Automobile Leasing: Reg. M Overview, Reg. M Avoidance and Key Differences from Retail Contracts. Presented by: Lauren Campisi

Transcription

1 Automobile Leasing: Reg. M Overview, Reg. M Avoidance and Key Differences from Retail Contracts Presented by: Lauren Campisi

2 What Laws Govern Leases? Federal Law Truth in Leasing Act (part of TILA) Regulation M ( Reg. M ) State Laws Uniform Commercial Code State Leasing Laws Additional State Laws

3 Reg. M Overview - Scope: Lessors of Personal Property under Consumer Leases Lessor: person who regularly (more than 5 times) leases, offers to lease, or arranges for the lease of personal property Personal Property: any property that is not real property Consumer Lease: bailment or lease contract for the use of personal property by a natural person primarily for personal, family, or household purposes, for a period exceeding 4 months and for a total contractual obligation not exceeding $53,000 (adjusted annually)

4 Reg. M Requirements Disclosure Obligations: A description of the leased property Amounts to be paid at the beginning of, during, and at the end of the lease A payment schedule How the scheduled periodic payment is derived Early Termination Liability Maintenance responsibilities Whether the lessee has the option to purchase the leased property Model Forms

5 Renegotiations: Reg. M Requirements Consumer lease is satisfied and is replaced by a new lease undertaken by the same consumer. Requires new disclosures unless one of the exceptions in the regulation applies. Extensions: Continuation of an existing lease beyond original 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.

6 Reg. M Advertisement Rules Accurate disclosure of lease terms in advertising. If an advertisement states certain items (i.e. amount of any lease payment), then certain additional terms must also be disclosed clearly and conspicuously. Alternative disclosure rules applicable to television and radio advertisements.

7 Reg. M Record Retention Rule Requires lessors to maintain evidence of compliance with the regulation for a minimum of two years.

8 Reg. M Preemption Conflict Preemption: 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 for a preemption determination.

9 Reg. M Avoidance - Total Contractual Obligation Exceeds $53,000 Includes Nonrefundable Amounts Lessee is Legally Obligated to Pay Excludes: Residual Value; Purchase-Option Prices; Amounts Paid to a Third-Party - Lease Term Less than 4 Months Initial Term Lease of 4 months; Month-to-Month; Week-to-Week No Penalty for Not Continuing the Lease

10 State Leasing Laws Article 2A of State UCC State Leasing Acts: Modeled after Reg. M Hiring Laws Rent-to-Own ( RTO ) Statutes Stand-alone Consumer Laws (ex: Plain Language)

11 Going Too Far: Short Term Leasing - Vehicle Rentals - RTO - Layaway - Consequences: Tax Implications; Different Disclosures; Lessee Owns Property at End of Term

12 Going Too Far: Credit Sales - Re-Characterization Payments = Value of Property Purchase Option for Nominal/No Consideration - Sale-Leaseback - Consequences: Trigger TILA and Reg. Z and State RISAs Different Disclosures and Licenses Required Usury

13 - Repossessions Lease Default Issues Article 9 vs. Article 2A No specific post-repossession notice requirements under Article 2A No safe harbor forms under Article 2A No redemption rights under Article 2A State Law Considerations Potential pre-repossession and post-repossession notices Potential reinstatement and redemption rights - Early Termination Liability

14 Questions? Lauren E. Campisi (504)