Attorneys Guiley & Guiley Co. L.P.A., notice to auto dealers of change in law for advertising motor vehicle leases.

NEW RULES FOR ADVERTISING MOTOR VEHICLE LEASES

In 1996 through 1997, Congress, The Federal Reserve Board and the FTC enacted legislation and rules that alter the correct method to advertise an automobile lease. The new laws and rules are already enacted, however mandatory compliance does not begin until October 1997. The new laws and rules will ultimately make it easier to advertise a lease because the volume of information previously required in any advertisement has been reduced.

THE OLD LAW AND RULES

Under the old rules there were three trigger terms. A trigger term is a term, that if used in any advertisement, requires the presence of specific disclosures. The old three trigger terms were:
  1. The amount of any payment.
  2. The number of required payments.
  3. A statement that any or no down payment or other payment is required at the beginning of the lease.
If any of the above three trigger terms were used, then the lease advertisement had to include the following disclosures:
  1. A statement that the transaction advertised is a lease.
  2. The total amount of any payment (such as security deposit, capitalized cost reduction, or lease acquisition fee) required at the beginning of the lease, or a state that no such payment is required.
  3. The number, amounts, due dates, or periods of scheduled payments, and the total of such payment under the lease.
  4. A statement regarding whether the consumer has the option to purchase the leased vehicle, and if so, when, and at what price (the method of determining the price may be substituted for disclosure of the price).
  5. A statement of the amount (or the method of determining the amount) of any liabilities the lease imposes upon a lessee at the end of the term, including, if applicable, a statement that the lessee shall be liable for: (A) a balloon payment and the amount of the payment, (B) an excessive mileage charge including the rate and mileage above which that charge must be paid, (C) a disposal fee and the amount of the fee, (D) the lessee's liability for the difference between the estimated value of the leased property and its realized value at the end of the lease term.
Under Ohio law, disclosure that (1) the transaction was a lease, (2) the amount of the down payment, and (3) the number of payments had to be in a type size no less than one-half the type size used to disclose the monthly lease payment.

THE NEW LAW AND RULES

Under the new law and rules, the number of trigger terms has been reduced to two. The new two trigger terms are:
  1. The amount of any payment.
  2. A statement of any capitalized cost reduction or other payment required to or at consummation, or that no payment is required.
Under the new laws and rules, if any of the above trigger terms are used, then the advertisement must disclose the following information:
  1. A statement that the transaction advertised is a lease.
  2. The amount due at lease inception (money down) including any amounts due at delivery if delivery occurs after consummation such as a security deposit, capitalized cost reduction, or lease acquisition fee.
  3. The number, amounts, due dates or periods of scheduled payments.
  4. A statement that the transaction requires a security deposit.
But in addition to the new rules and laws which change the trigger terms and required disclosures, the FTC is also mandating print size on one issue. The FTC mandates that the print size used to disclose the total amount due at lease signing or at delivery if delivery does not occur at lease inception (see disclosure No. 2 above) must be no less prominent than the print size used to disclose any charge that is part of the total amount due at lease signing or at delivery. Likewise, the Ohio Attorney General still mandates disclosure that (1) the transaction was a lease, (2) the amount of the down payment, and (3) the number of payments to be in a type size no less than one-half the type size used to disclose the monthly lease payment. In order to comply with both of these rules, first determine the correct size print to use for the down payment (no less than one-half of the size print used to disclose the monthly payments), then use the same size print to disclose the total due at lease inception or delivery.

EXAMPLE ADVERTISEMENT

Set forth below is an example of an advertisement (without a motor vehicle illustration), that in this author's opinion, complies with all the various rule changes and includes the proper print size for the various terms.

36 MONTH LEASE

$350/ MONTH

$750 DOWN PAYMENT

$1450 DUE AT LEASE INCEPTION*

*Includes security deposit, plus tax, title and registration

Based upon this author's interpretation of the new rules and laws, the above advertisement is in compliance with all the various federal and state rules and laws. All the additional language that previously had to be included, such as option to purchase, cost or method of determining the purchase price, mileage restrictions and penalties, and the total of the monthly payments are no longer needed.

The reader should note that the type size used to disclose that the transaction is a lease and the amount of the down payment are at least one-half the type size used by the trigger term - the monthly payment. Likewise, the total due at lease inception or delivery is in the same size print as the down payment. Blackstone Legal Publications, Inc., can help any dealership understand what these rules and requirements are.