EXTENSIONS of REMARKS May 23, 1996 EXTENSIONS of REMARKS

12478 EXTENSIONS OF REMARKS May 23, 1996 EXTENSIONS OF REMARKS CONSUMER AUTOMOBILE LEASING I. THE NATURE OF THE PROBLEM panies to-hide one of these key variables, as ACT OF 1996 Part of the problem comes f ram the com most now do, the attorneys general com plexity of lease transactions. As a special task mented, is to invite abuse. Not requiring dis force of the State attorneys general reported closure of a lease interest rate, they noted, is HON. JOHN J. LafALCE to the Federal Reserve Board in November, tantamount to the hiding of valuable informa OF NEW YORK most consumers are not yet familiar with lease tion from consumers. IN THE HOUSE OF REPRESENTATIVES transactions. The task force cited the way in In Canada, lease annual interest rates will Thursday, May 23, 1996 which the automobile industry has chosen to soon be a required disclosure item in all prov structure lease transactions, both the terms inces. A national working group of provincial Mr. LaFALCE. Mr. Speaker, I am today in used and their application in contracts and ad and Federal officials recently agreed that les troducing legislation to provide consumers with vertising, as making leases far more complex sors should be required to disclose a lease the information they need to make informed than the traditional sales situation. This com rate as an annual percentage rate. Last July, decisions about automobile leases. My bill, the plexity creates enormous opportunity for mis the National Conference of Commissioners on consumer Automobile Leasing Act of 1996 representation and abuse. Uniform State Laws released a study urging would update and strengthen current Federal uniform State consumer leasing laws and rec requirements for automobile lease disclosure Problems also stern from inadequacies in current laws and regulations governing lease ommending required disclosure of lease inter and advertising under chapter 5 of the Truth in est rates to allow comparison shopping by Lending Act. disclosure and advertising, particularly at the Federal level. The Consumer Leasing Act was consumers. This same requirement is needed Automobile leasing is a growing phenome enacted as chapter 5 of the Truth in Lending in Federal law. Without disclosure of a lease non that is supplanting traditional new car Act in 1976, long before Congress could have rate, according to the consumer Federation, sales and dominating automobile advertising. anticipated the current upsurge in automobile consumers have no way of computing the real It is the automobile industry's answer to the leases. Federal regulations governing lease cost of a lease. growing affordability gap between rising new disclosure and advertising have not been re All of these problems in automobile leasing car prices and stagnating family inc '1es. vised or updated in any significant way since are compounded by lease documents that A decade ago consumer leases r .,,.presented their issuance by the Federal Reserve Board hide critical disclosures among technical lease less than 5 percent of all new car transactions. in 1981. This creates serious problems even terms and that confuse consumers with legal Today, more than 30 percent of all new auto on technical grounds. The dollar amount of the jargon, imprecise terms and byzantine pay mobile transactions involve leases. By the leases covered by the act, for example, is in ment and penalty formulas. Key consumer in year 2000, some auto industry experts predict, adequate and will permit increasing numbers formation such as the price of the leased auto leases will constitute over half of all new car of auto leases to escape Federal regulation. mobile, is not clearly disclosed or is hidden in transactions and a significant portion of used Civil penalties under the act also are woefully broader cost amounts. Fees paid as part of care transactions. inadequate to deter violations by automobile the vehicle capitalized cost or the payment re This rapid growth in automobile leases has dealers and leasing companies when viewed quired at lease signing may not be identified and itemized. And major costs after the lease generated a concomitant increase in lease ad in comparison to potential profits. is signed, such as vehicle delivery charges vertising. The Center for consumer Affairs at The inadequacies of current law and regula and lease-end disposition fees, are obscured the University of Wisconsin reported last year tion present additional problems in practice. or hidden to such a degree that the Federal that its 6-year study of advertising in the Mil These laws and regulations off er no consistent Trade Commission says many consumers are waukee market showed that lease advertising standards governing clear and conspicuous unaware of their existence. had grown from a relatively infrequent occur disclosure for either lease contracts or adver But it is in the area of lease advertising that, rence to the most commonly advertised con tising. They permit disclosure far too late, usu in my view, the problems and abuses of cur sumer transaction in that market. Automobile ally at the time a lease is signed, and some rent automobile leasing are most evident. You leases now figure as prominently as, if not times even after a vehicle has been ordered more prominently than, traditional automobile only have to turn on the television or open the and the consumer has paid a deposit or other advertising sections of any local and regional sales transactions in advertising in the Wash fee. They off er no clear standards for nontradi newspaper to find advertisements that rou ington, DC market and in my congressional tional advertising, for example, in commercial tinely feature deceptively low monthly lease district in western New York. Leasing clearly mailings, toll-free telephone numbers or on the rates or other attractive aspects of a lease has become a reasonable alternative to buy Internet. They permit lease advertising to mix while obscuring or omitting required informa ing a new automobile not just for luxury car terms and costs of leases and installment tion about the costs and restrictions of the buyers, but also for middle-class families, for credit sales, which may easily confuse and lease; scroll consumer information quickly retirees on fixed incomes and even for college mislead consumers. And they permit so-called across the television screen or in mouse sized students. And lease advertising now seeks to come-on promotions that have little relevance type in print advertisements to make it difficult appeal to all these markets. to the terms actually offered to consumers or for consumers to see or read; highlight no or Automobile leases can be beneficial for con the vehicle models actually available. zero downpayrnent amounts without stating sumers, particularly in providing more man One of the most serious omissions of cur the substantial charges and fees a consumer ageable monthly automobile payments and rent regulations is the lack of any requirement may actually have to pay upon signing the lower maintenance costs. Unfortunately, it is to disclose the annual interest rate implicit in lease; and combine disclosure for numerous often very difficult for consumers to under lease transactions. The lease interest rate has vehicle models in confusing tiny print or mix stand the terms of auto leases and to know been described by State Attorneys General, the payment amounts, downpayrnents, interest whether they actually save money with a the Consumer Federal of America, the Amer rates, and other items for leases with those of lease. As the National Center for Study of Re ican Association of Retired Persons [AARP] credit installment transactions. sponsive Law commented to the Federal Re and other organizations as the critical factor in The Federal Trade Commission summarized serve board last year, current lease pro the lease equation. Together with the lease these problems earlier this year in detailed motions may deceive consumers into believing term, the capitalized cost of the automobile comments to the Federal Reserve Board: that they are getting a better deal with a lease and the vehicle residual value, it is one of the Many lease advertisements today may fall than a credit purchase, when this may not be four variables that determine the consumer's short of the "clear and conspicuous" stand true. monthly lease payment. To allow leasing corn- ard. Currently many television and some e This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. May 23, 1996 EXTENSIONS OF REMARKS 12479 print advertisements boldly promote certain interest rate and other changes to enhance cles leased by the advertising dealer with op attractive lease terms and regulate the re lease disclosure and advertising advocated by tion packages most commonly requested by quired lease disclosure to fine print or a lo the Consumer Federation and other consumer consumers. And it would require that key fac cation that is both inconspicuous and barely tors used to calculate monthly lease pay visible. Some television advertisements use organizations. background music or flashing images that More specifically, my legislation would mod ments-the lease terms, vehicle residual further obscure the required disclosures. Tel ify and update the disclosure requirements in value, and excess mileage limits-be stand evision advertisements may also flash the current law to provide consumers with more ardized to reflect standard industry practices in disclosures on the screen for only two or visible, more complete, and more relevant in order to minimize their manipulation to three seconds or scroll so quickly that con formation in lease documents about the terms produce artificially low monthly payment sumers are unable to read this important in and costs of auto leases.

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