New Federal Reserve Board Requirements For Car Leases

09/23/96

UPI reported that, on Wednesday, the Federal Reserve Board voted unanimously to require car dealerships that administer automobile leases to disclose how they calculate monthly lease payments in a one-page lease document.

In recent years the number of consumers leasing cars has risen dramatically: 19% of all cars on the road in 1989 were leased, by 1995 that ratio had risen to nearly one-third. The Federal Reserve Board's action arose out of investigations into deceptive car-leasing contracts and represents the first changes to the Consumer Leasing Act of 1976.

Explaining the rule, one Fed governor said, "We want people to know how much they're actually paying." The new rules force dealers to disclose how monthly payments are calculated, provide the vehicle's basic price, spell out possible penalties for terminating a lease early, and reveal assumed depreciation charges and the vehicle's value at the end of the lease.

Citing difficult calculations, the Fed, did not require dealers to disclose a uniform interest rate -- a key component of lease transactions. This deficiency is the main objection that consumer groups have leveled at the new regulations. Janet Shields of the US Public Interest Research Group said, "we're pleased with the new plain-language lease rules, but the lack of a standard annual percentage rate is a significant shortcoming."

Consumer groups argue that the rules won't help buyers decide whether to buy or lease, because the monthly dollar amounts charged for leasing and loan costs aren't comparable without the disclosure of a uniform interest rate.

Florida and New York have both recently enacted similar laws, although the Fed's new rules extend local acts and will apply nationwide. The Fed has jurisdiction over lease transactions that last more than four months and are less than $25,000. Its ruling will affect millions of consumers.

Paul Dever -- The Auto Channel