83 FR 286 - Consumer Leasing (Regulation M)

FEDERAL RESERVE SYSTEM

Federal Register Volume 83, Issue 2 (January 3, 2018)

The Board of Governors of the Federal Reserve System (Board) is proposing to revise its Regulation M, which was issued to implement the Consumer Leasing Act (CLA). 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, including the CLA, from the Board to the Bureau of Consumer Financial Protection (Bureau). Under section 1029 of the Dodd-Frank Act, however, the Board retains authority to issue rules for motor vehicle dealers that are predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both, and are otherwise not subject to the Bureau's regulatory authority. The Board is proposing to revise its Regulation M and the accompanying Official Staff Commentary to reflect this change in the persons covered by the Board's Regulation M.

[Federal Register Volume 83, Number 2 (Wednesday, January 3, 2018)]
[Proposed Rules]
[Pages 286-291]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-27325]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 83, No. 2 / Wednesday, January 3, 2018 / 
Proposed Rules

[[Page 286]]



FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Docket No. R-1591]
RIN 7100 AE-92


Consumer Leasing (Regulation M)

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed rulemaking; request for public comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is proposing to revise its Regulation M, which was issued to implement 
the Consumer Leasing Act (CLA). 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, including the CLA, from the Board to the Bureau of Consumer 
Financial Protection (Bureau). Under section 1029 of the Dodd-Frank 
Act, however, the Board retains authority to issue rules for motor 
vehicle dealers that are predominantly engaged in the sale and 
servicing of motor vehicles, the leasing and servicing of motor 
vehicles, or both, and are otherwise not subject to the Bureau's 
regulatory authority. The Board is proposing to revise its Regulation M 
and the accompanying Official Staff Commentary to reflect this change 
in the persons covered by the Board's Regulation M.

DATES: Comments must be received on or before March 5, 2018.

ADDRESSES: You may submit comments, identified by Docket No. R-1591 and 
RIN 7100-AE-92, by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments are available from the Board's website at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room 3515, 1801 K Street NW (between 18th and 19th Street 
NW), between 9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Lorna M. Neill, Senior Counsel, 
Division of Consumer and Community Affairs, at (202) 452-3667, Board of 
Governors of the Federal Reserve System. For users of 
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.

SUPPLEMENTARY INFORMATION: 

I. Background and Legal Authority

    The Consumer Leasing Act of 1976 (CLA), 15 U.S.C. 1667-1667f, was 
enacted 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 ``so as to enable the lessee to 
compare more readily the various lease terms available to him, limit 
balloon payments in consumer leasing, enable comparison of lease terms 
with credit terms where appropriate, and to assure meaningful and 
accurate disclosures of lease terms in advertisements.'' TILA Section 
102(b), 15 U.S.C. 1601(b).\1\ Before Congress enacted the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),\2\ the 
CLA was implemented by the Board's Regulation M, published at 12 CFR 
part 213. An Official Staff Commentary interprets the requirements of 
the Board's Regulation M (12 CFR part 213 (Supp. I)). The CLA and 
Regulation M have generally applied 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 does not exceed a specified dollar threshold.\3\ They 
require lessors to provide consumers with uniform cost and other 
disclosures about consumer lease transactions.
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    \1\ See also 12 CFR 213.1(b).
    \2\ Public Law 111-203, 124 Stat. 1376 (2010).
    \3\ The threshold was $54,600 for 2017. See 81 FR 86256 (Nov. 
30, 2016). From January 1, 2018, through December 31, 2018, the 
threshold is set at $55,800. See 82 FR 51977 (Nov. 9, 2017).
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    Title X of the Dodd-Frank Act transferred rulemaking authority for 
the CLA to the Bureau of Consumer Financial Protection (Bureau).\4\ 
This transfer was effective on July 21, 2011. In connection with the 
transfer, the Bureau published its own version of Regulation M, 12 CFR 
part 1013, to implement the CLA (Bureau's Regulation M).\5\ The 
Bureau's Regulation M substantially duplicates the Board's Regulation M 
and covers financial institutions and other persons for which the 
Bureau has rulemaking authority under section 1022 of the Dodd-Frank 
Act (12 U.S.C. 5512).
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    \4\ Public Law 111-203, sections 1061 and 1100A, 124 Stat. 1376, 
2035 and 2107 (2010).
    \5\ 12 CFR part 1013. See 76 FR 78500 (Dec. 19, 2011) (Interim 
Final Rule). In April 2016, the Bureau adopted the Interim Final 
Rule as final, subject to any intervening final rules published by 
the Bureau. See 81 FR 25323 (Apr. 28, 2016).
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    Under section 1029(a) and (c) of the Dodd-Frank Act (12 U.S.C. 
5519(a) and (c)), the Board retains rulemaking authority under the CLA 
over certain motor vehicle dealers that are predominantly engaged in 
the sale and servicing of motor vehicles, the leasing and servicing of 
motor vehicles, or both.\6\ Thus, except as described below,

[[Page 287]]

these motor vehicle dealers remain subject to the Board's Regulation M. 
Authority to enforce Regulation M against motor vehicle dealers subject 
to the Board's Regulation M is assigned by statute to the FTC.\7\
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    \6\ Dodd-Frank Act section 1029(a) states as follows: ``Except 
as permitted in subsection (b), the Bureau may not exercise any 
rulemaking, supervisory, enforcement or any other authority, 
including any authority to order assessments, 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.'' 12 U.S.C. 5519(a).
    Dodd-Frank Act section 1029(c) states as follows: ``Except as 
provided in subsections (b) and (d) [concerning the Federal Trade 
Commission (FTC)], nothing in this title [X, Bureau of Consumer 
Financial Protection], shall be construed as modifying, limiting, or 
superseding the operation of any provision of Federal law, or 
otherwise affecting the authority of the Board of Governors, the 
Federal Trade Commission, or any other Federal agency, with respect 
to a person described in subsection (a).'' 12 U.S.C. 5519(c).
    \7\ See TILA section 108(c), 15 U.S.C. 1607(c). See also Dodd-
Frank Act section 1029(c) and (d), 12 U.S.C. 5519(c) and (d).
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    Section 1029(b) of the Dodd-Frank Act provides that the Bureau's 
rulemaking authority applies to motor vehicle dealers only to the 
extent that the dealer is engaged in any of the following activities:
     Providing consumers with services related to residential 
or commercial mortgages or self-financing transactions involving real 
property;
     Operating a line of business (A) that involves the 
extension of retail credit or retail leases involving motor vehicles; 
and (B) in which (i) the extension of retail credit or retail leases is 
provided directly to consumers; and (ii) the contract governing such 
extension of retail credit or retail leases is not routinely assigned 
to an unaffiliated third party finance or leasing source; or
     Offering or providing a consumer financial product or 
service not involving or related to the sale, financing, leasing, 
rental, repair, refurbishment, maintenance, or other servicing of motor 
vehicles, motor vehicle parts, or any related or ancillary product or 
service.
    12 U.S.C. 5519(b).
    As a result of the transfer of rulemaking authority under the CLA 
to the Bureau, the Board's Regulation M covers only motor vehicle 
dealers excluded from the Bureau's rulemaking authority by section 1029 
of the Dodd-Frank Act (12 U.S.C. 5519). Consequently, the Board is 
publishing proposed revisions to Regulation M and the accompanying 
Official Staff Commentary to reflect the narrower scope of the Board's 
rulemaking authority. Specific proposed revisions are discussed in the 
section-by-section analysis below.

II. Section-by-Section Analysis

Section 213.1 Authority, Scope, Purpose, and Enforcement

    Section 213.1 addresses matters relating to authority, scope, 
purpose, and enforcement for Regulation M. To reflect the changed scope 
of the Board's Regulation M, the Board is proposing revisions to Sec.  
213.1 and the Official Staff Commentary to Sec.  213.1, as described 
below.
1(a) Authority
    Section 213.1(a) states that Regulation M is issued by the Board to 
implement the CLA. It also states that information collection 
requirements contained in Regulation M have been approved by the Office 
of Management and Budget under the Paperwork Reduction Act (PRA), 44 
U.S.C. 3501 et seq. The Board proposes to remove the sentence 
referencing information collections. Under the PRA, collections of 
information are not approved one time; instead collections of 
information must be reapproved every three years. As discussed in Part 
V, below, the proposed rule would not impose additional information 
collections or revise existing information collections for covered 
entities.
1(b) Scope and Purpose
    Section 213.1(b) states, in relevant part, that Regulation M 
applies to all persons that are lessors of personal property under 
consumer leases as those terms are defined in Sec.  213.2(e)(1) and 
(h). The Board proposes to revise this section to state additionally 
that the Board's Regulation M covers only persons identified as persons 
excluded from the Bureau's rulewriting and other authorities under 
section 1029 of the Dodd-Frank Act, namely, ``motor vehicle dealers to 
which 12 U.S.C. 5519(a) applies.''
    The Board also proposes to add a new comment 1-1. New comment 1-1 
would follow the statutory language to explain the meaning of ``motor 
vehicle dealers to which 12 U.S.C. 5519(a) applies.'' The proposed 
comment would clarify that section 1029 of the Dodd-Frank Act (12 
U.S.C. 5519) excludes certain motor vehicle dealers from the authority 
of the Bureau, and that the persons excluded are subject to the 
rulemaking authority of the Board and the Board's Regulation M. The 
proposed comment would explain that the Board's regulation generally 
covers motor vehicle dealers predominantly engaged in the sale and 
servicing of motor vehicles, the leasing and servicing of motor 
vehicles, or both. The comment would further state that, for purposes 
of the CLA, a motor vehicle dealer is subject to the authority of the 
Bureau instead of the Board's Regulation M to the extent that the 
dealer operates a line of business that involves the extension of 
retail leases involving motor vehicles directly to consumers and the 
contract governing such extension of retail leases is not routinely 
assigned to an unaffiliated third party financing or leasing source.\8\
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    \8\ See 12 U.S.C. 5519(b).
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    The proposed comment also would clarify that, for determining the 
persons covered by the Board's Regulation M, the terms ``motor 
vehicle'' and ``motor vehicle dealer'' have the meanings assigned to 
them by section 1029 of the Dodd-Frank Act.\9\ Otherwise, in applying 
the Board's Regulation M, determining whether leased property is a 
motor vehicle would continue to be governed by state or other 
applicable law. See comment 4(f)-1.
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    \9\  See 12 U.S.C. 5519(f).
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    The Board also proposes to re-number current comment 1-1 as comment 
1-2 and revise it. Current comment 1-1 explains the applicability of 
Regulation M to foreign entities. This comment states that 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.  213.2(p). This comment further explains that Regulation M 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. The Board proposes to revise comment 1-1 (which would 
be re-numbered 1-2) to reflect that the Board's Regulation M now 
applies solely to ``motor vehicle dealers to which 12 U.S.C. 5519(a) 
applies.'' Thus, in the first sentence of proposed comment 1-2, the 
reference to U.S. branches of foreign banks and leasing companies and 
to foreign branches of U.S. banks would be replaced by a reference to 
``motor vehicle dealers to which 12 U.S.C. 5519(a) applies.'' The 
revised comment would state that the Board's Regulation M applies to 
``motor vehicle dealers to which 12 U.S.C. 5519(a) applies'' that offer 
consumer leases to residents of any state (including foreign nationals) 
as defined in Sec.  213.2(p).
    The Board proposes to remove the second sentence of the comment, 
which states that Regulation M 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.'' This sentence 
addresses financial institution lessors that have worldwide branching 
networks. The Board does not believe that motor vehicle dealers 
intended to be covered by the Board's Regulation M operate in this way, 
and therefore believes that this guidance is inapplicable.
    These proposed changes are intended to reflect only the new scope 
of the Board's Regulation M under the Dodd-Frank Act and are not 
intended to

[[Page 288]]

change the substantive principles of foreign applicability expressed in 
the comment. The Board invites comments on the proposed changes.

Section 213.2 Definitions

2(e) Consumer Lease
    Section 213.2(e) defines ``consumer lease'' under Regulation M. The 
Board proposes no changes to the current definition, but proposes to 
eliminate comment 2(e)-7 and comment 2(e)-8 as unnecessary because the 
regulation's coverage is now limited to certain motor vehicle lessors 
and these comments address leases outside of motor vehicle and motor 
vehicle-related leasing. Accordingly, the Board also proposes to re-
number comments 2(e)-9, 2(e)-10, and 2(e)-11 as comments 2(e)-7, 2(e)-
8, and 2(e)-9, respectively, and make certain non-substantive technical 
revisions.
    Current comment 2(e)-7 identifies the specific types of leases of 
personal property considered incidental to a service and therefore not 
subject to Regulation M. These are home entertainment systems requiring 
the consumer to lease equipment that enables a television to receive 
the transmitted programming; 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; and propane 
gas service where the consumer must lease a propane tank to receive the 
service. Comment 2(e)-8 states that the lease of a safe deposit box is 
not a consumer lease under Sec.  213.2(e).

Section 213.4 Content of Disclosures

    Section 213.4 identifies the information that a lessor must 
disclose to a consumer before consummation of a consumer lease. The 
Board is not proposing any revisions to the content of disclosures for 
motor vehicle leases. Comment is solicited on whether any revisions to 
Sec.  213.4 are appropriate in light of the narrower coverage of the 
Board's regulation as a result of the Dodd-Frank Act.
4(t) Non-Motor Vehicle Open-End Leases
    Section 213.4(t) applies to non-motor vehicle, open-end leases and 
refers to the statutory requirement to provide certain disclosures if 
the lessee is liable at the end of the lease term for the anticipated 
fair market value of the leased property. The Board is proposing to 
delete this provision as unnecessary in light of the regulation's 
application only to certain motor vehicle dealers. The Board solicits 
comment on whether covered dealers might offer non-vehicle open-end 
leases for ``related or ancillary products'' that would be covered by 
the Board's Regulation M \10\ and, if so, whether such leases would 
have end-of-term liability as referenced in existing Sec.  213.4(t).
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    \10\ Dodd-Frank Act section 1029(b)(3), 15 U.S.C. 5519(b)(3).
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Section 213.7 Advertising

7(a) Authority
    Section 213.7 prescribes rules for advertising consumer leases. 
Comment 7(a)-1 explains who is covered by the advertising rules. 
Currently, the comment states that all ``persons'' must comply with the 
advertising rules, not just those that meet the definition of a lessor. 
Thus, ``automobile dealers, merchants, and others'' must comply with 
the advertising rules if they advertise consumer lease transactions, 
even if they are not themselves lessors. The comment clarifies, 
however, that owners and personnel of the media in which an 
advertisement appears or through which it is disseminated are not 
subject to civil liability for violations under section 185(b) of the 
CLA (15 U.S.C. 1667d(b)).
    The Board proposes to revise this comment to reflect the limited 
scope of the Board's Regulation M. Thus, the proposed comment would 
state that ``motor vehicle dealers to which 12 U.S.C. 5519(a) applies'' 
must comply with the advertising provisions in this section. The Board 
also proposes to revise the subsequent sentence, which would state that 
motor vehicle dealers to which 12 U.S.C. 5519(a) applies that are not 
themselves lessors also must comply with the advertising provisions of 
the regulation if they advertise consumer lease transactions.
    In addition, the Board proposes to remove the last sentence of 
comment 7(a)-1, which states that owners and personnel of the media in 
which an advertisement appears or through which it is disseminated are 
not subject to civil liability for violations of the advertising 
provisions.\11\ The sentence is no longer necessary because those 
persons are no longer covered by the Board's Regulation M.
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    \11\ See 15 U.S.C. 1667c(b) and 1667d(b).
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Appendix A to Part 213--Model Forms

Appendix A-3--Model Furniture Lease Disclosures
    Appendix A-3 to part 213 contains model disclosures for furniture 
leases. The Board proposes to eliminate the model furniture lease 
disclosures in appendix A-3 and accompanying Official Staff comment 4 
to appendix A as inapplicable given the limited scope of the Board's 
Regulation M prescribed by section 1029 of the Dodd-Frank Act. 15 
U.S.C. 5519. Furniture leases are no longer covered by the Board's 
Regulation M because furniture leasing is not an activity related to 
the sale, financing, leasing, rental, repair, refurbishment, 
maintenance, or servicing of motor vehicles.\12\
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    \12\ Dodd-Frank Act section 1029(b)(3), 15 U.S.C. 5519(b)(3).
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Appendix B--Federal Enforcement Agencies
    Appendix B to part 213 identifies which federal agency enforces 
Regulation M for particular classes of businesses. The Bureau 
eliminated this appendix in its Regulation M.\13\ The Board proposes to 
simplify the regulation by also eliminating this appendix, which is not 
necessary to implement the CLA. Enforcement of Regulation M is 
appropriately addressed in Sec.  213.1(c), which references the 
relevant CLA provisions on enforcement and liability.
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    \13\ 76 FR 78500 (Dec. 19, 2011) (``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.''). See also 81 FR 25323 (Apr. 28, 2016).
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III. Request for Comment

    The Board requests comment on the proposed revisions, which are not 
intended to alter the substantive requirements of the CLA and existing 
Regulation M, and invites commenters to identify any additional 
revisions to the Board's Regulation M that commenters believe are 
necessary in light of section 1029 of the Dodd-Frank Act (12 U.S.C. 
5519).

IV. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to perform an assessment of the impact a 
rule is expected to have on small entities. Based on its analysis, and 
for the reasons stated below, the Board believes that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. A final regulatory flexibility analysis will 
be conducted after consideration of comments received during the public 
comment period.
    1. Statement of the need for, and objectives of, the proposed rule. 
Title X of the Dodd-Frank Act transferred rulemaking authority for a 
number of

[[Page 289]]

consumer financial protection laws from the Board to the Bureau, 
effective July 21, 2011, including the CLA. The Bureau issued the 
Bureau Interim Final Rule to implement CLA in connection with the 
transfer of CLA rulemaking authority to the Bureau. Pursuant to Section 
1029 of the Dodd-Frank Act, however, the Board retains rulemaking 
authority for consumer financial protection laws to the extent that 
such laws could cover motor vehicle dealers identified in Section 
1029(a) of the Dodd-Frank Act. The Board does not believe that any 
motor vehicle dealers identified in Section 1029(a) would incur any 
additional compliance burden as a result of the Board's proposal, 
because these entities are already subject to the Board's Regulation M 
and no substantive changes to Regulation M's requirements are proposed.
    2. Small entities affected by the proposed rule. The Board does not 
believe that any motor vehicle dealers identified in Section 1029(a) 
would incur additional compliance burden as a result of the Board's 
proposal, because these entities are already subject to the Board's 
Regulation M. Therefore, the Board believes the proposed rule would not 
affect any entity, including any small entity.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed rule would re-state, without substantive revisions, the 
Board's Regulation M, 12 CFR part 213, and would therefore not impose 
any new recordkeeping, reporting, or compliance requirements on any 
entities.
    4. Other federal rules. The Board has not identified any federal 
rules that duplicate, overlap, or conflict with the proposed 
restatement of the Board's Regulation M, 12 CFR part 213.
    5. Significant alternatives to the proposed revisions. The Board is 
not aware of any significant alternatives that would further minimize 
any significant economic impact of the proposed rule on small entities, 
but solicits comment on this matter.

V. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3521) (PRA), federal agencies 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. The Board reviewed the 
proposed rule and determined that it does not create any new or revise 
any existing collection of information under section 3504(h) of title 
44.

List of Subjects in 12 CFR Part 213

    Advertising, Consumer leasing, Consumer protection, Federal Reserve 
System, Reporting and recordkeeping requirements.

    For the reasons discussed in the Supplementary Information, the 
Board proposes to amend Regulation M, 12 CFR part 213, as follows:

PART 213--CONSUMER LEASING (REGULATION M)

0
1. The authority citation for part 213 is revised to read as follows:

    Authority:  12 U.S.C. 5519; 15 U.S.C. 1604 and 1667f; Sec. 
1100E, Pub. L. 111-203, 124 Stat. 1376 (15 U.S.C. 1603 note).

0
2. Section 213.1 is amended by revising paragraph (a) and paragraph (b) 
introductory text to read as follows:


Sec.  213.1  Authority, scope, purpose, and enforcement.

    (a) Authority. The regulation in this part, known as Regulation M, 
is issued by the Board of Governors of the Federal Reserve System 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.).
    (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.  213.2(e)(1) and (h) and that are motor vehicle dealers 
to which 12 U.S.C. 5519(a) applies. The purpose of this part is--
* * * * *


Sec.  213.4   [Amended]

0
3. Section 213.4(t) is removed.

Appendix A to Part 213--[Amended]

0
4. Appendix A to part 213 is amended by removing and reserving section 
A-3.

Appendix B to Part 213--[Removed and Reserved]

0
5. Appendix B to part 213 is removed and reserved.
0
6. In supplement I to part 213:
0
a. Section 213.1--Authority, Scope, Purpose, and Enforcement is 
revised.
0
b. Under Section 213.2--Definitions, subsection 2(e) Consumer lease is 
revised.
0
c. Under Section 213.7--Advertising, subsection 7(a) General rule is 
revised.
0
d. Appendix A--Model Forms is revised.
    The revisions read as follows:

Supplement I to Part 226--Official Staff Commentary to Regulation M

* * * * *

Section 213.1--Authority, Scope, Purpose, and Enforcement

    1. Motor vehicle dealers to which 12 U.S.C. 5519(a) applies. 
Section 1029 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010), excludes 
certain motor vehicle dealers from the authority of the Bureau of 
Consumer Financial Protection (Bureau). See 12 U.S.C. 5519. The persons 
excluded from the authority of the Bureau by that provision are subject 
to the authority of the Board and this part, and generally are motor 
vehicle dealers predominantly engaged in the sale and servicing of 
motor vehicles, the leasing and servicing of motor vehicles, or both. 
However, for purposes of the Consumer Leasing Act, 15 U.S.C. 1667-
1667f, a motor vehicle dealer is subject to the authority of the Bureau 
instead of the Board's Regulation M to the extent that the dealer 
operates a line of business that involves the extension of retail 
leases involving motor vehicles directly to consumers and the contract 
governing such extension of retail leases is not routinely assigned to 
an unaffiliated third party financing or leasing source. See 12 U.S.C. 
5519(b). Accordingly, for determining the persons covered by the 
Board's Regulation M, ``motor vehicle'' and ``motor vehicle dealer'' 
have the meanings assigned to them by section 1029 of the Dodd-Frank 
Act. See 12 U.S.C. 5519(f). Otherwise, in applying the Board's 
Regulation M, whether leased property is a motor vehicle is determined 
by state or other applicable law. See comment 4(f)-1.
    2. Foreign applicability. Regulation M applies to motor vehicle 
dealers to which 12 U.S.C. 5519(a) applies that offer consumer leases 
to residents of any state (including foreign nationals) as defined in 
Sec.  213.2(p).

Section 213.2--Definitions

* * * * *
    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

[[Page 290]]

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.  213.4(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. 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 in comment 2(e)-9 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. 
Comment 2(e)-9 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.
    8. No increase in the CPI-W. If the CPI-W in effect on June 1 does 
not increase from the CPI-W in effect on June 1 of the previous year, 
the threshold amount effective the following January 1 through December 
31 will not change from the previous year. When this occurs, for the 
years that follow, the threshold is calculated based on the annual 
percentage change in the CPI-W applied to the dollar amount that would 
have resulted, after rounding, if decreases and any subsequent 
increases in the CPI-W had been taken into account.
    i. Net increases. If the resulting amount calculated, after 
rounding, is greater than the current threshold, then the threshold 
effective January 1 the following year will increase accordingly.
    ii. Net decreases. If the resulting amount calculated, after 
rounding, is equal to or less than the current threshold, then the 
threshold effective January 1 the following year will not change, but 
future increases will be calculated based on the amount that would have 
resulted.
    9. Threshold. For purposes of Sec.  213.2(e)(1), the threshold 
amount in effect during a particular period is the amount stated below 
for that period.
    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 $50,000.
    iii. From January 1, 2012 through December 31, 2012, the threshold 
amount is $51,800.
    iv. From January 1, 2013 through December 31, 2013, the threshold 
amount is $53,000.
    v. From January 1, 2014 through December 31, 2014, the threshold 
amount is $53,500.
    vi. From January 1, 2015 through December 31, 2015, the threshold 
amount is $54,600.
    vii. From January 1, 2016 through December 31, 2016, the threshold 
amount is $54,600.
    viii. From January 1, 2017 through December 31, 2017, the threshold 
amount is $54,600.
    ix. From January 1, 2017 through December 31, 2018, the threshold 
amount is $55,800.
* * * * *

Section 213.7--Advertising

    7(a) General rule.
    1. Persons covered. Motor vehicle dealers to which 12 U.S.C. 
5519(a) applies must comply with the advertising provisions in this 
section, not just those that meet the definition of a lessor in Sec.  
213.2(h). Thus, motor vehicle dealers to which 12 U.S.C. 5519(a) 
applies who are not themselves lessors must comply with the advertising 
provisions of the regulation if they advertise consumer lease 
transactions.
    2. ``Usually and customarily.'' Section 213.7(a) does not prohibit 
the advertising of a single item or the promotion of a new leasing 
program, but prohibits the advertising of terms that are not and will 
not be available. Thus, an advertisement may state terms that will be 
offered for only a limited period or terms that will become available 
at a future date.
    3. Total contractual obligation of advertised lease. Section 213.7 
applies to advertisements for consumer leases, as defined in Sec.  
213.2(e). Under Sec.  213.2(e), a consumer lease is exempt

[[Page 291]]

from the requirements of this Part if the total contractual obligation 
exceeds the threshold amount in effect at the time of consummation. See 
comment 2(e)-9. Accordingly, Sec.  213.7 does not apply to an 
advertisement for a specific consumer lease if the total contractual 
obligation for that lease exceeds the threshold amount in effect when 
the advertisement is made. If a lessor promotes multiple consumer 
leases in a single advertisement, the entire advertisement must comply 
with Sec.  213.7 unless all of the advertised leases are exempt under 
Sec.  213.2(e). For example
    i. Assume that, in an advertisement, a lessor states that certain 
terms apply to a consumer lease for a specific automobile. The total 
contractual obligation of the advertised lease exceeds the threshold 
amount in effect when the advertisement is made. Although the 
advertisement does not refer to any other lease, some or all of the 
advertised terms for the exempt lease also apply to other leases 
offered by the lessor with total contractual obligations that do not 
exceed the applicable threshold amount. The advertisement is not 
required to comply with Sec.  213.7 because it refers only to an exempt 
lease.
    ii. Assume that, in an advertisement, a lessor states certain terms 
(such as the amount due at lease signing) that will apply to consumer 
leases for automobiles of a particular brand. However, the 
advertisement does not refer to a specific lease. The total contractual 
obligations of the leases for some of the automobiles will exceed the 
threshold amount in effect when the advertisement is made, but the 
total contractual obligations of the leases for other automobiles will 
not exceed the threshold. The entire advertisement must comply with 
Sec.  213.7 because it refers to terms for consumer leases that are not 
exempt.
    iii. Assume that, in a single advertisement, a lessor states that 
certain terms apply to consumer leases for two different automobiles. 
The total contractual obligation of the lease for the first automobile 
exceeds the threshold amount in effect when the advertisement is made, 
but the total contractual obligation of the lease for the second 
automobile does not exceed the threshold. The entire advertisement must 
comply with Sec.  213.7 because it refers to a consumer lease that is 
not exempt.
* * * * *

Appendix A--Model Forms

    1. Permissible changes. Although use of the model forms is not 
required, lessors using them properly will be deemed to be in 
compliance with the regulation. Generally, lessors may make certain 
changes in the format or content of the forms and may delete any 
disclosures that are inapplicable to a transaction without losing the 
act's protection from liability. For example, the model form based on 
monthly periodic payments may be modified for single-payment lease 
transactions or for quarterly or other regular or irregular periodic 
payments. The model form may also be modified to reflect that a 
transaction is an extension. The content, format, and headings for the 
segregated disclosures must be substantially similar to those contained 
in the model forms; therefore, any changes should be minimal. The 
changes to the model forms should not be so extensive as to affect the 
substance and the clarity of the disclosures.
    2. Examples of acceptable changes.
    i. Using the first person, instead of the second person, in 
referring to the lessee.
    ii. Using ``lessee,'' ``lessor,'' or names instead of pronouns.
    iii. Rearranging the sequence of the nonsegregated disclosures.
    iv. Incorporating certain state ``plain English'' requirements.
    v. Deleting or blocking out inapplicable disclosures, filling in 
``N/A'' (not applicable) or ``0,'' crossing out, leaving blanks, 
checking a box for applicable items, or circling applicable items (this 
should facilitate use of multipurpose standard forms).
    vi. Adding language or symbols to indicate estimates.
    vii. Adding numeric or alphabetic designations.
    viii. Rearranging the disclosures into vertical columns, except for 
Sec.  213.4(b) through (e) disclosures.
    ix. Using icons and other graphics.
    3. Model closed-end or net vehicle lease disclosure. Model A-2 is 
designed for a closed-end or net vehicle lease. Under the ``Early 
Termination and Default'' provision a reference to the lessee's right 
to an independent appraisal of the leased vehicle under Sec.  213.4(l) 
is included for those closed-end leases in which the lessee's liability 
at early termination is based on the vehicle's realized value.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2017-27325 Filed 1-2-18; 8:45 am]
 BILLING CODE 6210-01-P