Consumers Get Help Understanding Fine Print on Car-Lease Agreements

When Rob and Becky Portman leased their new Chrysler Cirrus recently, they thought they were getting a good deal.

That's what their auto dealer told them. But as they found out through friends, they may have paid hundreds more than was necessary. "The dealer kept telling me what a great bargain leasing is," says Mr. Portman, an electrician from suburban Maryland. "What they didn't say was how much this car actually cost."

On Wednesday, the Federal Reserve Board voted unanimously to help out people like the Portmans. As a result, from October 1997, car dealerships will have to disclose in a one-page document how they calculate monthly lease payments. The Fed has jurisdiction over lease transactions that last more than four months and are less than $25,000, and its ruling will affect millions of consumers. Nearly one-third of all cars on the road were leased in 1995, up from 19 percent in 1989, the Fed says.

"We want people to know how much they're actually paying," says one Fed governor.

The Fed's action, spurred by investigations of deceptive car-leasing contracts, represents the first changes to the Consumer Leasing Act of 1976. Florida and New York are among states that have enacted similar laws recently, but the Fed's rules go further and will apply nationwide.

Dealers will now have to disclose how monthly payments are calculated, provide the vehicle's basic price, and spell out possible penalties for terminating a lease early. They also will have to reveal assumed depreciation charges and the vehicle's value at the end of the lease. The Fed, however, decided not to require dealers to disclose a uniform interest rate - a key component of any lease transaction - citing the difficulties of such a calculation.

"We're pleased with the new plain-language lease rules, but the lack of a standard annual percentage rate is a significant shortcoming," says Janet Shields of the US Public Interest Research Group.

Many consumer activists argue that the rules won't help buyers decide whether to buy or lease, because the monthly dollar amount for a lease and a loan aren't comparable.

Car-leasing companies, however, say they welcome the change. "It's in our interest to protect our integrity and gain consumers' confidence," says Robert McKew, general counsel of the American Financial Services Association, which represents most big car-leasing companies. "We're hopeful these new rules will address some of the problems in the industry."

"The new rules may have a psychological effect - with customers feeling like their interests are better protected when they come in the door," says Ken Speckler of EuroMotorcars in Bethesda, Md. "People love to hate car dealers. Maybe now, they'll hate us less."