It’s hard to miss the ads, the commercials, the sheer torrent of words and voices from dealers urging motorists to lease their cars.
“Absolutely no money due at delivery!” scream some. The cost sometimes seems too good to be true.
It’s equally hard to figure out exactly what the cost is and what kinds of hidden penalties and fees may be lurking.
That’s why the Federal Reserve Board and the Federal Trade Commission teamed up Tuesday to publicize new disclosure rules for auto leasing that take effect Jan. 1.
The new rules will require all dealers to disclose specific cost information to consumers in a uniform, understandable way. The Fed and FTC are also hoping to widely distribute a brochure, “Keys to Vehicle Leasing,” that has the uniform leasing disclosure form and describes basic information consumers need to consider when leasing. The brochure would:
– Urge consumers to consider costs at the beginning of a lease, at the middle of a lease (such as early termination charges) and at the end of a lease.
– Encourage comparing different lease offers and negotiating terms.
– Spell out consumers’ rights and responsibilities when leasing.
The average price of a new car now tops $20,000, a level that makes it difficult for many consumers to come up with the necessary down payment and hefty monthly payments needed to buy. That has fueled an explosion in car leasing, which now accounts for 35 percent of new cars delivered to consumers.
Because of the growth in auto leasing and the complexity of the transactions, Fed Governor Laurence H. Meyer said Tuesday, it became increasingly clear the consumer needed help.
The Fed oversees leases of personal property, including vehicles, furniture and computers, covered by the Consumer Leasing Act, a 1976 amendment to the Truth in Lending Act. At the direction of Congress, the Fed first drew up what’s known as Regulation M governing leasing 20 years ago.
The FTC enforces the Consumer Leasing Act, and Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection, said Tuesday the agency “has made automobile leasing advertising enforcement a priority.”
Bernstein added, “There is massive confusion among consumers. We will be challenging deceptive ads,” such as those that promise “zero down” but charge substantial hidden fees. The changes, she said, are aimed at “making consumers better informed, sharper shoppers.” The FTC and the Fed want people to “look before you lease.”
Florida Assistant Atty. Gen. Jack A. Norris Jr. said his state investigated auto leasing and discovered about 30 different methods used by unscrupulous dealers, most related to the lack of disclosure.
“Under the old rules, dealers didn’t have to disclose the value or price of the car,” said Norris. “Consumers couldn’t get the basic information they needed.”
What prompted Florida’s investigation, said Norris, were complaints from elderly residents who thought they had signed contracts to buy cars, only to discover they had agreed to lease cars at above-sticker prices. Such a scam is called “flipping,” he added.
Dealers were also guilty of giving “no credit for trade-ins.” Norris said the average fraud in Florida totaled $1,500. In that state, some $5 million was eventually recovered for consumers.
Illinois started looking at the auto leasing issue several years ago, said Pat Kelly, chief of the Consumer Protection Division in Atty. Gen. Jim Ryan’s office. Consumers weren’t even aware of the overall cost of leases, said Kelly.
But that changed when the legislature passed a law that took effect last year. It requires dealers to disclose the “gross capitalized cost,” which includes the value of the car plus items like service contracts and insurance; “capitalized cost reduction,” which includes any net trade-in allowance, rebate, non-cash credit and any cash payment; “adjusted capitalized cost,” used in calculating the base monthly payment; and “residual value,” the value of the car at the end of the lease used to calculate the monthly payment.
Frank McCarthy, executive vice president of the National Automobile Dealers Association, and Angelo Nyars, president of the Association of Consumer Vehicle Lessors, also lent their support to the government effort Tuesday.
“The consumer wins today,” said McCarthy. “New-car dealers support full disclosure. This will allow consumers to compare apples to apples.”
The new rules will require dealers to change their ads, McCarthy said. “They weren’t necessarily wrong or illegal in the past,” he emphasized, but they contributed to the confusion.
Nyars, whose group’s 2,200 member companies account for 70 percent of the leasing market, called the new rules “a delicate balancing between the consumer’s need for information” and regulation.
Information on the leasing rules is available on the Internet at http://www.ftc.gov and at http://www.bog.frb.fed.us/pubs/leasing.
The Consumer Leasing Act covers leases of at least four months for personal property with a value of up to $25,000. That should not be confused with the price of the car, officials said. Most car leases have a value of under $25,000, since consumers are merely paying for a portion of the overall value of a car that might be worth much more.
