This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

7363

Vol. 62, No. 33

Wednesday, February 19, 1997

FEDERAL RESERVE SYSTEM

12 CFR Part 213

[Regulation M; Docket No. R–0961]

Consumer Leasing

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Proposed official staff

interpretation.

SUMMARY: The Board is publishing for

comment a second proposal revising the

official staff commentary to Regulation

M which implements the Consumer

Leasing Act. The act requires lessors to

provide uniform cost and other

disclosures about consumer lease

transactions. Regulation M was revised

in September 1996 under the Board’s

Regulatory Planning and Review

program which calls for the periodic

review of Board regulations. The

commentary applies and interprets the

requirements of Regulation M. A

proposal to revise the commentary was

published in September 1995. This

proposal includes material that was

published for comment in September

1995, incorporates guidance on the final

rule issued in September 1996, and

addresses certain questions raised

following public review of the final rule.

DATES: Comments must be received by

March 13, 1997.

ADDRESSES: Comments should refer to

Docket No. R–0961, and may be mailed

to Mr. William W. Wiles, Secretary,

Board of Governors of the Federal

Reserve System, 20th Street and

Constitution Avenue, NW., Washington,

DC 20551. They may also be delivered

to the Board’s mail room between 8:45

a.m. and 5:15 p.m. weekdays, and to the

security control room at all other times.

The mail room and the security control

room are accessible from the courtyard

entrance on 20th Street, NW. (between

Constitution Avenue and C Street).

Comments will be available for

inspection and copying by members of

the public in the Freedom of

Information Office, Room MP–500 of the

Martin Building between 9:00 a.m. and

5:00 p.m. weekdays, except as provided

in Section 261.8 of the Board’s rules

regarding the availability of information.

FOR FURTHER INFORMATION CONTACT:

Kyung H. Cho-Miller or Obrea Otey

Poindexter, Staff Attorneys, Division of

Consumer and Community Affairs,

Board of Governors of the Federal

Reserve System, Washington, DC 20551,

at (202) 452–2412 or 452–3667. For

users of Telecommunications Devices

for the Deaf (TDD) only, contact

Dorothea Thompson, at (202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The Consumer Leasing Act (CLA), 15

U.S.C. 1667–1667e, was enacted into

law in 1976 as an amendment to the

Truth in Lending Act (TILA), 15 U.S.C.

1601 et seq. The CLA is implemented by

the Board’s Regulation M (12 CFR part

213). An official staff commentary

(Supplement I–CL–1 to 12 CFR part 213)

provides guidance to lessors in applying

the regulation to specific transactions.

The CLA requires lessors to provide

consumers with uniform cost and other

disclosures about consumer lease

transactions. The act generally applies

to consumer leases of personal property

in which the contractual obligation does

not exceed $25,000 and has a term of

more than four months. An automobile

lease is the most common type of

consumer lease covered by the act.

In September 1996, the Board

approved a final rule revising

Regulation M, after a review of the

regulation and consumer leasing

generally. The review was conducted

under the Board’s Regulatory Planning

and Review Program which calls for the

periodic review of Board regulations

with four goals in mind: To clarify and

simplify regulatory language; to

determine whether regulatory

amendments are needed to address

technological and other developments;

to reduce undue regulatory burden on

the industry; and to delete obsolete

provisions.

The Board began the review of

Regulation M in November 1993, with

the publication of an advance notice of

proposed rulemaking (58 FR 61035,

November 19, 1993). In September 1995,

the Board published a proposal revising

the regulation and the staff commentary

(60 FR 48752, September 20, 1995;

comment period extended, 60 FR 62349

December 6, 1995). The proposal

contained substantive revisions to the

regulation, including new disclosure

requirements.

The September 1996 final rule

includes new disclosures to supplement

the act’s requirements (61 FR 52246,

October 7, 1996). The major changes

primarily affect motor-vehicle leasing.

They include a mathematical

progression on how scheduled

payments are derived (using figures

such as the gross capitalized cost of a

lease, the vehicle’s residual value, the

amount of depreciation, and the rent

charge) and a warning statement about

charges for terminating a lease early.

General changes in the format of the

disclosures require that certain lease

disclosures be segregated from other

information. A lessor is not required to

disclose the cost of a lease expressed as

a percentage rate; however, if a rate is

disclosed or advertised, a special notice

must accompany the rate stating that it

may not measure the overall cost of

financing the lease. Further, a rate in an

advertisement cannot be more

prominent than any other Regulation M

disclosure.

The final rule also implements

amendments to the CLA contained in

the Riegle Community Development and

Regulatory Improvement Act of 1994

(Pub. L. 103–325, 108 Stat. 2160),

allowing a toll-free number or a print

advertisement to substitute for certain

lease disclosures in radio commercials

(which was expanded in the final rule

to television commercials) and makes

other changes to the advertising rules.

The CLA’s advertising rules were

amended and streamlined on September

30, 1996 when the Congress enacted the

Economic Growth and Regulatory

Paperwork Reduction Act of 1996 (Pub.

L. 104–208, 110 Stat. 3009). The Board

issued a proposal to implement those

changes. (62 FR 62, January 2, 1997.)

The Board is now publishing an

updated proposal to the commentary.

This proposal includes material that

was published for comment in

September 1995, incorporates guidance

on the September 1996 final rule, and

addresses certain questions raised

following public review of the final rule.

It is contemplated that the proposed

revisions to the Regulation M

commentary will be adopted in final

form in April 1997.
7364 Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules

II. Discussion of Proposed Revisions

The following discussion covers the

proposed revisions to the Regulation M

commentary section-by-section. Most of

the discussion focuses on new

comments and significant revisions to

existing comments.

Introduction

Current comments I–3, I–4, and I–6

would be deleted as obsolete or

unnecessary. Comments I–1, I–2, and I–

5 would be redesignated accordingly.

Section 213.1—Authority, Scope,

Purpose, and Enforcement

Current Proposed

1–1 ........... 1–1.

1–2 ........... Deleted as unnecessary (see

Appendix C).

Section 213.2—Definitions

2(a) Definitions

Current Proposed

2(a)(2)–1 .. 2(b)–1 and –2; including text

from former § 213.2(a)(2).

2(a)(2)–2 .. 2(b)–3.

2(d)–1 new.

2(a)(4)–1 .. 2(h)–1; includes text from former

§ 213.2(a)(4).

2(a)(4)–2 .. 2(h)–4.

2(a)(4)–3 .. 2(h)–2.

2(a)(6)–1 .. 2(e)–1.

2(a)(6)–2 .. 2(e)–2.

2(e)–3 new.

2(a)(6)–3 .. 2(e)–6.

2(a)(6)–4 .. 2(e)–4.

2(e)–5 new; includes text from

former § 213.2(a)(3).

2(a)(6)–5 .. 2(e)–8.

2(a)(6)–6 .. 2(e)–7.

2(f)–1 new.

2(a)(7)–1 .. 2(g)–1.

2(a)(8)–1 .. 2(h)–3.

2(a)(9)–1 .. 2(j)–1.

2(a)(12)–1 2(l)–1.

2(a)(14)–1

and –2.

2(m)–1 and –2.

2(a)(14)–3

and –4.

2(m)–3.

2(a)(14)–5 2(m)–4.

2(a)(14)–6 4(l)–2.

2(a)(15)–1 2(o)–2.

2(a)(15)–2 2(o)–1; includes text from former

§ 213.2(a)(15).

2(a)(15)–3 2(o)–3.

2(a)(17)–1

through

–5.

Deleted as unnecessary.

2(a)(18)–1

through

–3.

Deleted as unnecessary.

2(b)–1 ...... Deleted as unnecessary.

2(b)–2 ...... 4(b)–1.

2(b) Advertisement

Comment 2(b)–1, current comment

2(a)(2)–1, would be revised to include

examples of advertisements formerly in

§ 213.2(a)(2) and to indicate that the

term ‘‘advertisement’’ includes

electronic messages.

2(d) Closed-end Lease

Proposed comment 2(d)–1 provides

general guidance on the definition of a

closed-end lease.

2(e) Consumer Lease

Comment 2(e)–2, current comment

2(a)(6)–2, would be revised to clarify

that leases with penalties for not

continuing beyond an initial four

months are covered under the

regulation.

Proposed comment 2(e)–3 provides

guidance on the total contractual

obligation for purposes of determining

whether a lease is covered under the

regulation, and indicates that the total

contractual obligation may be different

from the total of payments disclosed

under § 213.4(e).

Proposed comment 2(e)–5

incorporates former § 213.2(a)(3), the

statutory definition of agricultural

purpose in section 103(s) of the TILA.

Comment 2(e)–7, current comment

2(a)(6)–6, would be revised to add

another example of a lease deemed

incidental to a service. The narrow list

of exceptions is exhaustive, rather than

illustrative. Questions have arisen about

Regulation M coverage of cellular

phones leased in conjunction with

obtaining cellular service. Cellular

service providers typically offer

customers the opportunity to lease or

purchase cellular telephones when

subscribing for cellular service. The

leasing of a cellular telephone is not

incidental to obtaining cellular service

and is, thus, covered under the

regulation.

2(f) Gross Capitalized Cost

Proposed comment 2(f)–1 provides

guidance on what type of fees are

included or excluded from the gross

capitalized cost disclosure in

§ 213.4(f)(1).

2(h) Lessor

Comment 2(h)–1, current comment

2(a)(4)–1, would be revised to include

the definition of the phrase ‘‘arrange for

leasing of personal property’’ in former

§ 213.2(a)(4).

2(m) Realized Value

Comment 2(m)–3 provides guidance

on what is included or what may be

excluded from the realized value,

combining current comments 2(a)(14)–3

and –4. The second and third sentences

of current comment 2(a)(14)–4 are

deleted as unnecessary.

2(o) Security Interest and Security

Comment 2(o)–1, current comment

2(a)(15)–2, would be revised to include

examples of a security interest formerly

in § 213.2(a)(15).

Questions have arisen about whether

interest on a security deposit meets the

definition of a security interest for

purposes of this regulation and thus

required to be disclosed. Such interest

is required to be disclosed if it is

considered a security interest under

state or other applicable law.

Section 213.3—General Disclosure

Requirements

3(a) General Requirements

Current Proposed

4(a)–1 ...... 3(a)–1.

4(a)–2 ...... Moved to § 213.3(f).

4(a)–3 ...... 3(a)(1)–1.

4(a)–4 ...... 3(a)–4.

4(a)–5 ...... Deleted as unnecessary.

4(a)(1)–1 .. 3(a)–2 and –3.

4(a)(1)–2 .. Deleted as unnecessary.

4(a)(2)–1 .. 4(b)–1.

4(a)(2)–2 .. 3(a)(1)–2.

3(a)(1)–3 new.

4(a)(2)–3 .. 3(a)(1)–4.

4(a)(2)–4 .. Deleted as unnecessary.

4(a)(2)–5 .. 3(a)(1)–5.

3(a)(2)–1 through –3 new.

4(a)(4)–1 .. Deleted as unnecessary, see revised § 213.3(a)(4).

4(a)(4)–2 .. Deleted as unnecessary, see revised § 213.3(a)(4).

4(b)–1 ...... 3(b)–1.

4(c)–1 ...... 3(c)–1.

4(d)–1

through

–5.

3(d)(1)–1 through –5.

4(d)–6 ...... Deleted as unnecessary.

4(e)–1 and

–2.

3(e)–1 and –2.

3(e)–3 new; text from footnote 1

of former regulation.

3(a) General Requirements

Comment 3(a)–1, current comment

4(a)–1, would be revised to clarify that

leasing disclosures must reflect the

terms of the legal obligation.

Comment 3(a)–4, current comment

4(a)–4, would be revised to provide

guidance on disclosing a prior lease or

loan balance added to a lease

transaction.

3(a)(1) Form of Disclosures

Proposed comment 3(a)(1)–3 provides

guidance on disclosing the lessor’s

address.

Comment 3(a)(1)–5, current comment

4(a)(2)–5, would be revised to provide

additional guidance on ways in which

lessors may demonstrate compliance

with the requirement that lessees

receive disclosures prior to being

obligated on the lease transaction.
Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules 7365

3(a)(2) Segregation of Certain

Disclosures

Proposed comment 3(a)(2)–1 provides

general guidance on the location of the

segregated disclosures referenced in

§ 213.3(a)(2).

Proposed comment 3(a)(2)–2 restates

the general rule on including additional

information among the segregated

disclosures referenced in § 213.3(a)(2).

Proposed comment 3(a)(2)-3 provides

a cross-reference to the commentary to

appendix A which provides guidance

on designing lease forms that are

substantially similar to the regulation’s

model forms.

3(b) Additional Information;

Nonsegregated Disclosures

Comment 3(b)–1, current comment

4(b)–1, on state law disclosures would

be revised by adding clarifying language

and by deleting the second sentence.

3(d) Use of Estimates

Comment 3(d)(1)–4, current comment

4(d)–4, would be revised to provide that

in disclosing the estimate of the value

of leased property at termination a

lessor should indicate whether the retail

or wholesale value is used. This

provision was previously contained in

Regulation M in the instructions to the

model forms.

3(e) Effect of Subsequent Occurrence

Proposed comment 3(e)-3

incorporates the first sentence of

footnote 1 of the former regulation.

Section 213.4—Context of Disclosures

Current Proposed

4(a)–1 new.

4(g)–1 ...... Deleted as unnecessary.

4(g)–2 ...... 3(a)(1)–3; date requirement

moved to § 213.3(a)(1).

4(g)(1)–1 .. Deleted as unnecessary.

4(g)(2)–1 .. Deleted as unnecessary.

4(g)(2)–2 .. 4(b)–1 (incorporates current

comment 2(b)–2)).

4(g)(2)–3 .. 4(b)–2.

4(b)–3 new (incorporated from

the instructions to the model

form in former appendix C–2).

4(b)–4 through –6 new.

4(g)(3)–1 .. Deleted as unnecessary.

4(g)(3)–2 .. 4(c)–1; reference to open-end

lease deleted.

4(g)(4)–1 .. 4(n)–1.

4(g)(5)–1 .. 4(d)–1 and –2.

4(g)(5)–2 .. Deleted as unnecessary; see

§ 213.3(a)(2).

4(d)–3 new.

4(g)(5)–3 .. 4(d)–4.

4(g)(5)–4 .. 4(d)–5.

4(d)–6 new.

4(e)–1 new.

4(f)–1 new.

4(f)(1)–1 and –2 new.

4(f)(2)–1 new.

Current Proposed

4(f)(8)–1 new.

4(o)–1 new.

4(g)(6)–1 .. 4(o)–2.

4(g)(6)–2 .. 4(o)–3.

4(g)(7)–1

through

–3.

4(p)–1 through –3.

4(g)(8)–1 .. 4(h)–1.

4(h)–2 new.

4(g)(9)–1 .. 4(r)–1.

4(g)(10)–1

through

–5.

4(q)–1 through –5.

4(g)(11)–1

through

–3.

4(i)–1 through –3.

4(i)–4 and –5 new.

4(g)(12)–1 4(g)(1)–3; the word ‘‘capitalized’’

is deleted.

4(g)(12)–2 4(g)(1)–4.

4(g)(12)–3 4(g)(1)–1.

4(g)(1)–2 new.

4(j)–1 new.

4(g)(14)–1

through

–3.

4(l)–1 through –3.

4(m)–1 new.

4(g)(15)–1 4(m)(2)–1.

4(g)(15)–2 deleted.

4(m)(1)–1 new.

4(g)(15)–3 deleted.

4(g)(15)–4 4(m)(2)–2.

4(g)(15)–5 deleted.

4(g)(15)–6 4(m)(2)–3.

4(s)–1 new.

4(a) Description of Property

Proposed comment 4(a)–1 clarifies

that the description of leased property

cannot be among the segregated

disclosures.

4(b) Total Amount Due at Lease

Signing

Comment 4(b)–1 would incorporate

the first sentence of current comment

2(b)–2 on consummation.

Proposed comment 4(b)–3

incorporates a definition of ‘‘capitalized

cost reduction’’ from the instructions in

former appendix C–1 of the regulation.

Proposed comment 4(b)–4 provides

guidance on negative net trade-in

allowances where the amount owed on

a prior loan or lease exceeds an agreedupon trade-in value.

Proposed comment 4(b)–5 clarifies

that a rebate would be included in the

itemization under this section only

when used to reduce an amount due at

lease signing.

Proposed comment 4(b)–6 clarifies

that where the balance sheet method is

required, in motor-vehicle leases, the

totals in each column must equal one

another.

4(d) Other Charges

Comment 4(d)–1, current comment

4(g)(5)–1, would be revised to provide

flexibility in making the ‘‘other charges’’

disclosure.

Proposed comment 4(d)–3 clarifies

that third-party charges are not

disclosed under § 213.4(d).

Proposed comment 4(d)–6 provides

guidance on the disclosure of optional

‘‘disposition’’ fees.

4(e) Total of Payments

Proposed comment 4(e)–1 explains

the additional statement in the total of

payments disclosure for open-end

leases.

4(f) Payment Calculation

Proposed comment 4(f)–1 clarifies

that lessors should defer to state or other

applicable law in determining whether

the leased property is a motor vehicle.

4(f)(1) Gross Capitalized Cost

Proposed comment 4(f)(1)–1 provides

guidance on disclosing the agreed upon

value of a leased motor vehicle.

Proposed comment 4(f)(1)–2 provides

guidance on providing the itemization

of the gross capitalized cost.

4(f)(2) Capitalized Cost Reduction

Proposed comment 4(f)(2)–1 provides

guidance on the amounts not included

in the capitalized cost reduction

disclosure.

4(f)(8) Lease Term

Proposed comment 4(f)(8)–1 clarifies

the meaning of the phrase ‘‘lease term’’

referenced under § 213.4(f)(8).

4(g) Early Termination

Proposed comment 4(g)–2 provides

guidance on disclosing the method used

to determine the amount of an early

termination charge.

4(h) Maintenance Responsibilities

Proposed comment 4(h)–2 clarifies

that lessors may not disclose a

description of the method used for

calculating excess mileage charges if a

specific amount for excess mileage is

available.

4(i) Purchase Option

Proposed comment 4(i)–5 provides

guidance on disclosing a ‘‘fair market

value’’ purchase-option price.

Several commenters on the September

1995 proposal requested clarification on

whether lessors are allowed to disclose

a purchase-option fee and other fees and

taxes applicable to the purchase option

separately from the purchase-option

price. Comments 4(i)–3 and –4, current

comment 4(g)(11)–3, would be revised

to allow lessors flexibility in disclosing

fees associated with a purchase-option

price. Further, with the September 1996
7366 Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules

revisions to the disclosure format and

since a lessee is not obligated to

purchase the leased property, the

purchase-option fee and any other fee

associated with exercising the purchase

option must be disclosed under

§ 213.4(i) and not § 213.4(d).

4(j) Statement Referencing

Nonsegregated Disclosures

Proposed comment 4(j)–1 clarifies

that inapplicable information may be

deleted from the § 213.4(j) disclosure,

which references and alerts consumers

to read CLA required disclosures not

included among the segregated

disclosures.

4(l) Right of Appraisal

Comment 4(l)–2, current comment

4(g)(14)–2, would be revised to provide

that a lessor must indicate when an

appraisal should be based on the

wholesale or retail value. This provision

was contained in the former regulation

in the instructions to the model forms.

4(m) Liability at End of Lease Term

Based on Estimated Value

The regulation reformats this section,

former § 213.4(g)(15), for clarity. The

commentary has been similarly

reformatted.

Proposed comment 4(m)–1 states the

intent of section 183(a) of the CLA that

lessors must pay the lessees’ attorney’s

fees in all actions brought by lessors

under § 213.4(m), even if those actions

are decided in favor of the lessor.

4(n) Fees and Taxes

Proposed comment 4(n)–1 provides

guidance on what taxes are disclosed

under § 213.4(n).

4(o) Insurance

Proposed comment 4(o)–1 provides

that § 213.4(o) applies to voluntary and

required insurance provided in

connection with a lease transaction.

Comment 4(o)–3, current comment

4(g)(6)–2, is revised to provide

additional guidance on the disclosure of

mechanical breakdown insurance.

4(p) Warranties or Guarantees

Comment 4(p)–1, current comment

4(g)(7)–1, would be revised to provide

further guidance on identifying

warranties under § 213.4(p), when

lessors provide a comprehensive list of

warranties to lessees.

4(s) Limitation on Rate Information

Proposed comment 4(s)–1 clarifies

that a lease rate may not be included

among the segregated disclosures

referenced in § 213.3(a)(2).

Section 213.5—Renegotiations,

Extensions, and Assumptions

Section 213.5, formerly § 213.4(h),

contains the disclosure rules governing

leases that are renegotiated, extended, or

assumed. Many of the commentary

provisions have been moved to the

regulation. For example, the definitions

of a renegotiation and an extension have

been included in the regulation. This

change parallels the approach under

Regulation Z for refinancings and

assumptions, 12 CFR 226.20.

Current Proposed

4(h)–1 ...... 5–1.

4(h)–2 ...... First sentence moved to

§ 213.5(a); second sentence

deleted; third sentence moved

to 5–1.

4(h)–3 ...... Moved to § 213.5(d).

4(h)–4 ...... Moved to § 213.5(b).

4(h)–5 ...... 5(b)–1.

5(b)–2 new.

4(h)–6 ...... Deleted as unnecessary.

4(h)–7 ...... Moved to § 213.5(d)(6).

4(h)–8 ...... Moved to § 213.5(d)(2).

4(h)–9 ...... Moved to § 213.5(c).

5(b) Extension

Comment 5(b)–1, current comment

4(h)–5, would be revised to clarify that

if a consumer lease is extended on a

month-to-month basis for more than six

months, new disclosures are required at

the beginning of the seventh month, and

also at the start of each seventh month

thereafter. This revision incorporates

into the commentary a longstanding

interpretation originally issued under

leasing provisions that were a part of

Regulation Z (Truth in Lending) prior to

1982.

Proposed comment 5(b)–2 also

incorporates a longstanding

interpretation originally issued under

the pre-1982 leasing provisions in

Regulation Z that disclosures for a

consumer lease, originally covered by

the regulation and extended on a

month-to-month basis for more than six

months, should reflect the month-tomonth nature of the transaction.

Section 213.7—Advertising

Current Proposed

5(a)–1 ...... 7(a)–1.

5(a)–2 ...... 7(a)–2.

5(b)–1 and

2.

7(c)–1 and 2.

5(c)–1 ...... 7(b)–1.

5(c)–2 ...... 7(d)(1)–1.

7(d)(2)–1 new.

5(d)–1 ...... Deleted.

7(e)–1 new.

7(f)(1)–1 through –4 new.

The CLA advertising provisions were

amended on September 30, 1996 by the

Economic Growth and Regulatory

Paperwork Reduction Act of 1996. The

final rule revising the commentary will

reference the revised provisions in the

regulation that implement the statutory

changes.

7(b) Clear and Conspicuous Standard

Proposed comment 7(b)–1 provides

guidance on the clear and conspicuous

standard. A comment in the September

1995 proposal which provided that

lease disclosures must appear on a

television screen for at least five

seconds has been deleted. The comment

was intended as guidance on the clear

and conspicuous standard. It did not

provide a safe harbor, as the ‘‘five

second’’ rule may be inadequate as a test

for determining full compliance with

the clear and conspicuous standard.

7(b)(1) Amount Due at Lease Signing

Proposed comment 7(b)(1)–1 clarifies

that an itemization of the amount due at

lease signing or delivery is not required

under § 213.7(b)(1).

Proposed comment 7(b)(1)–2 provides

general guidance on the prominence

rule in § 213.7(b)(1).

7(b)(2) Advertisement of a Lease Rate

Proposed comment 7(b)(2)–1 provides

guidance on the location of the

statement that must accompany any

percentage rate stated in an

advertisement.

7(d) Advertisement of Terms That

Require Additional Disclosure

7(d)(2) Additional Terms

Commenters requested clarification

on how third-party fees that vary by

jurisdiction such as taxes, licenses and

registration fees should be reflected in

the total amount due at lease signing

disclosure under § 213.7(d)(2)(ii).

Comment 7(d)(2)–2 provides lessors

flexibility in disclosing such fees.

7(e) Alternative Disclosures—

Merchandise Tags

Proposed comment 7(e)–1 provides

general guidance on disclosing multiple

item leases with merchandise tags.

7(f) Alternative Disclosures—

Television or Radio Advertisements

7(f)(1) Toll-Free Number or Print

Advertisement

Proposed comment 7(f)(1)–1 clarifies

that a newspaper circulated nationally

may qualify as a publication in general

circulation in the community served by

the media station.

Proposed comment 7(f)(1)–2 provides

guidance on establishing a number for
Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules 7367

consumers to call for disclosure

information.

Proposed comment 7(f)(1)–3 provides

guidance on the use of a multi-function

toll-free number to provide disclosures.

Proposed comment 7(f)(1)–4 provides

general guidance on the statement that

must accompany a toll-free number

instructing consumers to call the

number for details about costs and

terms.

Section 213.8 Record Retention

Current Proposed

6–1 8–1

Section 213.8 of the regulation was

formerly § 213.6.

Section 213.9 Relations to State Laws

Section 213.9 of the regulation

combines and simplifies former §§ 213.7

and 213.8. The comments to these

sections, as well as references in former

appendices A and B, have been deleted

as unnecessary.

Appendix A Model Forms

Under the final rule, the model forms

are moved from appendix C to appendix

A. Comment app. A–2 would be deleted

as unnecessary. Minor revisions would

be made to other comments in this

appendix. For example, comment app.

A–1 would be revised to indicate that

changes to the headings, format, and the

content of the segregated disclosures

should be minimal. Also the definition

of a closed-end lease in comment app.

A–3 would be deleted because a

definition has been added in the

regulation.

III. Form of Comment Letters

Comment letters should refer to

Docket No. R–0961 and, when possible,

should use a standard courier typeface

with a type size of 10 or 12 characters

per inch. This will enable the Board to

convert the text to machine-readable

form through electronic scanning, and

will facilitate automated retrieval of

comments for review. Also, if

accompanied by an original document

in paper form, comments may be

submitted on 31⁄2 inch or 51⁄4 inch

computer diskettes in any IBMcompatible DOS-based format.

The comment period ends on March

13, 1997. Normally, the Board provides

a 60-day comment period, in keeping

with the Board’s policy statement on

rulemaking (44 FR 3957, January 19,

1979). The proposed commentary

revisions primarily include

interpretations published for comment

in September 1995 and guidance

included in the supplemental

information to the September 1996 final

rule. The Board believes that it is

desirable to ensure that a commentary

takes effect along with the final rule as

promptly as possible. Accordingly, the

Board is providing an abbreviated

comment period.

List of Subjects in 12 CFR Part 213

Advertising, Federal Reserve System,

Reporting and recordkeeping

requirements, Truth in lending.

For the reasons set forth in the

preamble, 12 CFR part 213 is proposed

to be amended as follows:

PART 213—CONSUMER LEASING

(REGULATION M)

1. The authority citation for part 213

continues to read as follows:

Authority: 15 U.S.C. 1604.

2. Supplement I to Part 213—Official

Staff Commentary to Regulation M

would be revised to read as follows:

Supplement I to Part 213—Official

Staff Commentary to Regulation M

Introduction

1. Official status. The commentary in this

supplement I is the vehicle by which the

Division of Consumer and Community

Affairs of the Federal Reserve Board issues

official staff interpretations of Regulation M

(12 CFR part 213). Good faith compliance

with this commentary affords protection from

liability under section 130(f) of the Truth in

Lending Act (15 U.S.C. 1640f). Section 130(f)

protects lessors from civil liability for any act

done or omitted in good faith in conformity

with any interpretation issued by a duly

authorized official or employee of the Federal

Reserve System.

2. Procedures for requesting

interpretations. Under appendix C of

Regulation M, anyone may request an official

staff interpretation. Interpretations that are

adopted will be incorporated in this

commentary following publication in the

Federal Register. No official staff

interpretations are expected to be issued

other than by means of this commentary.

3. Comment designations. Each comment

in the commentary is identified by a number

and the regulatory section or paragraph that

it interprets. The comments are designated

with as much specificity as possible

according to the particular regulatory

provision addressed. For example, some of

the comments to § 213.4(f) are further

divided by subparagraph, such as comment

4(f)(1)–1 and comment 4(f)(2)–1. In other

cases, comments have more general

application and are designated, for example,

as comment 4(a)–1. This introduction may be

cited as comments I—1 through I—3. An

appendix may be cited as comment app. A—

1.

Section 213.1—Authority, Scope, Purpose,

and Enforcement

1. Foreign applicability. Regulation M

applies to all persons (including branches of

foreign banks or leasing companies located in

the United States) that offer consumer leases

to residents (including resident aliens) of any

state as defined in § 213.2(p). The regulation

does not apply to a foreign branch of a U.S.

bank or to a leasing company leasing to a

U.S. citizen residing or visiting abroad or to

a foreign national abroad.

Section 213.2—Definitions

2(b) Advertisement.

1. Coverage. The term advertisement

includes messages inviting, offering, or

otherwise generally announcing to

prospective customers the availability of

consumer leases, whether in visual, oral,

print or electronic media. Examples include:

i. Messages in newspapers, magazines,

leaflets, catalogs, and fliers.

ii. Messages on radio, television, and

public address systems.

iii. Direct mail literature.

iv. Printed material on any interior or

exterior sign or display, in any window

display, in any point-of-transaction literature

or price tag that is delivered or made

available to a lessee or prospective lessee in

any manner whatsoever.

v. Telephone solicitations.

vi. Messages on the Internet.

2. Exclusions. The term does not apply to

the following:

i. Direct personal contacts, including

follow-up letters, cost estimates for

individual lessees, or oral or written

communications relating to the negotiation of

a specific transaction.

ii. Informational material distributed only

to businesses.

iii. Notices required by federal or state law,

if the law mandates that specific information

be displayed and only the mandated

information is included in the notice.

iv. News articles controlled by the news

medium.

v. Market research or educational materials

that do not solicit business.

3. Persons covered. See the commentary to

§ 213.7(a).

2(d) Closed-end lease.

1. General. In closed-end leases, sometimes

referred to as ‘‘walk-away’’ leases, the lessee

is not responsible for the residual value of

the leased property at the end of the lease

term.

2(e) Consumer lease.

1. Primary purposes. A lessor must

determine in each case if the leased property

will be used primarily for personal, family,

or household purposes. If a question exists as

to the primary purpose for a lease, the fact

that a lessor gives disclosures is not

controlling on the question of whether the

transaction was exempt. The primary

purpose of a lease is determined before or at

consummation and a lessor need not provide

Regulation M disclosures where there is a

subsequent change in primary usage.

2. Period of time. To be a consumer lease,

the initial term of the lease must be more

than four months. Thus, a lease of personal

property for four months, three months or on

a month-to-month or week-to-week basis

(even though the lease actually extends

beyond four months) is not a consumer lease

and is not subject to the disclosure
7368 Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules

requirements of the regulation. However, a

lease that imposes a penalty for not

continuing a lease beyond four months is

considered to have a term of more than four

months. To illustrate:

i. A month-to-month lease with a penalty,

such as the forfeiture of a security deposit for

terminating before one year, is subject to the

regulation.

ii. A three-month lease extended on a

month-to-month basis and terminated after

one year is not subject to the regulation.

3. Total contractual obligation. The total

contractual obligation is not necessarily the

same as the total of payments disclosed

under § 213.4(e). The total contractual

obligation includes nonrefundable amounts a

lessee is contractually obligated to pay to the

lessor. The term excludes:

i. Residual value amounts or purchase-option

prices;

ii. Amounts collected by the lessor but paid

to a third party, such as taxes, license

and registration fees.

4. Credit sale. The regulation does not

cover a lease that meets the definition of a

credit sale in Regulation Z, 12 CFR

226.2(a)(16), which is defined, in part, as ‘‘a

bailment or lease (unless terminable without

penalty at any time by the consumer) under

which the consumer:

i. Agrees to pay as compensation for use a

sum substantially equivalent to, or in

excess of, the total value of the property

and services involved; and

ii. Will become (or has the option to become),

for no additional consideration or for

nominal consideration, the owner of the

property upon compliance with the

agreement.’’

5. Agricultural purpose. Agricultural

purpose means a purpose related to the

production, harvest, exhibition, marketing,

transportation, processing, or manufacture of

agricultural products by a natural person

who cultivates, plants, propagates, or

nurtures those agricultural products,

including but not limited to the acquisition

of personal property and services used

primarily in farming. Agricultural products

include horticultural, viticultural, and dairy

products, livestock, wildlife, poultry, bees,

forest products, fish and shellfish, and any

products thereof, including processed and

manufactured products, and any and all

products raised or produced on farms and

any processed or manufactured products

thereof.

6. Organization. A consumer lease does not

include a lease made to an organization such

as a corporation or a government agency or

instrumentality. Such a lease is not covered

by the regulation even if the leased property

is used (by an employee, for example)

primarily for personal, family or household

purposes, or is guaranteed by or subsequently

assigned to a natural person.

7. Leases of personal property incidental to

a service. The following leases of personal

property are deemed incidental to a service

and thus are not subject to the regulation:

i. Home entertainment systems requiring the

consumer to lease equipment that

enables a television to receive the

transmitted programming.

ii. Security alarm systems requiring the

installation of leased equipment

intended to monitor unlawful entries

into a home.

iii. Propane gas service where the consumer

must lease a propane tank to receive the

service.

8. Safe deposit boxes. The lease of a safe

deposit box is not a consumer lease under

§ 213.2(e).

2(f) Gross capitalized cost.

1. Charges paid at lease signing. The gross

capitalized cost figure includes only those

fees, charges, and other items, such as a prior

unpaid lease balance, that are capitalized or

amortized over the lease term. Charges paid

at lease signing, such as taxes, are not

included in the gross capitalized cost.

2(g) Lessee.

1. Guarantors. Guarantors are not lessees

for purposes of the regulation.

2(h) Lessor.

1. Arranger of a lease. To ‘‘arrange’’ for the

lease of personal property means to provide

or offer to provide a lease that is or will be

extended by another person under a business

or other relationship pursuant to which the

person arranging the lease (a) receives or will

receive a fee, compensation, or other

consideration for the service or (b) has

knowledge of the lease terms and participates

in the preparation of the contract documents

required in connection with the lease. To

illustrate:

i. An automobile dealer who, pursuant to

a business relationship, completes the

necessary lease agreement before forwarding

it to the leasing company (to whom the

obligation is payable on its face) for

execution is ‘‘arranging’’ for the lease.

ii. An automobile dealer who, receiving no

fee for the service, refers a customer to a

leasing company that will prepare all

relevant contract documents is not

‘‘arranging’’ for the lease.

2. Consideration. The term ‘‘other

consideration’’ as used in comment 2(h)-1

refers to an actual payment corresponding to

a fee or similar compensation and not to

intangible benefits, such as the advantage of

increased business, which may flow from the

relationship between the parties.

3. Assignees. An assignee may be a lessor

for purposes of the regulation in

circumstances such as those described in

Ford Motor Credit Co. v. Cenance, 452 U.S.

155 (1981). In that case, the U.S. Supreme

Court held that an assignee was a creditor for

purposes of the pre-1980 Truth in Lending

Act and Regulation Z because of its

substantial involvement in the credit

transaction.

4. Multiple lessors. See the commentary to

§ 213.3(c).

2(j) Organization.

1. Coverage. The term organization

includes joint ventures and persons operating

under a business name.

2(l) Personal property.

1. Coverage. Whether property is personal

property depends on state or other applicable

law. For example, a mobile home or

houseboat may be considered personal

property in one state but real property in

another.

T32(m) Realized value.

1. General. Realized value refers to the

value of the leased property at early

termination or at the end of the lease term.

It is not a required disclosure. It may be

either the retail or wholesale value. Realized

value is relevant only to leases in which the

lessee’s liability at early termination or at the

end of the lease term is the difference

between the residual value of the leased

property and its realized value.

2. Options. Subject to the contract and to

state or other applicable law, the lessor may

calculate the realized value in determining

the lessee’s liability at the end of the lease

term or at early termination in one of the

three ways stated in § 213.2(m). If the lessor

sells the property prior to making that

determination, the price received for the

property is the realized value. If the lessor

does not sell the property prior to making

that determination, the lessor may choose

either the highest offer or the fair market

value as the realized value.

3. Determination of realized value.

Disposition charges are included in

determining the realized value but amounts

attributable to taxes may be excluded.

4. Offers. In determining the highest offer

for disposition, the lessor may disregard

offers that an offeror has withdrawn or is

unable or unwilling to perform.

5. Lessor’s appraisal. See commentary to

§ 213.4(l).

2(o) Security interest and security.

1. Disclosable interests. For purposes of

disclosure, a security interest is an interest

taken by the lessor to secure performance of

the lessee’s obligation. For example, if a bank

that is not a lessor makes a loan to a leasing

company and takes assignments of consumer

leases generated by that company to secure

the loan, the bank’s security interest in the

lessor’s receivables is not a security interest

for purposes of this regulation.

2. General coverage. An interest the lessor

may have in leased property must be

disclosed only if it is considered a security

interest under state or other applicable law.

The term includes, but is not limited to,

security interests under the Uniform

Commercial Code; real property mortgages,

deeds of trust and other consensual or

confessed liens whether or not recorded;

mechanic’s, materialman’s, artisan’s, and

other similar liens; vendor’s liens in both real

and personal property; liens on property

arising by operation of law; and any interest

in a lease when used to secure payment or

performance of an obligation.

3. Insurance exception. The lessor’s right

to insurance proceeds or unearned insurance

premiums is not a security interest for

purposes of this regulation.

Section 213.3—General Disclosure

Requirements

3(a) General requirements.

1. Basis of disclosures. Disclosures must

reflect the terms of the legal obligation

between the parties. For example:

i. In a three-year lease with no penalty for

termination after a one-year minimum term,
Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules 7369

disclosures should be based on the full threeyear term of the lease. The one-year

minimum term is only relevant to the early

termination provisions of §§ 213.4(g)(1), (k)

and (l).

2. Clear and conspicuous standard. The

clear and conspicuous standard requires that

disclosures be reasonably understandable.

For example, the disclosures must be

presented in a way that does not obscure the

relationship of the terms to each other.

Appendix A of this part contains model

forms that meet this standard. In addition,

although no minimum typesize is required,

the disclosures must be legible, whether

typewritten, handwritten, or printed by

computer.

3. Multipurpose disclosure forms. A lessor

may use a multipurpose disclosure form that

enables the lessor to designate the specific

disclosures applicable to a given transaction,

consistent with the requirement that

disclosures be clearly and conspicuously

provided.

4. Number of transactions. Lessors have

flexibility in handling lease transactions that

may be viewed as multiple transactions. For

example:

i. When a lessor leases two items to the

same lessee on the same day, the lessor may

disclose the leases as either one or two lease

transactions.

ii. When a lessor sells insurance or other

incidental services in connection with a

lease, the lessor may disclose in one of two

ways: a single lease transaction or a lease and

a credit sale transaction.

iii. When a lessor includes an outstanding

lease or loan balance in a lease transaction,

the lessor may disclose the prior loan or lease

balance as part of a single lease transaction

or may disclose it as a separate credit

transaction.

3(a)(1) Form of disclosures.

1. Cross-references. In making disclosures,

lessors may include in the nonsegregated

disclosures a cross-reference to items

contained among the segregated disclosures

rather than repeat the items.

2. Identification of parties. While

disclosures must be made clearly and

conspicuously, lessors are not required to use

the word ‘‘lessor’’ and ‘‘lessee’’ to identify

the parties to the lease transaction.

3. Lessor’s address. The lessor need only be

identified by name; an address may be

provided but is not required.

4. Multiple lessors and lessees. In

transactions involving multiple lessors and

multiple lessees, a single lessor may make all

the disclosures to a single lessee as long as

the disclosure statement identifies all the

lessors and lessees.

5. Lessee’s signature. The regulation does

not require that the lessee sign the disclosure

statement, whether disclosures are separately

provided or are part of the lease contract.

Nevertheless, to ensure that disclosures are

given before a lessee becomes obligated on

the lease transaction, the lessor may ask the

lessee to sign the disclosure statement or an

acknowledgement of receipt, may place

disclosures that are included in the lease

documents above the lessee’s signature, or

may include instructions alerting a lessee to

read the disclosures prior to signing the

lease.

3(a)(2) Segregation of certain disclosures.

1. Location. The segregated disclosures

referred to in § 213.3(a)(2) may be provided

on a separate document and the other

required disclosures may be provided in the

lease contract, so long as all disclosures are

given at the same time.

2. Additional information among

segregated disclosures. The disclosures

required to be segregated may contain only

the information required or permitted to be

included among the segregated disclosures

(see comments to § 213.4 for guidance on

additional information in the segregated

disclosures).

3. Substantially similar. See commentary

to appendix A of this part.

3(b) Additional information; nonsegregated

disclosures.

1. State law disclosures. A lessor may

include among the nonsegregated disclosures

any state law disclosures that are not

inconsistent with the act and regulation

under § 213.9, as long as they are not used

or placed to mislead or confuse or detract

from any disclosure required by the

regulation in accordance with the standard

set forth in § 213.3(b) for additional

information.

3(c) Multiple lessors or lessees.

1. Multiple lessors. If a single lessor

provides disclosures to a lessee on behalf of

several lessors, all disclosures for the

transaction must be given, even if the lessor

making the disclosures would not otherwise

have been obligated to make a particular

disclosure.

3(d) Use of estimates.

3(d)(1) Standard.

1. Time of estimated disclosure. The lessor

may use estimates to make disclosures if

necessary information is unknown or

unavailable at the time the disclosures are

made. For example:

i. Section 213.4(n) requires the lessor to

disclose the total amount payable by the

lessee during the lease term for official and

license fees, registration, certificate of title

fees, or taxes. If these amounts are subject to

increases or decreases over the course of the

lease, the lessor may estimate the disclosures

based on the rates or charges in effect at the

time of the disclosure.

2. Basis of estimates. Estimates must be

made on the basis of the best information

reasonably available at the time disclosures

are made. The ‘‘reasonably available’’

standard requires that the lessor, acting in

good faith, exercise due diligence in

obtaining information. The lessor may rely

on the representations of other parties in

obtaining information. For example, the

lessor might look to the consumer to

determine the purpose for which leased

property will be used, to insurance

companies for the cost of insurance, or to an

automobile manufacturer or dealer for the

date of delivery.

3. Residual value of leased property at

termination. When the lessee’s liability at the

end of the lease term is based on the residual

value of the leased property as determined at

consummation, the estimate of the residual

value must be reasonable and based on the

best information reasonably available to the

lessor (see § 213.4(m)). A lessor may use a

generally accepted trade publication listing

estimated current or future market prices for

the leased property or may rely on other

information, its experience, or reasonable

belief if those sources provide the better

information. For example:

i. An automobile lessor offering a threeyear open-end lease assigns a wholesale

value to the vehicle at the end of the lease

term. The lessor may disclose as an estimate

a wholesale value derived from a generally

accepted trade publication listing current

wholesale values, if the trade publication is

the best information available.

ii. Same facts as above, except that the

lessor discloses an estimated value derived

by adjusting the residual value quoted in the

trade publication because, in its experience,

the trade publication values either understate

or overstate the prices actually received in

local used-vehicle markets. The lessor may

adjust estimated values quoted in trade

publications based on the lessor’s experience

or reasonable belief that the values will be

understated or overstated.

4. Retail or wholesale value. The lessor

may choose either a retail or a wholesale

value in estimating the value of leased

property at termination, provided the choice

is consistent with the lessor’s general

practice or intention when determining the

value of the property at the end of the lease

term. The lessor should indicate whether the

value disclosed is a retail or wholesale value.

5. Labelling estimates. Generally, only the

disclosure for which the exact information is

unknown is labelled as an estimate.

Nevertheless, when several disclosures are

affected because of the unknown

information, the lessor has the option of

labelling as an estimate every affected

disclosure or only the disclosure primarily

affected.

3(e) Effect of subsequent occurrence.

1. Subsequent occurrences. Examples of

subsequent occurrences include:

i. An agreement between the lessee and

lessor to change from a monthly to a weekly

payment schedule.

ii. An increase in official fees or taxes.

iii. An increase in insurance premiums or

coverage caused by a change in the law.

iv. Late delivery of an automobile caused

by a strike.

2. Redisclosure. When a disclosure

becomes inaccurate because of a subsequent

occurrence, the lessor need not make new

disclosures unless new disclosures are

required under § 213.5.

3. Lessee’s failure to perform. The lessor

does not violate the regulation if a previously

given disclosure becomes inaccurate when a

lessee fails to perform obligations under the

contract and a lessor takes actions that are

necessary and proper in such circumstances

to protect its interest. For example, the

addition of insurance or a security interest by

the lessor because the lessee has not

performed obligations contracted for in the

lease is not a violation of the regulation.

Section 213.4—Content of Disclosures

4(a) Description of property.

1. Placement of description. Although the

description of leased property may not be

included among the segregated disclosures, a
7370 Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules

lessor may choose to place the description

directly above the segregated disclosures.

4(b) Amount due at lease signing.

1. Consummation. When a contractual

relationship is created between the lessor and

the lessee is a matter to be determined under

state or other applicable law.

2. Fees payable upon delivery. This

paragraph does not apply to fees paid at

delivery, when delivery occurs after

consummation. For example, if the lessee

agrees to pay registration fees, sales taxes,

and a delivery charge on the date the

automobile is delivered sometime after

consummation, none of these charges is an

initial payment under § 213.4(b). The

registration fees and sales taxes are disclosed

under § 213.4(n), and the delivery charge is

disclosed as an ‘‘other charge’’ under

§ 213.4(d).

3. Capitalized cost reduction. A capitalized

cost reduction is a payment in the nature of

a downpayment that reduces the amount of

the leased property to be capitalized over the

term of the lease. This amount does not

include any amounts included in a periodic

payment paid at lease signing.

4. ‘‘Negative’’ equity trade-in allowance. If

an amount owed on a prior lease or loan

exceeds an agreed upon trade-in value, the

difference is not reflected as a negative tradein allowance under § 213.4(b). The lessor

may disclose the trade-in allowance as zero,

not applicable, or leave a blank line.

5. Rebates. Only rebates applied toward an

amount due at lease signing are required to

be disclosed under § 213.4(b).

6. Balance sheet approach. In motor

vehicle leases, the total for the column

labeled ‘‘total amount due at lease signing’’

must equal the total for the column labeled

‘‘how the amount due at lease signing will be

paid.’’

4(c) Payment schedule and total amount of

periodic payments.

1. Periodic payments. The phrase ‘‘number,

amount, and due dates or periods of

payments’’ requires the disclosure of all

payments made periodically, including taxes,

maintenance and insurance charges. In

addition, the lessor must disclose the total of

the periodic payments.

4(d) Other charges.

1. Coverage. Section 213.4(d) requires the

disclosure of charges that are anticipated by

the parties as incident to the normal

operation of the lease agreement. If a lessor

is unsure whether a particular fee is an

‘‘other charge,’’ the lessor may disclose the

fee as such without violating § 213.4(d) or the

segregation rule under § 213.3(a)(2).

2. Excluded charges. This section does not

require disclosure of charges that are

imposed when the lessee terminates early,

fails to abide by, or modifies the terms of the

existing lease agreement, such as charges for:

i. Late payment.

ii. Default.

iii. Early termination.

iv. Deferral of payments.

v. Extension of the lease.

3. Third-party fees and charges. Thirdparty fees or charges collected by the lessor

on behalf of third parties, such as taxes, are

not disclosed under § 213.4(d).

4. Relationship to other provisions. The

other charges mentioned in this paragraph

are charges that are not required to be

disclosed under another provision of § 213.4.

To illustrate:

i. A delivery charge that is paid after

consummation is disclosed as an ‘‘other

charge.’’ A delivery charge that is paid at

consummation, however, is disclosed as part

of the amount due at lease signing under

§ 213.4(b), not as an ‘‘other charge.’’

ii. Occasionally, the price of a mechanical

breakdown protection (MBP) contract is

disclosed as an ‘‘other charge.’’ More often,

the price of MBP is reflected in the periodic

payment disclosure under § 213.4(c), in

which case it is not disclosed as an ‘‘other

charge.’’ In states where MBP is regarded as

insurance, however, the cost should be

disclosed in accordance with § 213.4(o), not

as an ‘‘other charge.’’

5. Lessee’s liabilities at the end of the lease

term. Liabilities that the lease imposes upon

the lessee at the end of the scheduled lease

term and that must be disclosed under this

section include disposition and ‘‘pick-up’’

charges.

6. Optional ‘‘disposition’’ charges.

Disposition charges (and similar charges) that

are anticipated by the parties as an incident

to the normal operation of the lease

agreement must be disclosed under

§ 213.4(d). If under a lease agreement, a

lessee may return leased property to various

locations, and the lessor charges a

disposition fee depending upon the location

chosen, under § 213.4(d), the lessor must

disclose the highest amount charged. In such

circumstances, the lessor may also include a

brief explanation of the fee structure in the

segregated disclosure. For example, if no fee

or a lower fee is imposed for returning a

leased vehicle to the originating dealer as

opposed to another location, that fact may be

disclosed. By contrast, if the terms of the

lease treat the leased property returned

outside the lessor’s service area as a default,

that fee is not disclosed as an ‘‘other charge,’’

although it may be required to be disclosed

under § 213.4(q).

4(e) Total of payments.

1. Open-end lease. An additional statement

is required under § 213.4(e) for open-end

leases because, with some limitations, a

lessee is liable for the difference between the

residual and realized values of the leased

property.

4(f) Payment calculation.

1. Motor-vehicle lease. Whether leased

property is a motor vehicle is determined by

state or other applicable law.

4(f)(1) Gross capitalized cost.

1. Agreed upon value of the vehicle. The

agreed upon value of a motor vehicle is the

amount for the vehicle agreed upon by the

lessor and lessee for purposes of the lease.

This includes the amount of capitalized

items such as charges for vehicle accessories

and options, and delivery or destination

charges. The lessor may also include taxes

and fees for title, license, and registration.

Charges for service or maintenance contracts,

insurance products, guaranteed automobile

protection, or an outstanding balance on a

prior lease or loan are not included in the

agreed upon value.

2. Itemization of the gross capitalized cost.

The lessor may choose to provide the

itemization of the gross capitalized cost as a

matter of course or only on request. In either

case, the itemization must be provided at the

same time as the other disclosures required

by § 213.4. The itemization may not be

included among the segregated disclosures.

4(f)(2) Capitalized cost reduction.

1. Amounts not included. The capitalized

cost reduction does not include periodic

payments paid at lease signing.

4(f)(8) Lease term.

1. Definition. Under § 213.4(f)(8) the ‘‘lease

term’’ refers to the number of periodic

payments.

4(g) Early termination.

4(g)(1) Conditions and disclosure of

charges.

1. Reasonableness of charges. See the

commentary to § 213.4(q).

2. Description of the method. A full

description of the method of determining an

early termination charge is required by the

regulation. Lessors should attempt to provide

consumers with clear and understandable

descriptions of their early termination

charges. Descriptions that are full, accurate,

and not intended to be misleading will

comply with the regulation, even if complex.

In providing a full description of an early

termination method, a lessor may use the

name of a generally accepted method of

computing the unamortized cost portion (also

known as the ‘‘adjusted lease balance’’) of its

early termination charges. For example, a

lessor may state that the ‘‘constant yield’’

method will be utilized in obtaining the

adjusted lease balance, but must specify how

that figure, and any other term or figure, is

used in computing the total early termination

charge imposed upon the consumer.

Additionally, if a lessor refers to a named

method in this manner, the lessor must

provide a written explanation of that method

if requested by the consumer. The lessor has

the option of providing the explanation as a

matter of course in the lease documents or on

a separate document.

3. Default. When default is also a condition

for early termination of a lease, default

charges must be disclosed under

§ 213.4(g)(1). See the commentary to

§ 213.4(q).

4. Lessee’s liability at early termination.

When the lessee is liable for the difference

between the unamortized cost and the

realized value at early termination, the

amount or the method of determining the

amount of the difference must be disclosed

under § 213.4(g)(1).

4(h) Maintenance responsibilities.

1. Standards for wear and use. No

disclosure is required if a lessor does not

impose standards for wear and use (such as

excess mileage).

2. Amount or method of determining

excess mileage charges. In a motor vehicle

lease, a description of the method for

calculating excess mileage charges may not

be disclosed if a specific amount for excess

mileage has been established.

4(i) Purchase option.

1. Mandatory disclosure of no purchase

option. Generally the lessor need only make

the specific required disclosures that apply to

a transaction. In the case of the purchase

option disclosure, however, a lessor must
Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules 7371

disclose affirmatively that the lessee has no

option to purchase the leased property when

the purchase option is inapplicable.

2. Existence of purchase option. Whether a

purchase option exists is determined by state

or other applicable law. The lessee’s right to

submit a bid to purchase property at

termination of the lease is not an option to

purchase under § 213.4(i) if the lessor is not

required to accept the lessee’s bid and the

lessee does not receive preferential treatment.

3. Purchase-option fee. A purchase-option

fee must be disclosed under § 213.4(i), not

§ 213.4(d). The fee may be separately

itemized or disclosed as part of the purchaseoption price.

4. Official fees and taxes. The existence of

official fees such as those for taxes, licenses,

and registration charged in connection with

the exercise of a purchase option may be

disclosed under § 213.4(i) in several ways.

The fees may be disclosed as part of the

purchase-option price (with or without a

reference to their inclusion in that price) or

may be separately disclosed and itemized by

category. Alternatively, a lessor may provide

a statement such as fees for tags, taxes, and

registration are not included in the purchase

price.

5. Purchase-option price. Lessors must

disclose the purchase-option price as a sum

certain or a sum certain to be determined at

a future date by reference to an independent

source. The reference should provide

sufficient information so that the lessee will

be able to determine the actual price when

the option becomes available. Statements of

a purchase price as the ‘‘negotiated price’’ or

the ‘‘fair market value’’ do not comply with

the requirements of § 213.4(i).

4(j) Statement referencing nonsegregated

disclosures.

1. Content. A lessor may delete

inapplicable items from the disclosure. For

example, if a lease contract does not include

a security interest, that reference may be

deleted.

4(l) Right of appraisal.

1. Disclosure inapplicable. When the lessee

is liable at the end of the lease term or at

early termination for unreasonable wear or

use, but not for the residual value of the

leased property, the lessor need not disclose

the lessee’s right to an independent

appraisal. For example:

i. The automobile lessor may reasonably

expect a lessee to return an undented car

with four good tires at the end of the lease

term. Even though it holds the lessee liable

for the difference between a dented car with

bald tires and the value of a car in reasonably

good repair, the lessor is not required to

disclose the lessee’s appraisal right.

2. Lessor’s appraisal. The lessor may obtain

an appraisal of the leased property to

determine its realized value. Such an

appraisal, however, is not the one addressed

in section 183(c) of the act, and the lessor

still must disclose the lessee’s independent

right to an appraisal under § 213.4(l). In

addition, a lessor must indicate whether the

wholesale or retail appraisal value will be

used.

3. Time restriction on appraisal. The

regulation does not specify a time period in

which the lessee must exercise the appraisal

right. The lessor may require a lessee to

obtain the appraisal within a reasonable time

after termination of the lease.

4(m) Liability at end of lease term based on

residual value.

1. Open-end leases. Section 213.4(m)

applies only to open-end leases.

2. Lessor’s payment of attorney’s fees.

Section 183(a) of the act requires that the

lessor pay the lessee’s attorney’s fees in all

actions brought by the lessor under

§ 213.4(m), whether successful or not.

4(m)(1) Rent and other charges.

1. General. This disclosure is intended to

represent the cost of financing an open-end

lease based on charges and fees that the

lessor requires the lessee to pay. Examples of

disclosable charges, in addition to the rent

charge, include acquisition, disposition, or

assignment fees. Charges imposed by a third

party whose services are not required by the

lessor are not included in the § 213.4(m)(1)

disclosure such as official fees and voluntary

insurance.

4(m)(2) Excess liability.

1. Coverage. The disclosure limiting the

lessee’s liability for the value of the leased

property does not apply at early termination.

2. Leases with a minimum term. If a lease

has an alternative minimum term, the

disclosures governing the liability limitation

are not applicable for the minimum term. See

the commentary to § 213.3(a).

3. Charges not subject to rebuttable

presumption. The limitation on liability

applies only to liability that is based on the

residual value of the property at the end of

the lease term. The regulation does not

preclude a lessor from recovering other

charges from the lessee at the end of the lease

term. Examples of such charges include:

i. Disposition charges.

ii. Excess mileage charges.

iii. Late payment and default charges.

iv. Amounts by which the unamortized

cost exceeds the residual value that have

accrued in simple interest accounting leases

because the lessee has not made timely

payments.

4(n) Fees and taxes.

1. Taxes. If a tax payable by the lessor is

passed on to the consumer and is reflected

in the lease documentation or a sticker or tag

affixed to the leased property, the tax must

be disclosed under § 213.4(n). However, a tax

payable by the lessor and absorbed as a cost

of doing business need not be disclosed.

4(o) Insurance.

1. Coverage. A lessor must disclose

information on the type and amount of

insurance coverage, whether voluntary or

required, as well as the cost if the insurance

is obtained through the lessor.

2. Lessor’s insurance. Insurance purchased

by the lessor primarily for its own benefit,

and absorbed as a business expense and not

separately charged to the lessee, need not be

disclosed under § 213.4(o) even if it provides

an incidental benefit to the lessee.

3. Mechanical breakdown protection.

Whether mechanical breakdown protection

(MBP) purchased in conjunction with a lease

should be treated as insurance is determined

by state or other applicable law. In states that

do not treat MBP as insurance, the lessor

need not make § 213.4(o) disclosures. In such

cases the lessor may, however, disclose the

§ 213.4(o) information in accordance with the

additional information provision in

§ 213.3(b). For MBP insurance contracts not

capped by a dollar amount, lessors may

describe coverage by referring to a limitation

by mileage or time period, for example, the

mechanical breakdown contract insures parts

of the automobile for up to 100,000 miles.

4(p) Warranties or guarantees.

1. Brief identification. The statement

identifying warranties may be brief and need

not describe or list all warranties applicable

to specific parts such as for air conditioning,

radio, or tires in an automobile. For example,

manufacturer’s warranties may be identified

simply by a reference to the standard

manufacturer’s warranty. If a lessor provides

a comprehensive list of warranties to the

lessee, the lessor must indicate which

§ 213.4(p) warranties apply or, alternatively,

which warranties do not apply.

2. Warranty disclaimers. Although a

disclaimer of warranties is not required by

the regulation, the lessor may give a

disclaimer as additional information in

accordance with § 213.3(b).

3. State law. Whether an express warranty

or guaranty exists is determined by state or

other law.

4(q) Penalties and other charges for

delinquency.

1. Collection costs. The automatic

imposition of collection costs or attorney fees

upon default must be disclosed under

§ 213.4(q). Collection costs or attorney fees

that are not imposed automatically, but are

contingent upon expenditures in conjunction

with a collection proceeding or upon the

employment of an attorney to effect

collection, need not be disclosed.

2. Charges for early termination. When

default is a condition for early termination of

a lease, default charges must also be

disclosed under § 213.4(g)(1). The § 213.4(q)

and (g)(1) disclosures may be combined.

Examples of combined disclosures are

provided in the model lease disclosure forms

in appendix A of this part.

3. Simple-interest leases. In a simpleinterest accounting lease, the additional rent

charge that accrues on the lease balance

when a periodic payment is made after the

due date does not constitute a penalty or

other charge for late payment. Similarly,

continued accrual of the rent charge after

termination of the lease because the lessee

fails to return the leased property does not

constitute a default charge. In either case, if

the additional charge accrues at a rate higher

than the normal rent charge, the lessor must

disclose the amount of or the method of

determining the additional charge under

§ 213.4(q).

4. Extension charges. Extension charges

that exceed the rent charge in a simpleinterest accounting lease or that are added

separately are disclosed under § 213.4(q).

5. Reasonableness of charges. Pursuant to

section 183(b) of the act, penalties or other

charges for delinquency, default, or early

termination may be specified in the lease but

only in an amount that is reasonable in light

of the anticipated or actual harm caused by

the delinquency, default, or early

termination, the difficulties of proof of loss,
7372 Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules

and the inconvenience or nonfeasibility of

otherwise obtaining an adequate remedy.

4(r) Security interest.

1. Disclosable security interests. See

§ 213.2(o) and accompanying commentary to

determine what security interests must be

disclosed.

4(s) Limitations on rate information.

1. Segregated disclosures. A lease rate may

not be included among the segregated

disclosures referenced in § 213.3(a)(2).

Section 213.5—Renegotiations, Extensions

and Assumptions

1. Coverage. Section 213.5 applies only to

existing leases that are covered by the

regulation. It therefore does not apply to the

renegotiation or extension of leases with an

initial term of four months or less, because

such leases are not covered by the definition

of consumer lease in § 213.2(e). Whether and

when a lease is satisfied and replaced by a

new lease is determined by state or other

applicable law.

5(b) Extensions.

1. Time of extension disclosures. If a

consumer lease is extended for a specified

term greater than six months, new

disclosures are required at the time the

extension is agreed upon. If the lease is

extended on a month-to-month basis and

exceeds six months, new disclosures are

required at the commencement of the seventh

month and at the commencement of each

seventh month thereafter. If a consumer lease

is extended for several terms, one of which

will exceed six months beyond the originally

scheduled termination date of the lease, new

disclosures are required at the

commencement of the term that will exceed

six months beyond the originally scheduled

termination date.

2. Content of disclosures for month-tomonth extensions. The disclosures for a lease

extended on a month-to-month basis for more

than six months should reflect the month-tomonth nature of the transaction.

Section 213.7—Advertising

7(a) General rule.

1. Persons covered. All ‘‘persons’’ must

comply with the advertising provisions in

this section, not just those that meet the

definition of a lessor in § 213.2(h). Thus,

automobile dealers, merchants, and others

who are not themselves lessors must comply

with the advertising provisions of the

regulation if they advertise consumer lease

transactions. Pursuant to section 184(b) of the

act, however, owners and personnel of the

media in which an advertisement appears or

through which it is disseminated are not

subject to civil liability for violations under

section 185(b) of the act.

2. ‘‘Usually and customarily.’’ Section

213.7(a) does not prohibit the advertising of

a single item or the promotion of a new

leasing program, but prohibits the advertising

of terms that are not and will not be

available. Thus, an advertisement may state

terms that will be offered for only a limited

period or terms that will become available at

a future date.

7(b) Clear and conspicuous standard.

1. Standard. The disclosures in an

advertisement must be reasonably

understandable. For example, very fine print

in a television advertisement or detailed and

very rapidly stated information in a radio

advertisement does not meet the clear and

conspicuous standard if consumers cannot

see and read or comprehend the information

required to be disclosed.

7(b)(1) Amount due at lease signing.

1. Itemization not required. The regulation

requires only a total of amounts due at lease

signing or delivery, not an itemization of its

component parts. Such an itemization is

provided in any transaction-specific

disclosures provided under § 213.4.

2. Prominence rule. Except for a periodic

payment, oral or written references to

components of the total due at lease signing

or delivery (for example, a reference to a

capitalized cost reduction, where permitted)

may not be more prominent than the

disclosure of the total amount due at lease

signing or delivery.

7(b)(2) Advertisement of a lease rate.

1. Location of statement. The notice

required to accompany a percentage rate

stated in an advertisement must be located in

close proximity to the rate without any other

intervening language or symbols. For

example, a lessor may not state a rate with

an asterisk and make the disclosure in a

different location in the advertisement. In

addition, with the exception of the notice

required by § 213.4(s), the rate cannot be

more prominent than any § 213.4 disclosure

stated in the advertisement.

7(c) Catalogs and multi-page

advertisements.

1. General rule. The multiple-page

advertisements referred to in § 213.7(c) are

advertisements consisting of a series of

numbered pages—for example, a supplement

to a newspaper. A mailing comprising several

separate flyers or pieces of promotional

material in a single envelope is not a single

multiple-page advertisement.

2. Cross-references. A multiple-page

advertisement is a single advertisement

(requiring only one set of lease disclosures)

if it contains a table, chart, or schedule

clearly stating sufficient information for the

reader to determine the disclosures required

under § 213.7(d)(2) (i) through (vi). If one of

the triggering terms listed in § 213.7(d)(1)

appears in a catalog or other multiple-page

advertisement, the page on which the

triggering term is used must clearly refer to

the specific page where the table, chart, or

schedule begins.

7(d)(1) Triggering terms.

1. Triggering terms. When any triggering

term appears in a lease advertisement, the

additional terms enumerated in § 213.7(d)(2)

(i) through (vi) must also appear. An example

of one or more typical leases with a statement

of all the terms applicable to each may be

used. The additional terms must be disclosed

even if the triggering term is not stated

explicitly, but is readily determinable from

the advertisement.

7(d)(2) Additional terms.

1. Third-party fees that vary by state. In

disclosing the total amount due at lease

signing a lessor may:

i. Exclude third-party fees, such as taxes,

license, and registration fees and

disclose that fact; or

ii. Provide a total that includes third-party

fees based on a particular state as long as that

fact and that fees may vary by state are

disclosed.

7(e) Alternative disclosures—merchandise

tags.

1. Multiple item leases. Multiple item

leases that utilize merchandise tags requiring

additional disclosures may use the alternate

disclosure rule.

7(f) Alternative disclosures—television or

radio advertisements.

7(f)(1) Toll-free number or print

advertisement.

1. Publication in general circulation. A

referral to a written advertisement appearing

in a newspaper circulated nationally, for

example, USA Today or the Wall Street

Journal, may satisfy the general circulation

requirement in § 213.7(f)(1)(ii).

2. Toll-free number, local or collect calls.

In complying with the disclosure

requirements of § 213.7(f)(1)(i), a lessor must

provide a toll-free number for nonlocal calls

made from an area code other than the one

used in the lessor’s dialing area.

Alternatively, a lessor may provide any

telephone number that allows a consumer to

call for information and reverse the phone

charges.

3. Multi-purpose number. When calling an

advertised toll-free number, if a consumer

obtains a recording that provides several

dialing options—such as providing directions

to the lessor’s place of business—the option

allowing the consumer to request lease

disclosures should be provided early in the

telephone message to ensure that the option

to request disclosures is not obscured by

other information.

4. Statement accompanying toll free

number. Language must accompany a

telephone number indicating that disclosures

are available by calling the toll-free number,

such as ‘‘call 1–800–000–000 for details

about costs and terms.’’

Section 213. 8—Record Retention

1. Manner of retaining evidence. A lessor

must retain evidence of having performed

required actions and of having made required

disclosures. Such records may be retained on

microfilm, microfiche, or computer, or by

any other method designed to reproduce

records accurately, as well as paper form.

The lessor need retain only enough

information to reconstruct the required

disclosures or other records.

Appendix A—Model Forms.

1. Permissible changes. Although use of the

model forms is not required, lessors using

them properly will be deemed to be in

compliance with the regulation. Generally,

lessors may make certain changes in the

format or content of the forms and may delete

any disclosures that are inapplicable to a

transaction without losing the act’s

protection from liability. For example, the

model form based on monthly periodic

payments may be modified for single-
Federal Register / Vol. 62, No. 33 / Wednesday, February 19, 1997 / Proposed Rules 7373

payment lease transactions or other periodic

payments. The content, format, and headings

for the segregated disclosures must be

substantially similar to those contained in

the model forms; therefore, any changes

should be minimal. The changes to the model

forms should not be so extensive as to affect

the substance and the clarity of the

disclosures.

2. Examples of acceptable changes.

i. Using the first person, instead of the

second person, in referring to the lessee.

ii. Using ‘‘lessee,’’ ‘‘lessor,’’ or names

instead of pronouns.

iii. Rearranging the sequence of the

nonsegregated disclosures.

iv. Incorporating certain state ‘‘plain

English’’ requirements.

v. Deleting inapplicable disclosures by

blocking out, filling in ‘‘N/A’’ (not

applicable) or ‘‘0,’’ crossing out, leaving

blanks, checking a box for applicable items,

or circling applicable items. (This should

permit use of multi-purpose standard forms).

vi. Adding language or symbols to indicate

estimates.

vii. Adding numeric or alphabetic

designations.

viii. Rearranging the disclosures into

vertical columns, except for § 213.4(b)

through (e) disclosures.

3. Model closed-end or net vehicle lease

disclosure. Model A–2 is designed for a

closed-end or net vehicle lease. Under the

‘‘Early Termination and Default’’ provision a

reference to the lessee’s right to an

independent appraisal of the leased vehicle

under § 213.4(l) is included for those closedend leases in which the lessee’s liability at

early termination is based on the vehicle’s

estimated value.

4. Model furniture lease disclosures. Model

A–3 is a closed-end lease disclosure

statement designed for a typical furniture

lease. It does not include a disclosure of the

appraisal right at early termination required

under § 213.4(l) because few closed-end

furniture leases base the lessee’s liability at

early termination on the estimated value of

the leased property. Of course, the disclosure

should be added, if it is applicable.

By order of the Board of Governors of the

Federal Reserve System, acting through the

Secretary of the Board under delegated

authority, February 12, 1997.

William W. Wiles,

Secretary of the Board.

[FR Doc. 97–3955 Filed 2–13–97; 2:20 pm]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 96–CE–40–AD]

RIN 2120–AA64

Airworthiness Directives; Grob Luftund Raumfahrt, GmbH; Models G 109

and G 109B Sailplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: This document proposes to

adopt a new airworthiness directive

(AD) that would apply to certain Grob

Luft-und Raumfahrt (Grob) Models G

109 and G 109B sailplanes. The

proposed action would require

inspecting the landing gear retaining

bars and landing gear legs for proper

radius, thickness, and cracking, and

installing additional supportive parts or

replacing the retaining bars and landing

legs with parts of improved design.

Reports of landing gear failure on

certain G 109 and G 109B sailplanes

prompted the proposed action. The

actions specified by the proposed AD

are intended to prevent failure of the

landing gear legs and possible loss of

the sailplane.

DATES: Comments must be received on

or before April 21, 1997.

ADDRESSES: Submit comments on the

proposal in triplicate to the Federal

Aviation Administration (FAA), Central

Region, Office of the Assistant Chief

Counsel, Attention: Rules Docket No.

96-CE–40-AD, Room 1558, 601 E. 12th

Street, Kansas City, Missouri 64106.

Comments may be inspected at this

location between 8 a.m. and 4 p.m.,

Monday through Friday, holidays

excepted.

Service information that applies to the

proposed AD may be obtained from

Grob Luft-und Raumfahrt, GmbH., D–

8939, Mattsies-am Flugplatz, Germany.

This information also may be examined

at the Rules Docket at the address above.

FOR FURTHER INFORMATION CONTACT: Mr.

J. Mike Kiesov, Project Officer,

Sailplanes, FAA, Small Airplane

Directorate, 1201 Walnut, suite 900,

Kansas City, Missouri 64106; telephone

(816) 426–6932; facsimile (816) 426–

2169.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to

participate in the making of the

proposed rule by submitting such

written data, views, or arguments as

they may desire. Communications

should identify the Rules Docket

number and be submitted in triplicate to

the address specified above. All

communications received on or before

the closing date for comments, specified

above, will be considered before taking

action on the proposed rule. The

proposals contained in this notice may

be changed in light of the comments

received.

Comments are specifically invited on

the overall regulatory, economic,

environmental, and energy aspects of

the proposed rule. All comments

submitted will be available, both before

and after the closing date for comments,

in the Rules Docket for examination by

interested persons. A report that

summarizes each FAA-public contact

concerned with the substance of this

proposal will be filed in the Rules

Docket.

Commenters wishing the FAA to

acknowledge receipt of their comments

submitted in response to this notice

must submit a self-addressed, stamped

postcard on which the following

statement is made: ‘‘Comments to

Docket No. 96-CE–40-AD.’’ The postcard

will be date stamped and returned to the

commenter.

Availability of NPRMs

Any person may obtain a copy of this

NPRM by submitting a request to the

FAA, Central Region, Office of the

Assistant Chief Counsel, Attention:

Rules Docket No. 96-CE–40-AD, Room

1558, 601 E. 12th Street, Kansas City,

Missouri 64106.

Discussion

The Luftfahrt-Bundesamt (LBA),

which is the airworthiness authority for

Germany, recently notified the FAA that

an unsafe condition may exist on certain

Grob G 109 and G 109B sailplanes. The

LBA reports that the landing gear on

three of these sailplanes failed during

landing. An investigation of these

incidents revealed landing gear legs

with fatigue cracks and weak retaining

bars from an error in the manufacturing

process. This condition, if not detected

and corrected, could result in landing

gear failure and possible loss of the

sailplane.

Related Service Information

Grob has issued Service Bulletin TM

817–39, dated January 4, 1994, which

specifies procedures for inspecting and

modifying or replacing the landing gear

retaining bars and the landing gear legs.

The landing gear retaining bar should

have a minimum radius of 3.0

millimeters (mm) on the chamfer. If the