Checklist Aims to Answer Auto Leasing Questions : Cars: The effort by several states and Ralph Nader comes a day after the industry moved to improve disclosure.
Responding to the boom in auto leasing and a perceived need for more consumer information, a coalition including 22 state attorneys general and consumer activist Ralph Nader issued a 17-point checklist Tuesday designed to clarify the cost of leasing a car.
Contending that lack of disclosure about leasing transactions could lead to consumer confusion, the Consumer Task Force for Automotive Issues said individuals typically pay about $2,000 too much for leased vehicles. The task force called on leasing companies and auto dealers to make the “Reality Checklist” available to all consumers interested in purchasing an auto lease.
The action came one day after the leasing industry moved to improve consumer disclosure.
The American Financial Services Assn.--a trade group that represents the financing arms of General Motors Corp., Ford Motor Co. and Chrysler Corp. and other leasing companies--said Monday that it asked its 350 members to voluntarily adhere to new disclosure standards and create standard industry definitions that will allow consumers to make apples-to-apples comparisons.
“There is a general consensus that consumers need to understand and look at the details of their lease agreements closely,” said Lynne Strang, a spokeswoman for the leasing trade group. “But it’s questionable whether the deluge of numbers and figures (in the Consumer Task Force checklist) will prove to be helpful.”
She said the trade group did not object to any particular items in the checklist, but she said it is too detailed and confusing, giving consumers far more information than is necessary.
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The increased scrutiny on auto leasing is coming at a pivotal time. The Federal Reserve Board, which regulates car leasing, is in the process of its first overhaul of the nation’s 20-year-old car leasing rules.
The Fed’s proposed rules, expected to be released next month, will require leasing companies to disclose pivotal financial terms--including the total cost of the vehicle, the financing costs, monthly payments and the required upfront payments--in a single section of the leasing contract, said Kyung Cho-Miller, a Fed staff attorney in Washington.
The Fed’s current guidelines--called Regulation M--were issued when most car leasing was done by large companies to obtain cars for company use, Cho-Miller said.
But today’s lease customer is increasingly likely to be an individual with little or no background in finance, Cho-Miller said. As a result, the terminology involved in car leasing bears little relationship to that used in other consumer-oriented financing transactions. Leasing contracts need to be revised to better serve these consumers, she said.
Roughly 27% of all consumer car purchases--an estimated 4 million vehicles in 1994--will be leased, according to CNW Marketing/Research, a consulting firm headquartered in Bandon, Ore. Only about 3% of consumer car purchases were financed through leases a decade ago, according to CNW.
The Fed is not contemplating any changes in industry jargon that can also be confusing, Cho-Miller acknowledged. However, there will be a 60-day comment period after the proposed rules are issued next month, and Cho-Miller said she hopes the Consumer Task Force checklist and the American Financial Services Assn.’s new guidelines will help focus the attention of both the industry and consumers on what ought to be disclosed in leasing contracts.
“People are going to be able to look at Ralph Nader’s checklist and they are going to be able to compare that to our guidelines,” she says. “This can only help us. I think we’ll end up with a better product as a result.”
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Remar Sutton, a spokesman for the Consumer Task Force and the author of a car buying book titled “Don’t Get Taken Every Time,” said leasing “can be a very good financing tool. What is wrong with leasing is consumers’ inability to understand the transaction.”
The Consumer Task Force, an Atlanta-based organization that specializes in auto issues, says consumers should know 17 key things about an auto lease before they sign on the dotted line. These range from the total cost of the car and the financing rate to what it would cost to turn the car in early.
Attorneys general from New York, Michigan, Florida, Pennsylvania, Missouri, Arizona and Massachusetts participated in the Consumer Task Force action.
Consumer groups included in the task force include the Center for Auto Safety, the Consumer Federation of America, the Media Access Project, the National Consumers League, Public Citizen, the U.S. Public Interest Research Group and the National Assn. of Consumer Agency Administrators.
Leasing: What You Should Know
A coalition of consumer groups and state attorneys general issued an extensive checklist Tuesday aimed at helping consumers better understand the cost of a leased vehicle. According to the checklist, here are some of the main things you should know:
* Total cost of the vehicle: This is the manufacturer’s suggested retail price plus the price paid for optional equipment such as power steering, air conditioning and tape decks.
* Acquisition fees and other upfront costs: Normally, you must provide a security deposit on the car, pay an acquisition fee for acquiring the lease and pay taxes and license fees upfront. In some cases, you’ll also make a down payment--often termed “capitalized cost reduction”--which serves to lower monthly payments.
* Financing cost: Because you’re leasing rather than buying, borrowing costs are called something else--often “money factor” or “lease factor.” It’s not the same as an annual percentage rate, but it can be translated into one by a good car dealer.
* Residual value: This is the estimated value of the car at the end of the lease term. In a closed-end lease, it can also be the amount you’d have to pay to purchase the car at the end of the lease term.
* Monthly payments: The amount you pay each month to lease the car.
For a full copy of the checklist, send a check for $1 to Consumer Task Force Reality Checklist for Vehicle Leasing, P.O. Box 7648, Atlanta, GA 30357-0648.
