Consumer Leasing (Regulation M), 78500-78520 [2011-31723]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Rules and Regulations]
[Pages 78500-78520]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31723]



[[Page 78500]]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1013

[Docket No. CFPB-2011-0026]
RIN 3170-AA06


Consumer Leasing (Regulation M)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

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SUMMARY: Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) transferred rulemaking authority for a 
number of consumer financial protection laws from seven Federal 
agencies to the Bureau of Consumer Financial Protection (Bureau) as of 
July 21, 2011. The Bureau is in the process of republishing the 
regulations implementing those laws with technical and conforming 
changes to reflect the transfer of authority and certain other changes 
made by the Dodd-Frank Act. In light of the transfer of the Board of 
Governors of the Federal Reserve System's (Board's) rulemaking 
authority for the Consumer Leasing Act of 1976 (CLA) to the Bureau, the 
Bureau is publishing for public comment an interim final rule 
establishing a new Regulation M (Consumer Leasing). This interim final 
rule does not impose any new substantive obligations on persons subject 
to the existing Regulation M, previously published by the Board.

DATES: This interim final rule is effective December 30, 2011. Comments 
must be received on or before February 17, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0026 or RIN 3170-AA06, by any of the following methods:
     Electronic: https://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Bureau of Consumer Financial Protection, 1500 Pennsylvania Avenue NW., 
(Attn: 1801 L Street), Washington, DC 20220.
     Hand Delivery/Courier in Lieu of Mail: Monica Jackson, 
Office of the Executive Secretary, Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20006.
    All submissions must include the agency name and docket number or 
Regulatory Information Number (RIN) for this rulemaking. In general, 
all comments received will be posted without change to https://www.regulations.gov. In addition, comments will be available for public 
inspection and copying at 1700 G Street NW., Washington, DC 20006, on 
official business days between the hours of 10 a.m. and 5 p.m. Eastern 
Time. You can make an appointment to inspect the documents by 
telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Courtney Jean or Priscilla Walton-
Fein, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Background

    The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted 
in 1976 as an amendment to the Truth in Lending Act (TILA), 15 U.S.C. 
1601 et seq. The purpose of the CLA is to ensure meaningful and 
accurate disclosure of the terms of personal property leases for 
personal, family, or household use. The CLA and Regulation M require 
lessors to provide consumers with uniform cost and other disclosures 
about consumer lease transactions. The statute and the regulation 
generally apply to consumer leases for the use of personal property in 
which the contractual obligation has a term of more than four months 
and the lessee's total contractual obligation under the lease exceeds a 
specified dollar threshold. Historically, the CLA has been implemented 
in Regulation M of the Board of Governors of the Federal Reserve System 
(Board), 12 CFR Part 213. The Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) \1\ amended a number of 
consumer financial protection laws, including the CLA. In addition to 
various substantive amendments, the Dodd-Frank Act transferred 
rulemaking authority for the CLA to the Bureau of Consumer Financial 
Protection (Bureau), effective July 21, 2011.\2\ See sections 1061, 
1100A, and 1100E of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act 
and the CLA, as amended, the Bureau is publishing for public comment an 
interim final rule establishing a new Regulation M (Consumer Leasing), 
12 CFR Part 1013, implementing the CLA (except with respect to persons 
excluded from the Bureau's rulemaking authority by section 1029 of the 
Dodd-Frank Act).
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ Section 1029 of the Dodd-Frank Act generally excludes from 
this transfer of authority, subject to certain exceptions, any 
rulemaking authority over a motor vehicle dealer that is 
predominantly engaged in the sale and servicing of motor vehicles, 
the leasing and servicing of motor vehicles, or both.
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II. Summary of the Interim Final Rule

A. General

    The interim final rule substantially duplicates the Board's 
Regulation M as the Bureau's new Regulation M, 12 CFR Part 1013, making 
only certain non-substantive, technical, formatting, and stylistic 
changes. To minimize any potential confusion, the Bureau is preserving 
the numbering of the Board's Regulation M, other than the new part 
number. While this interim final rule generally incorporates the 
Board's existing regulatory text, appendices (including model forms and 
clauses), and supplements, as amended,\3\ the rule has been edited as 
necessary to reflect nomenclature and other technical amendments 
required by the Dodd-Frank Act. Notably, this interim final rule does 
not impose any new substantive obligations on regulated entities.
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    \3\ See 76 FR 35721 (June 20, 2011).
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B. Specific Changes

    The Bureau has made certain nomenclature and other non-substantive 
changes consistently throughout Regulation M. References to the Board 
and its administrative structure have been replaced with references to 
the Bureau. Conforming edits have been made to internal cross-
references and to reflect the scope of the Bureau's authority pursuant 
to the CLA, as amended by the Dodd-Frank Act. Appendix B, entitled 
``Federal Enforcement Agencies,'' has been eliminated, because it was 
designed to be informational only and is unnecessary for purposes of 
implementing the CLA, as amended. Historical references that are no 
longer applicable, and references to effective dates that have passed, 
have been removed as appropriate.

III. Legal Authority

A. Rulemaking Authority

    The Bureau is issuing this interim final rule pursuant to its 
authority under the CLA and the Dodd-Frank Act. Effective July 21, 
2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the 
``consumer financial protection functions'' previously vested in 
certain other Federal agencies. The term ``consumer financial 
protection function'' is defined to include ``all authority to 
prescribe rules or issue orders or guidelines pursuant to any

[[Page 78501]]

Federal consumer financial law, including performing appropriate 
functions to promulgate and review such rules, orders, and 
guidelines.'' \4\ The CLA is a Federal consumer financial law.\5\ 
Accordingly, effective July 21, 2011, except with respect to persons 
excluded from the Bureau's rulemaking authority by section 1029 of the 
Dodd-Frank Act, the authority of the Board to issue regulations 
pursuant to the CLA transferred to the Bureau.\6\
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    \4\ Public Law 111-203, section 1061(a)(1). Effective on the 
designated transfer date, July 21, 2011, the Bureau was also granted 
``all powers and duties'' vested in each of the Federal agencies, 
relating to the consumer financial protection functions, on the day 
before the designated transfer date. Until this and other interim 
final rules take effect, existing regulations for which rulemaking 
authority transferred to the Bureau continue to govern persons 
covered by this rule. See 76 FR 43569 (July 21, 2011).
    \5\ Public Law 111-203, section 1002(14) (defining ``Federal 
consumer financial law'' to include the ``enumerated consumer 
laws''); id. Section 1002(12) (defining ``enumerated consumer laws'' 
to include the Consumer Leasing Act of 1976).
    \6\ Section 1066 of the Dodd-Frank Act grants the Secretary of 
the Treasury interim authority to perform certain functions of the 
Bureau. Pursuant to that authority, Treasury is publishing this 
interim final rule on behalf of the Bureau.
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    The CLA, as amended, authorizes the Bureau to prescribe regulations 
to update and clarify the requirements and definitions applicable to 
lease disclosures and contracts, and any other issues specifically 
related to consumer leasing, to the extent the Bureau determines such 
action necessary to carry out the purposes, prevent the circumvention, 
or facilitate compliance with the requirements of the CLA.\7\ These 
regulations may contain such classifications and differentiations, or 
provide for such adjustments and exceptions for any class of 
transactions, that the Bureau considers appropriate.\8\ The CLA also 
directs the Bureau to establish and publish model forms to facilitate 
compliance with the disclosure requirements of the CLA and to aid 
consumers in understanding the transactions to which the disclosure 
forms relate.\9\ Section 1100E of the Dodd-Frank Act directs the Bureau 
to adjust the dollar threshold for covered consumer lease transactions 
annually for inflation by the annual percentage increase in the 
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-
W), as published by the Bureau of Labor Statistics.\10\ In its existing 
regulation, the Board used its CLA authority to establish rules to 
promote meaningful and accurate disclosure in consumer lease 
transactions.\11\
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    \7\ Id. Section 1100A(10); 15 U.S.C. 1667f(a).
    \8\ Id.
    \9\ Id.
    \10\ Public Law 111-203, section 1100E.
    \11\ See Regulation M, 12 CFR Part 213.
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B. Authority To Issue an Interim Final Rule Without Prior Notice and 
Comment

    The Administrative Procedure Act (APA) \12\ generally requires 
public notice and an opportunity to comment before promulgation of 
regulations.\13\ The APA provides exceptions to notice-and-comment 
procedures, however, where an agency for good cause finds that such 
procedures are impracticable, unnecessary, or contrary to the public 
interest or when a rulemaking relates to agency organization, 
procedure, and practice.\14\ The Bureau finds that there is good cause 
to conclude that providing notice and opportunity for comment would be 
unnecessary and contrary to the public interest under these 
circumstances. In addition, substantially all the changes made by this 
interim final rule, which were necessitated by the Dodd-Frank Act's 
transfer of CLA authority from the Board to the Bureau, relate to 
agency organization, procedure, and practice and are thus exempt from 
the APA's notice-and-comment requirements.
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    \12\ 5 U.S.C. 551 et seq.
    \13\ 5 U.S.C. 553(b), (c).
    \14\ 5 U.S.C. 553(b)(3)(A), (B).
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    The Bureau's good cause findings are based on the following 
considerations. As an initial matter, the Board's existing regulation 
was a result of notice-and-comment rulemaking to the extent required. 
Moreover, the interim final rule published today does not impose any 
new, substantive obligations on regulated entities. Rather, the interim 
final rule makes only non-substantive, technical changes to the 
existing text of the regulation, such as renumbering, changing internal 
cross-references, and replacing appropriate nomenclature to reflect the 
transfer of authority to the Bureau. Given the technical nature of 
these changes, and the fact that the interim final rule does not impose 
any additional substantive requirements on covered entities, an 
opportunity for prior public comment is unnecessary. In addition, 
recodifying the Board's regulation to reflect the transfer of authority 
to the Bureau will help facilitate compliance with the CLA and its 
implementing regulation, and will help reduce uncertainty regarding the 
applicable regulatory framework. Using notice-and-comment procedures 
would delay this process and thus be contrary to the public interest.
    The APA generally requires that rules be published not less than 30 
days before their effective dates. See 5 U.S.C. 553(d). As with the 
notice and comment requirement, however, the APA allows an exception 
when ``otherwise provided by the agency for good cause found and 
published with the rule.'' 5 U.S.C. 553(d)(3). The Bureau finds that 
there is good cause for providing less than 30 days notice here. A 
delayed effective date would harm consumers and regulated entities by 
needlessly perpetuating discrepancies between the amended statutory 
text and the implementing regulation, thereby hindering compliance and 
prolonging uncertainty regarding the applicable regulatory 
framework.\15\
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    \15\ This interim final rule is one of 14 companion rulemakings 
that together restate and recodify the implementing regulations 
under 14 existing consumer financial laws (part III.C, below, lists 
the 14 laws involved). In the interest of proper coordination of 
this overall regulatory framework, which includes numerous cross-
references among some of the regulations, the Bureau is establishing 
the same effective date of December 30, 2011 for those rules 
published on or before that date and making those published 
thereafter (if any) effective immediately.
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    In addition, delaying the effective date of the interim final rule 
for 30 days would provide no practical benefit to regulated entities in 
this context and in fact could operate to their detriment. As discussed 
above, the interim final rule published today does not impose any new, 
substantive obligations on regulated entities. Instead, the rule makes 
only non-substantive, technical changes to the existing text of the 
regulation. Thus, regulated entities that are already in compliance 
with the existing rules will not need to modify business practices as a 
result of this rule.

C. Section 1022(b)(2) of the Dodd-Frank Act

    In developing the interim final rule, the Bureau has conducted an 
analysis of potential benefits, costs, and impacts.\16\ The Bureau 
believes that the interim final rule will benefit consumers and

[[Page 78502]]

covered persons by updating and recodifying Regulation M to reflect the 
transfer of authority to the Bureau and certain other changes mandated 
by the Dodd-Frank Act. This will help facilitate compliance with the 
CLA and its implementing regulations and help reduce any uncertainty 
regarding the applicable regulatory framework. As discussed below, the 
interim final rule will not impose any new substantive obligations on 
consumers or covered persons and is not expected to have any impact on 
consumers' access to consumer financial products and services.
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    \16\ Section 1022(b)(2)(A) of the Dodd-Frank Act addresses the 
consideration of the potential benefits and costs of regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services; the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas. Section 
1022(b)(2)(B) requires that the Bureau ``consult with the 
appropriate prudential regulators or other Federal agencies prior to 
proposing a rule and during the comment process regarding 
consistency with prudential, market, or systemic objectives 
administered by such agencies.'' The manner and extent to which 
these provisions apply to interim final rules and to benefits, 
costs, and impacts that are compelled by statutory changes rather 
than discretionary Bureau action is unclear. Nevertheless, to inform 
this rulemaking more fully, the Bureau performed the described 
analyses and consultations.
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    Although not required by the interim final rule, covered persons 
may incur some costs in updating compliance manuals and related 
materials to reflect the new numbering and other technical changes 
reflected in the new Regulation M. The Bureau has worked to reduce any 
such burden by preserving the existing numbering to the extent possible 
and believes that such costs will likely be minimal. These changes 
could be handled in the short term by providing a short, standalone 
summary alerting users to the changes and in the long term could be 
combined with other updates at the firm's convenience. The Bureau 
intends to continue investigating the possible costs to affected 
entities of updating manuals and related materials to reflect these 
changes and solicits comments on this and other issues discussed in 
this section.
    The interim final rule will have no unique impact on depository 
institutions or credit unions with $10 billion or less in assets as 
described in section 1026(a) of the Dodd-Frank Act. Also, the interim 
final rule will have no unique impact on rural consumers.
    In undertaking the process of recodifying Regulation M, as well as 
regulations implementing thirteen other existing consumer financial 
laws,\17\ the Bureau consulted the Federal Deposit Insurance 
Corporation, the Office of the Comptroller of the Currency, the 
National Credit Union Administration, the Board of Governors of the 
Federal Reserve System, the Federal Trade Commission, and the 
Department of Housing and Urban Development, including with respect to 
consistency with any prudential, market, or systemic objectives that 
may be administered by such agencies.\18\ The Bureau also has consulted 
with the Office of Management and Budget for technical assistance. The 
Bureau expects to have further consultations with the appropriate 
Federal agencies during the comment period.
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    \17\ The fourteen laws implemented by this and its companion 
rulemakings are: the Consumer Leasing Act, the Electronic Fund 
Transfer Act (except with respect to section 920 of that Act), the 
Equal Credit Opportunity Act, the Fair Credit Reporting Act (except 
with respect to sections 615(e) and 628 of that act), the Fair Debt 
Collection Practices Act, Subsections (b) through (f) of section 43 
of the Federal Deposit Insurance Act, sections 502 through 509 of 
the Gramm-Leach-Bliley Act (except for section 505 as it applies to 
section 501(b)), the Home Mortgage Disclosure Act, the Real Estate 
Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the 
Truth in Lending Act, the Truth in Savings Act, section 626 of the 
Omnibus Appropriations Act, 2009, and the Interstate Land Sales Full 
Disclosure Act.
    \18\ In light of the technical but voluminous nature of this 
recodification project, the Bureau focused the consultation process 
on a representative sample of the recodified regulations, while 
making information on the other regulations available. The Bureau 
expects to conduct differently its future consultations regarding 
substantive rulemakings.
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IV. Request for Comment

    Although notice and comment rulemaking procedures are not required, 
the Bureau invites comments on this notice. Commenters are specifically 
encouraged to identify any technical issues raised by the rule. The 
Bureau is also seeking comment in response to a notice published at 76 
FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities 
for streamlining regulations that it has inherited from other Federal 
agencies to address provisions that are outdated, unduly burdensome, or 
unnecessary.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\19\ The RFA generally requires an 
agency to conduct an initial regulatory flexibility analysis (IRFA) and 
a final regulatory flexibility analysis (FRFA) of any rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities.\20\ The Bureau also is subject to 
certain additional procedures under the RFA involving the convening of 
a panel to consult with small business representatives prior to 
proposing a rule for which an IRFA is required.\21\
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    \19\ 5 U.S.C. 601 et seq.
    \20\ 5 U.S.C. 603, 604.
    \21\ 5 U.S.C. 609.
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    The IRFA and FRFA requirements described above apply only where a 
notice of proposed rulemaking is required,\22\ and the panel 
requirement applies only when a rulemaking requires an IRFA.\23\ As 
discussed above in part III, a notice of proposed rulemaking is not 
required for this rulemaking.
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    \22\ 5 U.S.C. 603(a), 604(a); 5 U.S.C. 553(b)(B).
    \23\ 5 U.S.C. 609(b).
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    In addition, as discussed above, this interim final rule has only a 
minor impact on entities subject to Regulation M. The rule imposes no 
new, substantive obligations on covered entities. Accordingly, the 
undersigned certifies that this interim final rule will not have a 
significant economic impact on a substantial number of small entities.

VI. Paperwork Reduction Act

    The Bureau may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
This rule contains information collection requirements under the 
Paperwork Reduction Act (PRA), which have been previously approved by 
OMB, and the ongoing PRA burden for which is unchanged by this rule. 
There are no new information collection requirements in this interim 
final rule. The Bureau's OMB control number for this information 
collection is: 3170-0006.

List of Subjects in 12 CFR Part 1013

    Advertising, Reporting and recordkeeping requirements, Truth in 
Lending.

Authority and Issuance

0
For the reasons set forth above, the Bureau of Consumer Financial 
Protection adds Part 1013 to Chapter X in Title 12 of the Code of 
Federal Regulations to read as follows:

PART 1013--CONSUMER LEASING (REGULATION M)

Sec.
1013.1 Authority, scope, purpose, and enforcement.
1013.2 Definitions.
1013.3 General disclosure requirements.
1013.4 Content of disclosures.
1013.5 Renegotiations, extensions, and assumptions.
1013.6 [Reserved]
1013.7 Advertising.
1013.8 Record retention.
1013.9 Relation to state laws.
Appendix A to Part 1013--Model Forms
Appendix B to Part 1013--[Reserved]
Appendix C to Part 1013--Issuance of Official Interpretations
Supplement I to Part 1013--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1604, 1667f.

[[Page 78503]]

Sec.  1013.1  Authority, scope, purpose, and enforcement.

    (a) Authority. The regulation in this part, known as Regulation M, 
is issued by the Bureau of Consumer Financial Protection to implement 
the consumer leasing provisions of the Truth in Lending Act, which is 
Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. 
1601 et seq.). Information collection requirements contained in this 
part have been approved by the Office of Management and Budget under 
the provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB 
control number 3170-0006.
    (b) Scope and purpose. This part applies to all persons that are 
lessors of personal property under consumer leases as those terms are 
defined in Sec.  1013.2(e)(1) and (h), except persons excluded from 
coverage of this part by section 1029 of the Consumer Financial 
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 
Stat. 1376. The purpose of this part is:
    (1) To ensure that lessees of personal property receive meaningful 
disclosures that enable them to compare lease terms with other leases 
and, where appropriate, with credit transactions;
    (2) To limit the amount of balloon payments in consumer lease 
transactions; and
    (3) To provide for the accurate disclosure of lease terms in 
advertising.
    (c) Enforcement and liability. Section 108 of the Act contains the 
administrative enforcement provisions. Sections 112, 130, 131, and 185 
of the Act contain the liability provisions for failing to comply with 
the requirements of the Act and this part.


Sec.  1013.2  Definitions.

    For the purposes of this part the following definitions apply:
    (a) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.) and 
the Consumer Leasing Act is Chapter 5 of the Truth in Lending Act.
    (b) Advertisement means a commercial message in any medium that 
directly or indirectly promotes a consumer lease transaction.
    (c) Bureau refers to the Bureau of Consumer Financial Protection.
    (d) Closed-end lease means a consumer lease other than an open-end 
lease as defined in this section.
    (e)(1) Consumer lease means a contract in the form of a bailment or 
lease for the use of personal property by a natural person primarily 
for personal, family, or household purposes, for a period exceeding 
four months and for a total contractual obligation not exceeding the 
applicable threshold amount, whether or not the lessee has the option 
to purchase or otherwise become the owner of the property at the 
expiration of the lease. The threshold amount is adjusted annually to 
reflect increases in the Consumer Price Index for Urban Wage Earners 
and Clerical Workers, as applicable. See the official commentary to 
this paragraph (e) for the threshold amount applicable to a specific 
consumer lease. Unless the context indicates otherwise, in this part 
``lease'' means ``consumer lease.''
    (2) The term does not include a lease that meets the definition of 
a credit sale in Regulation Z (12 CFR 226.2(a)). It also does not 
include a lease for agricultural, business, or commercial purposes or a 
lease made to an organization.
    (3) This part does not apply to a lease transaction of personal 
property which is incident to the lease of real property and which 
provides that:
    (i) The lessee has no liability for the value of the personal 
property at the end of the lease term except for abnormal wear and 
tear; and
    (ii) The lessee has no option to purchase the leased property.
    (f) Gross capitalized cost means the amount agreed upon by the 
lessor and the lessee as the value of the leased property and any items 
that are capitalized or amortized during the lease term, including but 
not limited to taxes, insurance, service agreements, and any 
outstanding prior credit or lease balance. Capitalized cost reduction 
means the total amount of any rebate, cash payment, net trade-in 
allowance, and noncash credit that reduces the gross capitalized cost. 
The adjusted capitalized cost equals the gross capitalized cost less 
the capitalized cost reduction, and is the amount used by the lessor in 
calculating the base periodic payment.
    (g) Lessee means a natural person who enters into or is offered a 
consumer lease.
    (h) Lessor means a person who regularly leases, offers to lease, or 
arranges for the lease of personal property under a consumer lease. A 
person who has leased, offered, or arranged to lease personal property 
more than five times in the preceding calendar year or more than five 
times in the current calendar year is subject to the Act and this part.
    (i) Open-end lease means a consumer lease in which the lessee's 
liability at the end of the lease term is based on the difference 
between the residual value of the leased property and its realized 
value.
    (j) Organization means a corporation, trust, estate, partnership, 
cooperative, association, or government entity or instrumentality.
    (k) Person means a natural person or an organization.
    (l) Personal property means any property that is not real property 
under the law of the state where the property is located at the time it 
is offered or made available for lease.
    (m) Realized value means:
    (1) The price received by the lessor for the leased property at 
disposition;
    (2) The highest offer for disposition of the leased property; or
    (3) The fair market value of the leased property at the end of the 
lease term.
    (n) Residual value means the value of the leased property at the 
end of the lease term, as estimated or assigned at consummation by the 
lessor, used in calculating the base periodic payment.
    (o) Security interest and security mean any interest in property 
that secures the payment or performance of an obligation.
    (p) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.


Sec.  1013.3  General disclosure requirements.

    (a) General requirements. A lessor shall make the disclosures 
required by Sec.  1013.4, as applicable. The disclosures shall be made 
clearly and conspicuously in writing in a form the consumer may keep, 
in accordance with this section. The disclosures required by this part 
may be provided to the lessee in electronic form, subject to compliance 
with the consumer consent and other applicable provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.). For an advertisement accessed by the consumer 
in electronic form, the disclosures required by Sec.  1013.7 may be 
provided to the consumer in electronic form in the advertisement, 
without regard to the consumer consent or other provisions of the E-
Sign Act.
    (1) Form of disclosures. The disclosures required by Sec.  1013.4 
shall be given to the lessee together in a dated statement that 
identifies the lessor and the lessee; the disclosures may be made 
either in a separate statement that identifies the consumer lease 
transaction or in the contract or other document evidencing the lease. 
Alternatively, the disclosures required to be segregated from other 
information under paragraph (a)(2) of this section may be provided in a 
separate dated statement that identifies the lease, and the other 
required disclosures may be

[[Page 78504]]

provided in the lease contract or other document evidencing the lease. 
In a lease of multiple items, the property description required by 
Sec.  1013.4(a) may be given in a separate statement that is included 
in the disclosure statement required by this paragraph.
    (2) Segregation of certain disclosures. The following disclosures 
shall be segregated from other information and shall contain only 
directly related information: Sec. Sec.  1013.4(b) through (f), (g)(2), 
(h)(3), (i)(1), (j), and (m)(1). The headings, content, and format for 
the disclosures referred to in this paragraph (a)(2) shall be provided 
in a manner substantially similar to the applicable model form in 
Appendix A of this part.
    (3) Timing of disclosures. A lessor shall provide the disclosures 
to the lessee prior to the consummation of a consumer lease.
    (4) Language of disclosures. The disclosures required by Sec.  
1013.4 may be made in a language other than English provided that they 
are made available in English upon the lessee's request.
    (b) Additional information; nonsegregated disclosures. Additional 
information may be provided with any disclosure not listed in paragraph 
(a)(2) of this section, but it shall not be stated, used, or placed so 
as to mislead or confuse the lessee or contradict, obscure, or detract 
attention from any disclosure required by this part.
    (c) Multiple lessors or lessees. When a transaction involves more 
than one lessor, the disclosures required by this part may be made by 
one lessor on behalf of all the lessors. When a lease involves more 
than one lessee, the lessor may provide the disclosures to any lessee 
who is primarily liable on the lease.
    (d) Use of estimates. If an amount or other item needed to comply 
with a required disclosure is unknown or unavailable after reasonable 
efforts have been made to ascertain the information, the lessor may use 
a reasonable estimate that is based on the best information available 
to the lessor, is clearly identified as an estimate, and is not used to 
circumvent or evade any disclosures required by this part.
    (e) Effect of subsequent occurrence. If a required disclosure 
becomes inaccurate because of an event occurring after consummation, 
the inaccuracy is not a violation of this part.
    (f) Minor variations. A lessor may disregard the effects of the 
following in making disclosures:
    (1) That payments must be collected in whole cents;
    (2) That dates of scheduled payments may be different because a 
scheduled date is not a business day;
    (3) That months have different numbers of days; and
    (4) That February 29 occurs in a leap year.


Sec.  1013.4  Content of disclosures.

    For any consumer lease subject to this part, the lessor shall 
disclose the following information, as applicable:
    (a) Description of property. A brief description of the leased 
property sufficient to identify the property to the lessee and lessor.
    (b) Amount due at lease signing or delivery. The total amount to be 
paid prior to or at consummation or by delivery, if delivery occurs 
after consummation, using the term ``amount due at lease signing or 
delivery.'' The lessor shall itemize each component by type and amount, 
including any refundable security deposit, advance monthly or other 
periodic payment, and capitalized cost reduction; and in motor vehicle 
leases, shall itemize how the amount due will be paid, by type and 
amount, including any net trade-in allowance, rebates, noncash credits, 
and cash payments in a format substantially similar to the model forms 
in Appendix A of this part.
    (c) Payment schedule and total amount of periodic payments. The 
number, amount, and due dates or periods of payments scheduled under 
the lease, and the total amount of the periodic payments.
    (d) Other charges. The total amount of other charges payable to the 
lessor, itemized by type and amount, that are not included in the 
periodic payments. Such charges include the amount of any liability the 
lease imposes upon the lessee at the end of the lease term; the 
potential difference between the residual and realized values referred 
to in paragraph (k) of this section is excluded.
    (e) Total of payments. The total of payments, with a description 
such as ``the amount you will have paid by the end of the lease.'' This 
amount is the sum of the amount due at lease signing (less any 
refundable amounts), the total amount of periodic payments (less any 
portion of the periodic payment paid at lease signing), and other 
charges under paragraphs (b), (c), and (d) of this section. In an open-
end lease, a description such as ``you will owe an additional amount if 
the actual value of the vehicle is less than the residual value'' shall 
accompany the disclosure.
    (f) Payment calculation. In a motor vehicle lease, a mathematical 
progression of how the scheduled periodic payment is derived, in a 
format substantially similar to the applicable model form in Appendix A 
of this part, which shall contain the following:
    (1) Gross capitalized cost. The gross capitalized cost, including a 
disclosure of the agreed upon value of the vehicle, a description such 
as ``the agreed upon value of the vehicle [state the amount] and any 
items you pay for over the lease term (such as service contracts, 
insurance, and any outstanding prior credit or lease balance),'' and a 
statement of the lessee's option to receive a separate written 
itemization of the gross capitalized cost. If requested by the lessee, 
the itemization shall be provided before consummation.
    (2) Capitalized cost reduction. The capitalized cost reduction, 
with a description such as ``the amount of any net trade-in allowance, 
rebate, noncash credit, or cash you pay that reduces the gross 
capitalized cost.''
    (3) Adjusted capitalized cost. The adjusted capitalized cost, with 
a description such as ``the amount used in calculating your base 
[periodic] payment.''
    (4) Residual value. The residual value, with a description such as 
``the value of the vehicle at the end of the lease used in calculating 
your base [periodic] payment.''
    (5) Depreciation and any amortized amounts. The depreciation and 
any amortized amounts, which is the difference between the adjusted 
capitalized cost and the residual value, with a description such as 
``the amount charged for the vehicle's decline in value through normal 
use and for any other items paid over the lease term.''
    (6) Rent charge. The rent charge, with a description such as ``the 
amount charged in addition to the depreciation and any amortized 
amounts.'' This amount is the difference between the total of the base 
periodic payments over the lease term minus the depreciation and any 
amortized amounts.
    (7) Total of base periodic payments. The total of base periodic 
payments with a description such as ``depreciation and any amortized 
amounts plus the rent charge.''
    (8) Lease payments. The lease payments with a description such as 
``the number of payments in your lease.''
    (9) Base periodic payment. The total of the base periodic payments 
divided by the number of payment periods in the lease.
    (10) Itemization of other charges. An itemization of any other 
charges that are part of the periodic payment.
    (11) Total periodic payment. The sum of the base periodic payment 
and any other charges that are part of the periodic payment.

[[Page 78505]]

    (g) Early termination--(1) Conditions and disclosure of charges. A 
statement of the conditions under which the lessee or lessor may 
terminate the lease prior to the end of the lease term; and the amount 
or a description of the method for determining the amount of any 
penalty or other charge for early termination, which must be 
reasonable.
    (2) Early termination notice. In a motor vehicle lease, a notice 
substantially similar to the following: ``Early Termination. You may 
have to pay a substantial charge if you end this lease early. The 
charge may be up to several thousand dollars. The actual charge will 
depend on when the lease is terminated. The earlier you end the lease, 
the greater this charge is likely to be.''
    (h) Maintenance responsibilities. The following provisions are 
required:
    (1) Statement of responsibilities. A statement specifying whether 
the lessor or the lessee is responsible for maintaining or servicing 
the leased property, together with a brief description of the 
responsibility;
    (2) Wear and use standard. A statement of the lessor's standards 
for wear and use (if any), which must be reasonable; and
    (3) Notice of wear and use standard. In a motor vehicle lease, a 
notice regarding wear and use substantially similar to the following: 
``Excessive Wear and Use. You may be charged for excessive wear based 
on our standards for normal use.'' The notice shall also specify the 
amount or method for determining any charge for excess mileage.
    (i) Purchase option. A statement of whether or not the lessee has 
the option to purchase the leased property, and:
    (1) End of lease term. If at the end of the lease term, the 
purchase price; and
    (2) During lease term. If prior to the end of the lease term, the 
purchase price or the method for determining the price and when the 
lessee may exercise this option.
    (j) Statement referencing nonsegregated disclosures. A statement 
that the lessee should refer to the lease documents for additional 
information on early termination, purchase options and maintenance 
responsibilities, warranties, late and default charges, insurance, and 
any security interests, if applicable.
    (k) Liability between residual and realized values. A statement of 
the lessee's liability, if any, at early termination or at the end of 
the lease term for the difference between the residual value of the 
leased property and its realized value.
    (l) Right of appraisal. If the lessee's liability at early 
termination or at the end of the lease term is based on the realized 
value of the leased property, a statement that the lessee may obtain, 
at the lessee's expense, a professional appraisal by an independent 
third party (agreed to by the lessee and the lessor) of the value that 
could be realized at sale of the leased property. The appraisal shall 
be final and binding on the parties.
    (m) Liability at end of lease term based on residual value. If the 
lessee is liable at the end of the lease term for the difference 
between the residual value of the leased property and its realized 
value:
    (1) Rent and other charges. The rent and other charges, paid by the 
lessee and required by the lessor as an incident to the lease 
transaction, with a description such as ``the total amount of rent and 
other charges imposed in connection with your lease [state the 
amount].''
    (2) Excess liability. A statement about a rebuttable presumption 
that, at the end of the lease term, the residual value of the leased 
property is unreasonable and not in good faith to the extent that the 
residual value exceeds the realized value by more than three times the 
base monthly payment (or more than three times the average payment 
allocable to a monthly period, if the lease calls for periodic payments 
other than monthly); and that the lessor cannot collect the excess 
amount unless the lessor brings a successful court action and pays the 
lessee's reasonable attorney's fees, or unless the excess of the 
residual value over the realized value is due to unreasonable or 
excessive wear or use of the leased property (in which case the 
rebuttable presumption does not apply).
    (3) Mutually agreeable final adjustment. A statement that the 
lessee and lessor are permitted, after termination of the lease, to 
make any mutually agreeable final adjustment regarding excess 
liability.
    (n) Fees and taxes. The total dollar amount for all official and 
license fees, registration, title, or taxes required to be paid in 
connection with the lease.
    (o) Insurance. A brief identification of insurance in connection 
with the lease including:
    (1) Through the lessor. If the insurance is provided by or paid 
through the lessor, the types and amounts of coverage and the cost to 
the lessee; or
    (2) Through a third party. If the lessee must obtain the insurance, 
the types and amounts of coverage required of the lessee.
    (p) Warranties or guarantees. A statement identifying all express 
warranties and guarantees from the manufacturer or lessor with respect 
to the leased property that apply to the lessee.
    (q) Penalties and other charges for delinquency. The amount or the 
method of determining the amount of any penalty or other charge for 
delinquency, default, or late payments, which must be reasonable.
    (r) Security interest. A description of any security interest, 
other than a security deposit disclosed under paragraph (b) of this 
section, held or to be retained by the lessor; and a clear 
identification of the property to which the security interest relates.
    (s) Limitations on rate information. If a lessor provides a 
percentage rate in an advertisement or in documents evidencing the 
lease transaction, a notice stating that ``this percentage may not 
measure the overall cost of financing this lease'' shall accompany the 
rate disclosure. The lessor shall not use the term ``annual percentage 
rate,'' ``annual lease rate,'' or any equivalent term.
    (t) Non-motor vehicle open-end leases. Non-motor vehicle open-end 
leases remain subject to section 182(10) of the Act regarding end of 
term liability.


Sec.  1013.5  Renegotiations, extensions, and assumptions.

    (a) Renegotiation. A renegotiation occurs when a consumer lease 
subject to this part is satisfied and replaced by a new lease 
undertaken by the same consumer. A renegotiation requires new 
disclosures, except as provided in paragraph (d) of this section.
    (b) Extension. An extension is a continuation, agreed to by the 
lessor and the lessee, of an existing consumer lease beyond the 
originally scheduled end of the lease term, except when the 
continuation is the result of a renegotiation. An extension that 
exceeds six months requires new disclosures, except as provided in 
paragraph (d) of this section.
    (c) Assumption. New disclosures are not required when a consumer 
lease is assumed by another person, whether or not the lessor charges 
an assumption fee.
    (d) Exceptions. New disclosures are not required for the following, 
even if they meet the definition of a renegotiation or an extension:
    (1) A reduction in the rent charge;
    (2) The deferment of one or more payments, whether or not a fee is 
charged;

[[Page 78506]]

    (3) The extension of a lease for not more than six months on a 
month-to-month basis or otherwise;
    (4) A substitution of leased property with property that has a 
substantially equivalent or greater economic value, provided no other 
lease terms are changed;
    (5) The addition, deletion, or substitution of leased property in a 
multiple-item lease, provided the average periodic payment does not 
change by more than 25 percent; or
    (6) An agreement resulting from a court proceeding.


Sec.  1013.6  [Reserved]


Sec.  1013.7  Advertising.

    (a) General rule. An advertisement for a consumer lease may state 
that a specific lease of property at specific amounts or terms is 
available only if the lessor usually and customarily leases or will 
lease the property at those amounts or terms.
    (b) Clear and conspicuous standard. Disclosures required by this 
section shall be made clearly and conspicuously.
    (1) Amount due at lease signing or delivery. Except for the 
statement of a periodic payment, any affirmative or negative reference 
to a charge that is a part of the disclosure required under paragraph 
(d)(2)(ii) of this section shall not be more prominent than that 
disclosure.
    (2) Advertisement of a lease rate. If a lessor provides a 
percentage rate in an advertisement, the rate shall not be more 
prominent than any of the disclosures in Sec.  1013.4, with the 
exception of the notice in Sec.  1013.4(s) required to accompany the 
rate; and the lessor shall not use the term ``annual percentage rate,'' 
``annual lease rate,'' or equivalent term.
    (c) Catalogs or other multipage advertisements; electronic 
advertisements. A catalog or other multipage advertisement, or an 
electronic advertisement (such as an advertisement appearing on an 
Internet Web site), that provides a table or schedule of the required 
disclosures shall be considered a single advertisement if, for lease 
terms that appear without all the required disclosures, the 
advertisement refers to the page or pages on which the table or 
schedule appears.
    (d) Advertisement of terms that require additional disclosure. (1) 
Triggering terms. An advertisement that states any of the following 
items shall contain the disclosures required by paragraph (d)(2) of 
this section, except as provided in paragraphs (e) and (f) of this 
section:
    (i) The amount of any payment; or
    (ii) A statement of any capitalized cost reduction or other payment 
(or that no payment is required) prior to or at consummation or by 
delivery, if delivery occurs after consummation.
    (2) Additional terms. An advertisement stating any item listed in 
paragraph (d)(1) of this section shall also state the following items:
    (i) That the transaction advertised is a lease;
    (ii) The total amount due prior to or at consummation or by 
delivery, if delivery occurs after consummation;
    (iii) The number, amounts, and due dates or periods of scheduled 
payments under the lease;
    (iv) A statement of whether or not a security deposit is required; 
and
    (v) A statement that an extra charge may be imposed at the end of 
the lease term where the lessee's liability (if any) is based on the 
difference between the residual value of the leased property and its 
realized value at the end of the lease term.
    (e) Alternative disclosures--merchandise tags. A merchandise tag 
stating any item listed in paragraph (d)(1) of this section may comply 
with paragraph (d)(2) of this section by referring to a sign or display 
prominently posted in the lessor's place of business that contains a 
table or schedule of the required disclosures.
    (f) Alternative disclosures--television or radio advertisements--
(1) Toll-free number or print advertisement. An advertisement made 
through television or radio stating any item listed in paragraph (d)(1) 
of this section complies with paragraph (d)(2) of this section if the 
advertisement states the items listed in paragraphs (d)(2)(i) through 
(iii) of this section, and:
    (i) Lists a toll-free telephone number along with a reference that 
such number may be used by consumers to obtain the information required 
by paragraph (d)(2) of this section; or
    (ii) Directs the consumer to a written advertisement in a 
publication of general circulation in the community served by the media 
station, including the name and the date of the publication, with a 
statement that information required by paragraph (d)(2) of this section 
is included in the advertisement. The written advertisement shall be 
published beginning at least three days before and ending at least ten 
days after the broadcast.
    (2) Establishment of toll-free number. (i) The toll-free telephone 
number shall be available for no fewer than ten days, beginning on the 
date of the broadcast.
    (ii) The lessor shall provide the information required by paragraph 
(d)(2) of this section orally, or in writing upon request.


Sec.  1013.8  Record retention.

    A lessor shall retain evidence of compliance with the requirements 
imposed by this part, other than the advertising requirements under 
Sec.  1013.7, for a period of not less than two years after the date 
the disclosures are required to be made or an action is required to be 
taken.


Sec.  1013.9  Relation to state laws.

    (a) Inconsistent state law. A state law that is inconsistent with 
the requirements of the Act and this part is preempted to the extent of 
the inconsistency. If a lessor cannot comply with a state law without 
violating a provision of this part, the state law is inconsistent 
within the meaning of section 186(a) of the Act and is preempted, 
unless the state law gives greater protection and benefit to the 
consumer. A state, through an official having primary enforcement or 
interpretative responsibilities for the state consumer leasing law, may 
apply to the Bureau for a preemption determination.
    (b) Exemptions--(1) Application. A state may apply to the Bureau 
for an exemption from the requirements of the Act and this part for any 
class of lease transactions within the state. The Bureau will grant 
such an exemption if the Bureau determines that:
    (i) The class of leasing transactions is subject to state law 
requirements substantially similar to the Act and this part or that 
lessees are afforded greater protection under state law; and
    (ii) There is adequate provision for state enforcement.
    (2) Enforcement and liability. After an exemption has been granted, 
the requirements of the applicable state law (except for additional 
requirements not imposed by Federal law) will constitute the 
requirements of the Act and this part. No exemption will extend to the 
civil liability provisions of sections 130, 131, and 185 of the Act.

Appendix A to Part 1013--Model Forms

A-1--Model Open-End or Finance Vehicle Lease Disclosures
A-2--Model Closed-End or Net Vehicle Lease Disclosures
A-3--Model Furniture Lease Disclosures
BILLING CODE 4810-AM-P

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[[Page 78513]]



Appendix B to Part 1013--[Reserved]

Appendix C to Part 1013--Issuance of Official Interpretations

    Interpretations of this part issued by officials of the Bureau 
provide the formal protection afforded under section 130(f) of the 
Act. Except in unusual circumstances, interpretations will not be 
issued separately but will be incorporated in an official commentary 
to Regulation M (Supplement I of this part), which will be amended 
periodically. No official interpretations will be issued approving a 
lessor's forms, statements, or calculation tools or methods.

Supplement I to Part 1013--Official Interpretations

Introduction

    1. Official status. The commentary in Supplement I is the 
vehicle by which the Bureau of Consumer Financial Protection issues 
official interpretations of Regulation M (12 CFR part 1013). Good 
faith compliance with this commentary affords protection from 
liability under section 130(f) of the Truth in Lending Act (15 
U.S.C. 1640(f)). Section 130(f) protects lessors from civil 
liability for any act done or omitted in good faith in conformity 
with any interpretation issued by the Bureau.
    2. Procedures for requesting interpretations. Under Appendix C 
of Regulation M, anyone may request an official interpretation. 
Interpretations that are adopted will be incorporated in this 
commentary following publication in the Federal Register. No 
official interpretations are expected to be issued other than by 
means of this commentary.
    3. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph that 
it interprets. The comments are designated with as much specificity 
as possible according to the particular regulatory provision 
addressed. For example, some of the comments to Sec.  1013.4(f) are 
further divided by subparagraph, such as comment 4(f)(1)-1 and 
comment 4(f)(2)-1. In other cases, comments have more general 
application and are designated, for example, as comment 4(a)-1. This 
introduction may be cited as comments I-1 through I-4. An appendix 
may be cited as comment app. A-1.
    4. Illustrations. Lists that appear in the commentary may be 
exhaustive or illustrative; the appropriate construction should be 
clear from the context. Illustrative lists are introduced by phrases 
such as ``including,'' ``such as,'' ``to illustrate,'' and ``for 
example.''

Section 1013.1--Authority, Scope, Purpose, and Enforcement

    1. Foreign applicability. Regulation M applies to all persons 
(including branches of foreign banks or leasing companies located in 
the United States) that offer consumer leases to residents of any 
state (including foreign nationals) as defined in Sec.  1013.2(p), 
except persons excluded from coverage of this part by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 
111-203, 124 Stat. 1376. The regulation does not apply to a foreign 
branch of a U.S. bank or to a leasing company leasing to a U.S. 
citizen residing or visiting abroad or to a foreign national abroad.

Section 1013.2--Definitions

2(b) Advertisement

    1. Coverage. The term advertisement includes messages inviting, 
offering, or otherwise generally announcing to prospective customers 
the availability of consumer leases, whether in visual, oral, print 
or electronic media. Examples include:
    i. Messages in newspapers, magazines, leaflets, catalogs, and 
fliers.
    ii. Messages on radio, television, and public address systems.
    iii. Direct mail literature.
    iv. Printed material on any interior or exterior sign or 
display, in any window display, in any point-of-transaction 
literature or price tag that is delivered or made available to a 
lessee or prospective lessee in any manner whatsoever.
    v. Telephone solicitations.
    vi. Online messages, such as those on the Internet.
    2. Exclusions. The term does not apply to the following:
    i. Direct personal contacts, including follow-up letters, cost 
estimates for individual lessees, or oral or written communications 
relating to the negotiation of a specific transaction.
    ii. Informational material distributed only to businesses.
    iii. Notices required by Federal or state law, if the law 
mandates that specific information be displayed and only the 
mandated information is included in the notice.
    iv. News articles controlled by the news medium.
    v. Market research or educational materials that do not solicit 
business.
    3. Persons covered. See the commentary to Sec.  1013.7(a).

2(d) Closed-End Lease

    1. General. In closed-end leases, sometimes referred to as 
``walk-away'' leases, the lessee is not responsible for the residual 
value of the leased property at the end of the lease term.

2(e) Consumer Lease

    1. Primary purposes. A lessor must determine in each case if the 
leased property will be used primarily for personal, family, or 
household purposes. If a question exists as to the primary purpose 
for a lease, the fact that a lessor gives disclosures is not 
controlling on the question of whether the transaction is covered. 
The primary purpose of a lease is determined before or at 
consummation and a lessor need not provide Regulation M disclosures 
where there is a subsequent change in the primary use.
    2. Period of time. To be a consumer lease, the initial term of 
the lease must be more than four months. Thus, a lease of personal 
property for four months, three months or on a month-to-month or 
week-to-week basis (even though the lease actually extends beyond 
four months) is not a consumer lease and is not subject to the 
disclosure requirements of the regulation. However, a lease that 
imposes a penalty for not continuing the lease beyond four months is 
considered to have a term of more than four months. To illustrate:
    i. A three-month lease extended on a month-to-month basis and 
terminated after one year is not subject to the regulation.
    ii. A month-to-month lease with a penalty, such as the 
forfeiture of a security deposit for terminating before one year, is 
subject to the regulation.
    3. Total contractual obligation. The total contractual 
obligation is not necessarily the same as the total of payments 
disclosed under Sec.  1013.4(e). The total contractual obligation 
includes nonrefundable amounts a lessee is contractually obligated 
to pay to the lessor, but excludes items such as:
    i. Residual value amounts or purchase-option prices;
    ii. Amounts collected by the lessor but paid to a third party, 
such as taxes, licenses, and registration fees.
    4. Credit sale. The regulation does not cover a lease that meets 
the definition of a credit sale in Regulation Z, 12 CFR 
226.2(a)(16), which is defined, in part, as a bailment or lease 
(unless terminable without penalty at any time by the consumer) 
under which the consumer:
    i. Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
services involved; and
    ii. Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the 
property upon compliance with the agreement.
    5. Agricultural purpose. Agricultural purpose means a purpose 
related to the production, harvest, exhibition, marketing, 
transportation, processing, or manufacture of agricultural products 
by a natural person who cultivates, plants, propagates, or nurtures 
those agricultural products, including but not limited to the 
acquisition of personal property and services used primarily in 
farming. Agricultural products include horticultural, viticultural, 
and dairy products, livestock, wildlife, poultry, bees, forest 
products, fish and shellfish, and any products thereof, including 
processed and manufactured products, and any and all products raised 
or produced on farms and any processed or manufactured products 
thereof.
    6. Organization or other entity. A consumer lease does not 
include a lease made to an organization such as a corporation or a 
government agency or instrumentality. Such a lease is not covered by 
the regulation even if the leased property is used (by an employee, 
for example) primarily for personal, family or household purposes, 
or is guaranteed by or subsequently assigned to a natural person.
    7. Leases of personal property incidental to a service. The 
following leases of personal property are deemed incidental to a 
service and thus are not subject to the regulation:
    i. Home entertainment systems requiring the consumer to lease 
equipment that enables

[[Page 78514]]

a television to receive the transmitted programming.
    ii. Security alarm systems requiring the installation of leased 
equipment intended to monitor unlawful entries into a home and in 
some cases to provide fire protection.
    iii. Propane gas service where the consumer must lease a propane 
tank to receive the service.
    8. Safe deposit boxes. The lease of a safe deposit box is not a 
consumer lease under Sec.  1013.2(e).
    9. Threshold amount. A consumer lease is exempt from the 
requirements of this part if the total contractual obligation 
exceeds the threshold amount in effect at the time of consummation. 
The threshold amount in effect during a particular time period is 
the amount stated below for that period. The threshold amount is 
adjusted effective January 1 of each year by any annual percentage 
increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) that was in effect on the preceding June 1. 
This comment will be amended to provide the threshold amount for the 
upcoming year after the annual percentage change in the CPI-W that 
was in effect on June 1 becomes available. Any increase in the 
threshold amount will be rounded to the nearest $100 increment. For 
example, if the annual percentage increase in the CPI-W would result 
in a $950 increase in the threshold amount, the threshold amount 
will be increased by $1,000. However, if the annual percentage 
increase in the CPI-W would result in a $949 increase in the 
threshold amount, the threshold amount will be increased by $900. If 
a consumer lease is exempt from the requirements of this part 
because the total contractual obligation exceeds the threshold 
amount in effect at the time of consummation, the lease remains 
exempt regardless of a subsequent increase in the threshold amount.
    i. Prior to July 21, 2011, the threshold amount is $25,000.
    ii. From July 21, 2011 through December 31, 2011, the threshold 
amount is