FTC FACTSfor Business

BUSINESS

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FEDERAL TRADE COMMISSION FOR THE CONSUMER

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f you advertise consumer leases, the Federal Trade Commission has important information for you: Your ads

must comply with the streamlined rules for lease advertising found in the Consumer Leasing Act (CLA) and

Regulation M. These requirements focus on essential

lease information for consumers and are designed to help consumers

shop and compare lease terms. The current rules became

effective January 1, 1998.

This brochure answers frequently asked questions about the general

advertising requirements of the CLA and Regulation M, the specific

disclosure requirements, and the liability for violations.

General Requirements

Q. What’s a consumer lease?

A. A lease of personal property to an individual for more than four

months for personal, family or household use where the total

contractual obligation is not more than $25,000.

Q. Who’s covered?

A. Lessors, automobile dealers, merchants — in short, anyone who

advertises consumer leases — must comply with the advertising

disclosure requirements spelled out in the CLA and Regulation M.

I
Facts for Business

Q. Are the media covered?

A. No.

Q. What’s a lease ad?

A. Any message that invites, offers or

announces to the public the availability

of a consumer lease, whether in visual,

oral or print (including electronic)

media. That includes:

• messages in newspapers, magazines,

leaflets, catalogs, and fliers;

• messages on radio, television and

public address systems;

• direct mail;

• telephone solicitations;

• signs or displays; and

• online information, such as the

Internet.

Q. What’s clear and conspicuous disclosure?

A. The required disclosures in your ad

must be reasonably understandable.

That is, consumers must be able to see

and read or hear, and understand, the

information. Many factors, including

the size, duration, and location of the

required disclosures, and the background or other information in the ad,

can affect whether the information is

clear and conspicuous. This requirement applies to all mandatory disclosures, including those offered through a

toll-free (or collect or local) telephone

number.

Q. What terms can the ad offer?

A. The terms offered must be usually and

customarily available.

Specific Requirements

Q. What terms trigger disclosures in

the revised regulation?

A. If your ad includes any of these

triggering terms:

• a statement of any capitalized

cost reduction or other payment

required before or at lease

consummation, or by delivery if

delivery takes place after consummation, or that no payment

is required — or

• the amount of any payment, it must

include these disclosures clearly and

conspicuously:

• that the transaction advertised is

 a lease,

• the total amount due before or at

 consummation, or by delivery if

 delivery takes place after consum-

 mation,

• the number, amounts and due

 dates or periods of scheduled

 payments under the lease,

• whether or not a security deposit

 is required, and

• in leases where the consumer’s

 liability is based on the difference

 between the property’s residual

 value and its realized value at the

 end of the lease term, that an

 extra charge may be imposed at

 the end of the lease term.

Q. What disclosure rules apply to the

total amount due at consummation

or delivery?

A. Keep in mind the following:

• The total amount due at consummation or delivery must be stated. If you

also choose to itemize the total

amount due at consummation or

delivery, the total amount due at

consummation or delivery must still

be clear and conspicuous, that is,

readable and understandable to

consumers.

• Except for the periodic payment, any

positive or negative reference to a

charge that is part of the total

amount due at consummation or

delivery cannot be more prominent

than the total amount due at consummation or delivery.
Facts for Business

• If third-party fees that vary by state

or locality — such as taxes, license or

registration — are involved, your ad

may give a total amount due at consummation or delivery including the

fees based on a particular state or

locality while explaining that fact and

the fact that such fees vary by state

or locality or, exclude the fees from

the total amount due at consummation or delivery but disclose that fact.

The disclosures about third-party

fees also must be clear and conspicuous.

Q. What if my ad promotes several

leased items?

A. If a triggering term appears, you can

use an example of one or more typical

leases — if you disclose the required

terms that apply to each. The examples

must be labeled as such and must reflect representative lease terms made

available to consumers.

Q. Is there a special option for radio

and TV ads?

A. The triggering terms and required

disclosures described above apply to all

lease ads. But, if your radio or TV ad

refers clearly and conspicuously to a

toll-free (or collect or local) phone number through which consumers can obtain the required lease information, and

if you follow certain procedures, you can

somewhat limit the information provided in your radio or TV ad. To use this

approach, your radio or TV ad still must

clearly and conspicuously state:

• that the transaction advertised is a

lease,

• the total amount due before or at

consummation, or by delivery if delivery occurs after consummation, and

• the number, amounts, and due dates

or periods of scheduled payments

under the lease.

Your radio or TV ad also must clearly

and conspicuously indicate that

consumers can get all the required

disclosures through the toll-free (or

collect or local) phone number or

print ad. Your radio or TV ad also

must include the publication’s name

and date.

Q. Are there other special procedures

for the toll-free (or collect or local)

phone number and print ads?

A. Yes, the toll-free (or collect or local)

phone number described above —

which only applies to radio and TV ads

— must be established no later than

the ad’s air date. It also must continue

for at least 10 days after the air date.

Callers must be given all the required

disclosures early in the message. A

clear and conspicuous written copy of

the disclosures also must be given to

anyone who asks for it.

Print ads described above must appear

in a general circulation publication in

the community served by the media

station. A newspaper circulated nationally, such as USA Today or the Wall

Street Journal, could meet this requirement. The print ad must appear at least

three days before the radio or TV ad

airs, and continue for at least 10 days

after the air date. The print ad must

clearly and conspicuously include all

the required disclosures.

Q. Are there special rules for advertising a lease rate?

A. Yes, your ad must include the following

statement near the rate without any

intervening language or symbols: “This

percentage may not measure the overall

cost of financing the lease.” In addition,

except for the notice, the rate cannot

appear more prominently than any
Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

August 2000

F C EDERAL RADE OMMISSION T FTC OR HE ONSUMER

1-877-FTC-HELP www.ftc.gov

Facts for Business

terms in the ad that are required written disclosures under the amended CLA

and Regulation M, such as “gross capitalized cost,” “residual value” and others. You also cannot refer to the lease

rate as an “annual percentage rate,”

“annual lease rate,” or other equivalent

term.

Violations

If your ads don’t comply with the law, you

could face enforcement actions or civil

lawsuits. For advertisers under the FTC’s

jurisdiction, that could mean:

• orders to cease and desist. If you violate an order, you could be fined up to

$11,000 per day per violation.

• injunctions by federal district courts.

Violations of these orders could result

in civil or criminal contempt proceedings.

• refunds to consumers for actual damages in civil lawsuits.

For More Information

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair

business practices in the marketplace and

to provide information to help consumers

spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call tollfree, 1-877-FTC-HELP (1-877-382-4357);

TTY: 1-866-653-4261. The FTC enters

Internet, telemarketing, identity theft,

and other fraud-related complaints into

Consumer Sentinel, a secure, online database available to hundreds of civil and

criminal law enforcement agencies in the

U.S. and abroad.

Your Opportunity to Comment

The National Small Business Ombudsman

and 10 Regional Fairness Boards collect

comments from small businesses about

federal compliance and enforcement activities. Each year, the Ombudsman evaluates

the conduct of these activities and rates

each agency’s responsiveness to small

businesses. Small businesses can comment

to the Ombudsman without fear of reprisal. To comment, call toll-free 1-888-

REGFAIR (1-888-734-3247) or go to

www.sba.gov/ombudsman.