Compliance Guide to Small Entities
Regulation M: Consumer Leasing
12 CFR 213
Regulation M implements the Consumer Leasing Act. It applies to all persons who regularly lease, offer to lease, or arrange for the lease of personal property under a consumer lease.
The regulation is designed to provide consumers with meaningful disclosures that enable them to compare terms for a particular lease with those for other leases and, when appropriate, to compare lease terms with those for credit transactions. The regulation also provides for accurate disclosure in leasing advertisements and limits the size of balloon payments in consumer lease transactions.
A general description of the regulation, by section, follows.
Subpart A: Consumer ComplaintsSection 213.1 Authority, scope, purpose, and enforcement
Regulation M covers consumer leases only. A person who has leased, offered to lease, 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 a "lessor" subject to the regulation. The consumer (the "lessee") must be a natural person who enters into or is offered a lease, primarily for personal, family, or household purposes, for a period exceeding four months and for a total contractual obligation not exceeding $25,000.
Section 213.2 Definitions
Defines key terms used in the regulation.
Section 213.3 General disclosure requirements
Describes general disclosure requirements. The required disclosures must be made clearly and conspicuously in writing, in a form the consumer can keep. The lessor must provide the disclosures to the consumer before the consummation of the lease agreement. Disclosures may be made either in a separate statement identifying the transaction or in the contract or other document that evidences the lease, but certain disclosures must be segregated from other information.
Section 213.4 Contents of disclosures
Describes the specific items that lessors are required to disclose. The items include, but are not limited to, a description of the leased property; amounts to be paid at the beginning of, during, and at the end of the lease; and a payment schedule.
For motor vehicle leases, lessors must provide a mathematical progression showing how the scheduled periodic payment is derived, in a format substantially similar to the applicable model form published in the regulation. In addition, lessors must disclose information about certain lease contract terms such as the penalty for terminating the lease early, maintenance responsibilities, and whether the lessee has the option to purchase the leased property.
For open-end leases, disclosures about the lessee's liability at the end of the lease term are required. And if the lessor provides a percentage rate in advertisements or other documents, a notice stating that "this percentage may not measure the overall cost of financing this lease" must be included. (Note: Lessors may not use the terms "annual percentage rate" or "annual lease rate" or any equivalent term.)
Section 213.5 Renegotiations, extensions, and assumptions
Sets forth rules for lease renegotiations, extensions, and assumptions.
A lease renegotiation occurs when a consumer lease is satisfied and is replaced by a new lease undertaken by the same consumer. A renegotiation requires new disclosures unless one of the exceptions in the regulation applies.
A lease extension is a continuation of an existing lease beyond the original lease term. An extension that exceeds six months requires new disclosures unless one of the exceptions in the regulation applies.
New disclosures are not required when a consumer lease is assumed by another person.
Section 213.6 [Reserved]
Section 213.7 Advertising
Sets forth rules regarding accurate disclosure of lease terms in advertising. If an advertisement states certain items (for example, the amount of any lease payment), then certain additional terms must also be disclosed clearly and conspicuously. This section also contains alternative disclosure rules applicable to television and radio advertisements.
Section 213.8 Record retention
Requires lessors to maintain evidence of compliance with the regulation for a minimum of two years.
Section 213.9 Relation to state laws
Explains the extent to which inconsistent state laws may be preempted by Regulation M. If a lessor cannot comply with a state law without violating Regulation M, the state law is inconsistent with the regulation and is preempted, unless the state law gives greater protection and benefit to the consumer. A state may apply to the Board for a preemption determination.
Appendix A Model forms (PDF 276K)
Appendix B Federal enforcement agencies
Appendix C Issuance of staff interpretations
Supplement I Official staff commentary (Interpretations)