Regulation M Exemption Adjusted Pursuant to Dodd-Frank Act
March 29, 2011
Pursuant to the Dodd-Frank Act, the Federal Reserve Board issued a final rule increasing the threshold amount for consumer lease transactions that are exempt from the Consumer Leasing Act (CLA) from $25,000 to $50,000 . A consumer lease is exempt if the total contractual obligation exceeds the threshold amount in effect at the time of consummation.
In addition, the threshold will be adjusted annually on January 1 in accordance with the Consumer Price Index for Urban Wage Earners and Clerical Workers.
If a lease is exempt 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. Prior to July 21, 2011, the threshold amount is $25,000. From July 21, 2011 through December 31, 2011, the threshold is $50,000 . Thus, if a lease with an obligation of $30,000 was consummated in June 2011, that lease is exempt (based on the $25,000 threshold) and would remain exempt after July 21, 2011 despite the threshold adjustment.
New Comment 7(a)-3 is added to clarify that Regulation M’s advertising restrictions in Section 213.7 apply to an advertisement that promotes multiple consumer leases unless all of the advertised leases are exempt. The following examples are provided: An advertisement for a consumer lease of a specific automobile where the obligation exceeds the threshold is exempt even though some or all of the advertised terms also apply to other leases, as long as the total contractual obligations on those other leases do not exceed the applicable threshold amount. This advertisement is not required to comply with Section 213.7 because it refers only to an exempt lease.
In a second example, if an advertisement states that certain terms will apply to consumer leases for automobiles of a particular brand (without referring to a specific lease) and the obligations for some but not all of those automobiles will exceed the threshold in effect when the advertisement is made, the advertisement must comply with Section 213.7 because it refers to terms for consumer leases that are not exempt.
In a third example, if an advertisement states that certain terms apply to consumer leases for two different automobiles, the obligation of only one of which exceeds the threshold amount, the advertisement must comply with Section 213.7 because it refers to a consumer lease that is not exempt.
The final rule is effective on the Transfer Date under the Dodd-Frank Act as designated by the Secretary of the Treasury, which is July 21, 2011. Click here for a link to the rule.
- The CLA and Regulation M (codified at 12 CFR Part 213), which implements the CLA, require lessors to provide consumers with uniform cost and other disclosures about consumer lease transactions, most commonly automobile leases.
- See new Comment 2(e)-9.
The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.
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