A vehicle lessor is a dealership or leasing company that leases its vehicles to individual lessees. State laws establish the contractual requirements that lessors must comply with when leasing their vehicles to lessees. Vehicle lessors must also comply with federal laws, including federal loan disclosure laws and the Federal Consumer Leasing Act. The Federal Trade Commission administers the federal consumer protection laws, while state regulatory agencies administer state laws.
Consumer Leasing Act
According to the federal Consumer Leasing Act, vehicle lessors who lease automobiles to consumers for personal use are required to disclose their leasing terms in their advertisements and in their written contracts. Vehicle lessors must provide consumers with disclosures of their capitalized loan costs and their financing rates. Attorney Generals in most states protect consumers against deceptive auto leasing practices. To further protect residents, state laws strengthen the existing federal consumer protection statutes and impose additional penalties on leasing companies who violate the federal or state consumer protection laws.
Types of Leases
The two main types of lease agreements are open-end leases and closed-end leases. Lessees subject to closed-end leases can return their vehicles and are not responsible for other fees, except for excessive mileage or usage fees. Lessees subject to open-end leases pay diminution fees, or the difference between their vehicle's fair market value at the beginning of their leases and end of their leases. Under both types of leases, lessees also pay inception fees, or down payments, acquisition expenses and tag and title fees. Lessors may also charge early termination fees if lessees prematurely end their vehicle leases.
Mandatory Federal Disclosures
Federal law requires lessors to use written leases when leasing their vehicles. Their written leases must include mandatory disclosures. Vehicle lessors must state whether they are offering vehicle warranties, require routine maintenance and whether lessees are responsible for regular maintenance or repairs. Lessors must also include any insurance requirements and whether lessees are responsible for insuring their vehicles.
Regulation M
The Federal Reserve Board requires lessors to comply with Regulation M. The regulation requires lessors to include a written disclosure of their financial lease terms by showing annual compound interest charges and annual percentage rates. Regulation M does not apply to lessors who lease vehicles valued at more than $25,000.
State Laws
Many states have passed additional statutes requiring lessors to provide additional disclosures. For example, the New Jersey Consumer Protection Leasing Act gives consumers a 24-hour right of rescission, or "cooling-off" period. Under this act, consumers can rescind their agreements within 24 hours without paying early termination fees.
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