The Consumer Leasing Act and Regulation M apply only to consumer leases. A consumer lease is defined as a contract in the form of a lease, or bailment, meeting all of the following criteria:

The act and regulation do not apply to the following:

The act and regulation apply to both closed-end and open-end leases. An open-end lease is one in which the lessee is liable at the end of the lease term for any difference between the residual value of the leased property and its realized value. Special provisions for open-end leases require several disclosures unique to open-end leases and regulate balloon payments by limiting liability at the end of the lease to no more than three times the monthly payment.

The general requirements regarding the form and timing of leasing disclosures are contained in section 213.3. The required disclosures must be made clearly and conspicuously in writing, in a form the consumer may keep. The disclosures must be made before the consummation of the lease agreement, either on a separate statement identifying the transaction or in the contract or other document evidencing the lease. Certain disclosures, however, must be segregated from other information. Disclosures are also required for renegotiations and certain lease extensions.

In connection with the 1996 revision of Regulation M, the Board considered whether a percentage-rate disclosure was appropriate; however, primarily because several components of the rate computation are subject to variation, Regulation M does not dictate any particular method of calculating a rate. Lessors may disclose a lease rate but may not call any lease rate an “annual percentage rate” or equivalent term. If a lease rate is provided, it must be accompanied by a notice stating “this percentage may not measure the overall cost of financing this lease.”

The rules concerning lease advertisements are contained in section 213.7. If an advertisement states certain cost information (for example, the amount of a monthly lease payment or a capitalized cost reduction) as many as five additional items must be disclosed clearly and conspicuously (such as, the fact that the advertised transaction is a lease; the total of up-front charges; and the number, amount, and periods of scheduled payments). These rules apply to all advertisements, including those on radio or television. However, radio and television advertisements may substitute a toll-free number for certain lease disclosures. If an advertisement states a lease rate, it may not be more prominent than the advertising disclosures required by the act or regulation (except the statement on limitations of lease rates).

The act specifically adopts the criminal and civil liability provisions of the Truth in Lending Act. Those latter sections set civil liability recovery ceilings for class action suits at $500,000 or 1 percent of the lessor’s net worth, whichever is less. In addition, in an individual action, the lessor is liable in an amount equal to 25 percent of the total amount of monthly payments under the lease, except that liability shall not be less than $100 nor greater than $1,000. The act allows that actions alleging the failure to disclose or otherwise comply, as required, may be brought within one year of the termination of the lease agreement. It also provides that the lessor may be civilly liable for actual damages caused by advertising violations. As in the case of consumer credit, a lessor, as an assignee of a lease, may be liable for any violation apparent on the face of the lease.