WASHINGTON - The Federal Reserve Board on Wednesday proposed a substantial rewrite of consumer leasing rules, including several new disclosure requirements.
The planned revisions would affect consumer leases of $25,000 or less that extend more than four months. Most such leases are for new cars, although some cover furniture and electronic equipment. Large banks and finance companies control most of this business.
The proposal, out for comment until October, would require bankers to reveal "gross cost" - defined as the price of the product, plus taxes, fees, service contracts, and insurance.
Banks also would have to calculate the "estimated lease charge," which includes all interest and other charges a consumer must pay during the life of the lease.
A standardized form would include these and other disclosures in one place, clearly detailing lease terms. For example, the form lists the cost of terminating a lease after one year, the charge for excessive mileage, and the cost of buying the property after the lease ends.
Currently, companies can spread disclosures throughout the contract document.
The Fed's proposal does not require lessors to calculate the annual interest rate consumers will pay. "Staff believes the burden to the industry would outweigh the benefits to consumers," said staff attorney W. Kurt Schumacher.
That disturbed Fed Vice Chairman Alan Blinder and Governor Janet Yellen. They argued that the new disclosure requirements could make it easier for salesmen to deceive consumers.
Salesmen could jack up the interest rate they use to calculate the lease's cost, Ms. Yellen said. Consumers never would know they were paying this higher rate, she said. All they would see is that the lease cost is less than a monthly car payment, she said.
"You may have ended up with a disclosure statement that is more misleading than informative," she said.
Fed Governor Lawrence B. Lindsey countered that consumers could calculate the rate from data on the disclosure statement.
But Ms. Yellen didn't relent. "A somewhat less knowledgeable consumer than Governor Lindsey could be misled," she said.
Mr. Blinder, who presided at the meeting, stepped in to suggest amending the proposal's introduction to request comments specifically on the pros and cons of requiring lessors to state the annual percentage rate.
The board approved that idea unanimously. If adopted, these would be the first major changes of leasing rules in 20 years.
The Bankers Roundtable supported the plan through general counsel Richard Whiting. "We believe the proposals would represent improvements in the consumer leasing regulations," he said.
The Fed also approved without debate a change in the risk-based capital rules. The central bank now will let banks separately calculate the risk posed by derivatives with maturities longer than five years, from one to five years, and less than one year.
Previously, banks looked only at the risk of maturities less than or more than a year.
