[Federal Register: December 10, 2003 (Volume 68, Number 237)]
[Proposed Rules]
[Page 68791-68793]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10de03-16]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 213
[Regulation M; Docket No. R-1170]
Consumer Leasing
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Board is proposing to amend Regulation M, which implements
the Consumer Leasing Act, and the staff commentary to the regulation.
Regulation M would be revised to define more specifically the standard
for providing ``clear and conspicuous'' disclosures, and to provide a
more uniform standard among the Board's regulations. The staff
commentary would be revised to include examples of how to meet this
standard. Similar proposed revisions to Regulations B, E, Z and DD
appear elsewhere in today's Federal Register. These revisions are
intended to help ensure that consumers receive noticeable and
understandable information that is required by law in connection with
obtaining consumer financial products and services. In addition,
consistency among the regulations should facilitate compliance by
institutions.
DATES: Comments must be received on or before January 30, 2004.
ADDRESSES: Comments should refer to Docket No. R-1170 and should be
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551. However, because paper mail in the Washington
area and at the Board of Governors is subject to delay, please consider submitting your comments by e-mail to regs.comments@federalreserve.gov,
or faxing them to the Office of the Secretary at (202) 452-3819 or 452-
3102. Members of the public may inspect comments in Room MP-500 of the
Martin Building between 9 a.m. and 5 p.m. on weekdays pursuant to Sec.
261.12, except as provided in Sec. 261.14, of the Board's Rules
Regarding Availability of Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Jane E. Ahrens, Senior Counsel, and
David A. Stein, Counsel, Division of Consumer and Community Affairs,
Board of Governors of the Federal Reserve System, at (202) 452-3667 or
452-2412; for users of Telecommunications Device for the Deaf (``TDD'')
only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted
into law in 1976 as an amendment to the Truth in Lending Act (TILA), 15
U.S.C. 1601 et seq. The CLA requires lessors to provide lessees with
uniform cost and other disclosures about certain consumer lease
transactions. Disclosures are provided to consumers before they enter
into lease transactions, when they renegotiate or extend a lease, and
in advertisements that state the availability of consumer leases on
particular terms. The act and regulation generally apply to consumer
leases of personal property in which the contractual obligation does
not exceed $25,000 and has a term of more than four months. An
automobile lease is the most common type of consumer lease covered by
the regulation. The CLA is implemented by the Board's Regulation M (12
CFR part 213). An official staff commentary interprets the requirements
of Regulation M (12 CFR part 213 (Supp. I)).
II. Proposed Revisions
Section 213.2--Definitions
2(q) Clear and Conspicuous
Section 182 of the CLA requires that lessors provide consumers with
disclosures in a clear and conspicuous manner. See 15 U.S.C. 1667a.
This standard is incorporated in Regulation M. See Sec. Sec. 213.3(a)
and 213.7(b). Guidance on how lessors may comply with the clear and
conspicuous standard is contained in the staff commentary. See comments
3(a)-2 and 7(b)-1. The commentary states that under this standard,
disclosures must be in a reasonably understandable form.
Consumer financial services and fair lending laws and the Board
regulations that implement them contain similar but not identical
standards for providing disclosures that consumers will notice and
understand. Generally, disclosures must be ``clear and conspicuous''
under Regulations B (Equal Credit Opportunity), M (Consumer Leasing),
Regulation P (Privacy of Consumer Financial Information), Z (Truth in
Lending) and DD (Truth in Savings), and ``clear and readily
understandable'' under Regulation E (Electronic Fund Transfers). In
interpreting the ``clear and conspicuous'' standard, the staff
commentaries to Regulations B, M and Z provide that disclosures must be
``in a reasonably understandable'' form; similarly, under Regulation DD
disclosures must be in a format that allows consumers ``to readily
understand the terms of their account.'' For purposes of the
disclosures provided with credit card solicitations and applications,
the commentary to Regulation Z provides more specifically that those
disclosures must also be ``readily noticeable to the consumer.'' In
contrast, the Board's Regulation P (Privacy of Consumer Financial
Information) defines the ``clear and conspicuous'' standard to mean
that a disclosure is ``reasonably understandable and designed to call
attention to the nature and significance
[[Page 68792]]
of the information'' in the disclosure. 12 CFR 216.3(b)(1). Regulation
P also provides examples of how to satisfy the standard. 12 CFR
216.3(b)(2).
The Board believes that the recently implemented standard in
Regulation P (65 FR 35162, June 1, 2000), articulates with greater
precision than the other regulations the concepts underlying the duty
to provide disclosures that consumers will notice and understand.
Therefore, to provide consistent guidance on the clear and conspicuous
standard among its regulations, the Board is proposing to amend
Regulation M by adding a definition for clear and conspicuous in Sec.
213.2(q), consistent with the ``clear and conspicuous'' definition in
Regulation P. The staff commentary to Regulation M also would be
revised to add comments 2(q)-1 and -2, consistent with Regulation P's
examples of how to meet the clear and conspicuous standard. Similar
proposed revisions to Regulations B, E, Z and DD appear elsewhere in
today's Federal Register. These revisions are intended to help ensure
that consumers receive noticeable and understandable information that
is required by law in connection with obtaining consumer financial
products and services. In addition, consistency among the regulations
should facilitate compliance by institutions.
The Board also proposes to adopt for Regulations B, E, M, Z and DD,
guidance concerning type-sizes that are deemed to meet the ``clear and
conspicuous'' standard and those that would likely be too small (this
guidance currently applies only to credit card solicitations and
applications under Regulation Z). See proposed comment 2(q)-2(ii).
The proposal does not add special format requirements to the
regulation where none currently exist. Accordingly, even though the
revisions clarify that type size can be one factor to consider in
determining whether a disclosure is conspicuous, the proposal would not
add a specific type-size requirement. The proposal also would not
affect other format rules, such as the existing requirement for
segregating disclosures. See 12 CFR 213.3(a)(2).
To eliminate redundancy with proposed Sec. 213.2(q) and its
accompanying commentary, the Board also proposes to revise comment
3(a)-2 and 7(b)-1. Guidance regarding the ``clear and conspicuous''
standard for disclosures transmitted by electronic communication will
be considered in the context of rulemakings dealing specifically with
electronic delivery of disclosures.
III. Form of Comment Letters
Comment letters should refer to Docket No. R-1170 and, when
possible, should use a standard typeface with a font size of 10 or 12;
this will enable the Board to convert text submitted in paper form to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Comments may be mailed electronically to regs.comments@federalreserve.gov.
IV. Solicitation of Comments Regarding the Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments on whether
the proposed rules are clearly stated and effectively organized, and
how the Board might make the proposed text easier to understand.
V. Initial Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act,
the Board has reviewed the proposed amendments to Regulation M. The
proposed amendments are not expected to have any significant impact on
small entities. A final regulatory flexibility analysis will be
conducted after consideration of comments received during the public
comment period.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the
authority delegated to the Board by the Office of Management and
Budget. The Federal Reserve may not conduct or sponsor, and an
organization is not required to respond to, this information collection
unless it displays a currently valid OMB control number. The OMB
control number is 7100-0202.
The collection of information that is revised by this rulemaking is
found in 12 CFR part 213. This collection is mandatory (15 U.S.C. 1667
et seq. and Pub. L. 104-208, 110 Stat. 3009) to evidence compliance
with the requirements of Regulation M and the Consumer Leasing Act
(CLA). The respondents are individuals or businesses that regularly
lease, offer to lease, or arrange for the lease of personal property
under a consumer lease. Records, required in order to evidence
compliance with the regulation, must be retained for twenty-four
months. Regulation M applies to all types of lessors of personal
property, not just state member banks; however, under the Paperwork
Reduction Act regulations, the Federal Reserve accounts for the
paperwork burden associated with the regulation only for state member
banks. Other agencies account for the paperwork burden on their
respective constituencies under this regulation.
The proposed revisions would provide lessors with a more uniform
definition of providing ``clear and conspicuous'' disclosures and
examples of how to satisfy the clear and conspicuous standard. While
the proposal would amend Regulation M and the staff commentary, it is
expected that these revisions would not increase the paperwork burden
of lessors. With respect to state member banks, there are 310
respondents and recordkeepers. Current annual burden is estimated to be
11,179 hours for state member banks.
Because the records would be maintained at state member banks and
the notices are not provided to the Federal Reserve, no issue of
confidentiality arises under the Freedom of Information Act.
Comments on the collection of information should be sent to the
Office of Management and Budget, Paperwork Reduction Project (7100-
0202), Washington, DC 20503, with copies of such comments sent to
Cynthia Ayouch, Federal Reserve Board Clearance Officer, Division of
Research and Statistics, Mail Stop 41, Board of Governors of the
Federal Reserve System, Washington, DC 20551.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions. New language is shown inside bold-faced arrows while
language that would be deleted is set off with bold-faced brackets.
List of Subjects in 12 CFR Part 213
Advertising, Federal Reserve System, Reporting and record keeping
requirements, Truth in Lending.
For the reasons set forth in the preamble, the Board proposes to
amend Regulation M, 12 CFR part 213, as set forth below:
PART 213--CONSUMER LEASING (REGULATION M)
1. The authority citation for part 213 continues to read as
follows:
Authority: 15 U.S.C. 1604 and 1667f.
2. Section 213.2 is amended by adding a new paragraph (q) to read
as follows:
[[Page 68793]]
Sec. 213.2 Definitions.
For the purposes of this part the following definitions apply:
* * * * *
(q) Clear and conspicuous means that a disclosure is reasonably
understandable and designed to call attention to the nature and
significance of the information in the disclosure.
3. In Supplement I to Part 213:
a. Under Section 213.2--Definitions, a new paragraph title 2(q)
Clear and conspicuous is added, and new paragraphs (q)1. and (q)2. are
added.
b. Under Section 213.3--General Disclosure Requirements, under 3(a)
General Requirements, paragraph 2. is revised.
c. Under Section 213.7--Advertising, under 7(b) Clear and
Conspicuous Standard, paragraph 1. is revised.
Supplement to Part 213--Official Staff Commentary to Regulation M
* * * * *
Section 213.2--Definitions
* * * * *
2(q) Clear and Conspicuous
1. Reasonably understandable. Examples of disclosures that are
reasonably understandable include disclosures that:
i. Present the information in the disclosure in clear, concise
sentences, paragraphs, and sections;
ii. Use short explanatory sentences or bullet lists whenever
possible;
iii. Use definite, concrete, everyday words and active voice
whenever possible;
iv. Avoid multiple negatives;
v. Avoid legal and highly technical business terminology
whenever possible; and
vi. Avoid explanations that are imprecise and readily subject to
different interpretations.
2. Designed to call attention. Examples of disclosures that are
designed to call attention to the nature and significance of the
information include disclosures that:
i. Use a plain-language heading to call attention to the
disclosure;
ii. Use a typeface and type size that are easy to read.
Disclosures in 12-point type generally meet this standard.
Disclosures printed in less than 12-point type do not automatically
violate the standard; however, disclosures in less than 8-point type
would likely be too small to satisfy the standard;
iii. Provide wide margins and ample line spacing;
iv. Use boldface or italics for key words; and
v. In a document that combines disclosures with other
information, use distinctive type size, style, and graphic devices,
such as shading or sidebars, to call attention to the disclosures.
* * * * *
Section 213.3--General Disclosure Requirements
3(a) General Requirements
* * * * *
2. Clear and conspicuous standard. See Sec. 213.2(q) and
accompanying comments. [The clear and conspicuous standard requires
that disclosures be reasonably understandable. For example, the
disclosures must be presented in a way that does not obscure the
relationship of the terms to each other; appendix A of this part
contains model forms that meet this standard. In addition, although
no minimum typesize is required, the disclosures must be legible,
whether typewritten, handwritten, or printed by computer.]
* * * * *
Section 213.7--Advertising
* * * * *
7(b) Clear and Conspicuous Standard
1. Standard. See Sec. 213.2(q) and accompanying comments. [The
disclosures in an advertisement in any media must be reasonably
understandable. For example,] Very fine print in a television
advertisement or detailed and very rapidly stated information in a
radio advertisement does not meet the clear[-]and[-]conspicuous
standard if consumers cannot see and read or hear, and cannot
comprehend, the information required to be disclosed.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, November 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-29944 Filed 12-9-03; 8:45 am]
BILLING CODE 6210-01-P