WASHINGTON -- Federal Reserve staffers will soon distribute to senior management and the Fed governors a notice of proposed rulemaking for changes to Regulation M - the rules that govern consumer leases.
While details of the draft notice are not yet public, the proposal will incorporate many of the comments that bankers have filed with the board during the past nine months, according to one staffer.
Most of those comments were a plea to the central bank to fix what many bankers called unworkable disclosure requirements for consumer leases.
The staffer said the central bank also is amending the proposed rule to comply with the Riegle Community Development and Regulatory Improvement Act, which is awaiting President Clinton's signature.
The bill requires those advertising leases to include a toll-free number in all commercials. Consumers can call the number to get detailed information on the terms of the agreement.
Not all bankers are pleased with this provision. NationsBank senior vice president Patrick M. Frawley wrote in a comment letter that he opposed the "800" number proposal. He said it's not worth the expense of operating a toll-free number because most consumers can get the same information from a local source.
The disclosure provisions arise when banks buy leases from auto and furniture dealers. Reg M requires the institutions to disclose the early termination fee formula to customers. This is the formula used to determine how much consumers pay if they cancel a lease.
But the institutions wrote in comment letters that they are caught between competing regulatory objectives.
When they only state the effect of the fee formula, regulators accuse them of holding back information, they said.
But when they disclose the entire formula, examiners say the information disclosed is too complicated, several institutions contended.
"The board staff can make certain changes to its official staff commentary under Reg. M that can alleviate this dilemma," Huntington National Bank vice president Daniel W. Morton wrote in a comment letter.
"Other changes will be needed to Reg. M itself, and it appears that these can be made without authorizing change in the Consumer Leasing Act."
Mr. Morton said the Fed should rework the rule, focusing on making it possible for consumers to compare the early termination provisions contained in leases.
Banks should disclose capitalized costs, residual values, and monthly payments, he wrote. This information would let customers know the true costs of their leases because they could compare how much the product would depreciate each month.
Mr. Morton also urged the Fed to eliminate the standardized format for disclosure information and to simplify leasing information so institutions can advertise their products on broadcast media.
MMr Frawley of NationsBank asked the Fed to create model leases with acceptable disclosure provisions. As an alternative, he suggested that the Fed include a model disclosure provision in the rule.
Debra G. Lehman, vice president at PNC Bank Corp., suggested that the Fed define what constitutes a "reasonable" disclosure of early termination fees.
She also wrote that the Fed should create standard names for the various formulas that banks use to calculate early termination fees.
Standard names would let consumers know when they are looking at leases with similar provisions, she wrote. Ms. Lehman also suggested the Fed define what constitutes reasonable wear and tear.
Donald R. Klesges, senior vice president of TRW Systems Federal Credit Union, urged the Fed to require disclosure of the annual percentage rate charged on leases. This, too, could help people trying to compare leases, he wrote.