The Consumer Leasing Act – What Is It?
The Consumer Leasing Act, 15 U.S.C. § 1667, et seq. (“CLA”) is a federal law that was passed in 1976 in order to ensure that consumers will be provided with the meaningful and accurate disclosure of lease terms before they enter into a contract. The law contains many standards and requirements that lessors must follow, as well as legal remedies for injured consumers. Under the CLA, the Consumer Financial Protection Bureau has the authority to make rules and enforce compliance with the law.
What is prohibited and required under the statute?
The CLA applies to consumer leases, both open-end credit plans (for example, the consumer is responsible for the value of the property upon its return and takes on the depreciation risk) and closed-end credit plans (for example, the consumer is not responsible for the value of the property or the depreciation risk). According to the CLA, a consumer lease is defined as a contract for the use of personal property by an individual that extends for a period of over four months. The contractual obligation of a consumer lease cannot be greater than $50,000 (adjusted annually for inflation).
The main goal of the CLA is to make sure that consumers are given sufficient information when shopping for a lease. Thus, lessors are required to provide consumers with certain disclosures that would give the consumer more information regarding their lease. These disclosures must be given to a consumer before they sign a lease. Lessors are required to disclose information regarding costs (such as the number of monthly payments to be made throughout the lifetime of the lease, the amount of any advance payment, and the total amount of any fees) as well as information regarding the lease terms (such as the type of insurance that a consumer would need, the penalty fee for defaults or late payments, and any express warranty for the property).
Additionally, if the consumer is given a buyout option at the end of their lease, the price calculation for the purchase should also be provided in the lease terms. The disclosed information allows consumers to compare the costs of different leases from different companies and determine which company they would rather sign a lease with. It also allows them to compare the terms of the lease with the terms of a loan financing agreement or covering a purchase with cash; so that they can determine what type of transaction they would like to enter into before entering one.
The CLA also contains rules that any business that advertises leases (such as automobile dealers, merchants, and lessors) must adhere to. According to the statute, a lease advertisement is considered to be any message that offers the availability of a consumer lease to the public. An ad can be in visual, oral, or print media, and some examples include telephone solicitations, messages on the TV, messages in newspapers and magazines, and direct mail. If a lease advertisement contains the amount of a lease payment or a statement of a capitalized cost reduction, the business is required to provide clear and conspicuous disclosures that state:
- That the advertised transaction is a lease; and
- The total amount that is due; and
- The number and amounts of payments as well as their due dates; and
- Whether or not a consumer must provide a security deposit.
Additionally, the CLA provides regulations that limit balloon payments. A balloon payment is a payment that is higher than a consumer’s normal monthly payment and it is usually made towards the end of a lease. Balloon payments allow consumers to have lower fixed monthly payments due to the larger payment at the conclusion of the lease. However, because of this large lump-sum payment, balloon payment leases are considered to be riskier than traditional leases. It is for these reasons that the CLA has regulations to protect consumers from predatory balloon payment practices. When entering into an open-end lease, a lessor is required to tell a consumer that they may have to pay a balloon payment. The CLA also requires lessors to make reasonable calculations and estimates in order to limit the balloon payments that a consumer would have to pay at the end of a lease. Specifically, the law limits a balloon payment to no more than three times the amount of a consumer’s average monthly payment. The law also provides consumers with protection and sets reasonable standards regarding early termination and penalties for default or delinquency.
Who does the law apply to, and how can consumers sue?
Consumers have the right to sue lessors who do not comply with the regulations of the CLA. Injured consumers can bring an individual action or a class action in any United States district court or a court of competent jurisdiction.
What damages are consumers entitled to?
If a consumer files a successful lawsuit pursuant to a violation of the CLA, they are able to collect actual damages, and also statutory damages of 25% of their total amount of monthly payments under the lease, and this sum must fall between $200 and $2,000. Consumers can also be awarded court costs and reasonable attorney’s fees. A violation of the CLA can be deemed a violation of the Truth in Lending Act (“TILA”), allowing consumers to attain remedies provided under TILA.
For a class action lawsuit pursuant to the CLA, the court would have to take into account many factors (including the frequency and persistence of the violations, the number of people that were harmed, and the extent to which the violations were intentional) in order to determine the amount of an award. However, the total amount of a class action award would be the lesser of $1,000,000 or 1 percent of the lessor’s or business’ net worth.
What is the statute of limitations?
The statute of limitations period is a legal provision that sets forth the maximum amount of time that a party has to initiate legal proceedings in regard to a particular claim for relief; generally starting from the date that an alleged unlawful action accrued. If a consumer wishes to file a lawsuit under the CLA, they must do so within one year of the termination of the lease agreement.
Are there exemptions?
The CLA does not apply to leases that are made for business or agricultural use, or those made to an organization or a government. The law also does not apply to credit sales (which are subject to the regulations of the Truth in Lending Act), apartment or housing leases, or daily or month-to-month car rentals.
Some of the places that a consumer can look to for help or answers to questions:
The law(s) and statute(s) discussed above can change. So, in the state that a consumer resides in, a consumer protection agency, the Office of the Attorney General, and/or a consumer protection attorney who is licensed in a consumer’s respective state can help a consumer in getting help, up to date information and interpretations, and/or with determining the answers to their questions in regard to the aforementioned laws. The Consumer Financial Protection Bureau can assist as well.