notice of early termination -- A notice to consumers that they may have to pay a substantial charge if they end the lease early, and other information about the consequences of early termination.
- Wear and use -- Information about the charges and standards for wear and use.
For Advertising Disclosures
- Streamlined disclosures -- Advertising disclosures have been simplified to emphasize critical cost information for consumers, including that the offer is a lease, the total amount due at lease signing, and the payment schedule.
- Clear and conspicuous disclosure -- Required disclosures in all types of advertisements must be reasonably understandable. This means that consumers must be able to read (or hear) and understand the information.
- Amount due at lease signing or delivery -- The total amount that consumers must pay at lease inception.
- Equal Prominence -- Any positive or negative reference to a charge that is part of the total amount due at lease inception, except for the periodic payment, cannot be more prominent than the total amount figure.
The FTC has made automobile leasing advertising enforcement a priority. In November 1996, the Commission announced agreements with General Motors Corporation, American Honda Motor Co., Inc., American Isuzu Motors Inc., Mazda Motor of America, Inc. and Mitsubishi Motor Sales of America, Inc. The Commission had alleged that these five automobile manufacturers and two other major automobile dealers violated federal laws and regulations by deceiving consumers in their advertisements for lease and credit. Recently, the Commission released consent orders with Toyota Motor Sales, U.S.A., Inc; Volkswagen of America, Inc. and five dealers for similar federal law violations.
In her statement Bernstein said that these FTC cases, which require that consumer lease ads provide essential cost information in a readable and understandable manner, complement the educational initiative announced today. Lease and credit promotions will continue to be vigorously scrutinized at the FTC, Bernstein added, to insure that they provide clear and truthful information to consumers to allow for more effective comparison shopping.
Keys to Vehicle Leasing" can now be found on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov (no period). The FTC web site also provides "hot-links" to these materials on the Federal Reserve's web site: http://www.bog.frb.fed.us/pubs/leasing (no period).
In addition, the FTC's web site has other lease education materials available, such as "Look Before You Lease," which contains some important tips for consumers considering leasing a car.
Guidance for automobile dealers and manufacturers on the new lease advertising rules can be found in "Advertising Consumer Leases."
Joining Bernstein and Governor Meyer were Jack A. Norris, Jr., Chief of Multi-State Litigation in the Florida Attorney General's Office; Frank McCarthy, Executive Vice President of the National Automobile Dealers Association; and Angelo Nyars, President of the Association of Consumer Vehicle Lessors.
Other government agencies and organizations taking part in the educational effort are the American Advertising Federation, the American Automobile Manufacturers Association, the American Financial Services Association and the AFSA Education Foundation, the Arizona Attorney General, the Association of International Automobile Manufacturers, Consumer Action, Consumer Bankers Association, Cooperative Extension System and the National Vehicle Leasing Association.
Copies of FTC press releases and consumer brochures are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov (no period). FTC documents also are available from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC's NewsPhone recording at 202-326-3710.
Office of Public Affairs
Bureau of Consumer Protection