Consumer Law: Car Leases
- What are the advantages of leasing, instead of buying, a new car or truck?
- Why are lease payments lower?
- What are the risks of leasing?
- Can I end the lease early?
- Can I buy the vehicle at the end of the lease?
- How can I protect myself against false statements?
- Does the law offer me any protection when leasing a vehicle?
- What leases does the law cover?
- What does the law require that the leasing company disclose to me before I sign a lease?
- Does the law limit the amount which may be charged?
- What restrictions does the law place upon the advertising of leases?
- What are the penalties if the leasing company violates the law?
- Is the leasing company required to disclose whether the vehicle is a "salvage vehicle"?
- Consumer links related to car leases
What are the advantages of leasing, instead of buying, a new car or truck?
The chief advantage of leasing is the opportunity to drive "more car" for a lower monthly payment than if you buy. Specifically, if you wish to drive a new vehicle every few years the following advantages of leasing may appeal to you:
- lower monthly payments
- minimal or no down payment
- no risk of resale, and
- lower maintenance/repair costs (newer vehicles need fewer repairs)
[Return to top] Why are lease payments lower?
When you buy a vehicle you are paying for the total cost of the car or truck. When you lease ,however, you are paying for the difference in value between what the vehicle is worth when you buy it and what it is worth when you return it at the end of the lease. For example, if you buy a $10,000 car you pay the entire $10,000 (plus interest). If you lease the same $10,000 car for three years, the monthly payment will generally be calculated as follows:
- the "capitalized costs" or selling price is $10,000
- after three years, you guarantee that the value at the end of the lease (" residual value ") is $5,000
- your monthly payment will be based on $5,000 (plus any lease acquisition fees, taxes or insurance charges plus interest) divided by 36 months.
[Return to top] What are the risks of leasing?The primary risk of leasing is that the residual value of the vehicle may not be as high as you had guaranteed. If the value is lower, then you must pay the difference. That guarantee is defined differently in different leases. Some common methods are:
Mileage allowances. Typically a lease agreement will set forth a number of miles that you are allowed to drive the vehicle without paying extra charges. Typically, you may drive between 12,000 or 15,000 annually without extra charge. At the end of the lease you will pay 11-20 cents for each excess mile. For example, if your three-year lease allows 12,000 miles per year (36,000 miles for 3 years) and you drive the vehicle 46,000 miles you must pay for the excess. If your lease set excess mileage charges at 20 cents per mile you would owe 10,000 times 20 cents which equals $2,000.
Repairs. At the end of the lease you do not have to pay for "normal wear and tear". Needed repairs caused by your negligence, however, must be paid for. You are generally allowed to either get the repairs made yourself or allow the leasing company to have them made. Some leases require security deposit paid at the beginning to cover such repairs.
Open end leases. With an open end lease, the leasing company appraises the resale value of your vehicle and then compares this amount to the estimated residual value stated in your lease contract. If more money is owed to the leasing company over and above the security deposit, you must pay the leasing company. This is called a "balloon payment". If no charges are assessed, your deposit is refunded to you.
Closed end leases. Most vehicle leases are closed end. The leasing company assumes the risk that the residual value will be lower than estimated. You are responsible only for any excess mileage charges or needed repairs.
[Return to top] Can I end the lease early?
Generally you are allowed to terminate the lease before the end of the term. Most leasing companies do, however, assess additional charges.
[Return to top] Can I buy the vehicle at the end of the lease?
Most leases do allow you to buy the vehicle when the lease expires for a price which is set in the original lease contract. Generally you have the option to either pay cash, arrange your own financing or finance with the lease company.
[Return to top] How can I protect myself against false statements?
The dealer should not make fraudulent misrepresentations regarding the lease of the vehicle, i.e. statements which the dealer knows to be untrue. Under revisions to N.R.S. 598.0915 - 598.092, which were passed by the 1999 Nevada Legislature , the laws defining "deceptive trade practices" were expanded to cover, not only the sales of goods and services but also the leasing of goods and services. Under the new law, it is considered to be a "deceptive trade practice" if a dealer fraudulently alters any contract, written estimate of repair, written statement of charges or other document in connection with the sale or lease of goods or services or knowingly makes any false representation in a transaction. These laws apply to vehicle leases and if a dealer violates them, the consumer may sue the dealer for "consumer fraud" under N.R.S. 41.600. If successful, a court could award the consumer could both actual damages and attorney fees. Punitive damages under N.R.S. 42.001,et seq. could also be awarded.In Nevada, vehicle dealers and brokers must post a $50,000 bond. Under a change adopted by the 2001 Nevada Legislature, N.R.S. 482.345 and N.R.S. 482.3333 were amended to require that the undertaking on the bond includes any breach of a consumer contract and deceptive trade practice in addition to the previously covered fraud and fraudulent representation .
It is difficult to prove false statements especially if you later sign a contract stating something else. It is best to have another person present as a witness to your conversations with the dealer. It is also wise to read all documents before signing and to insist that any spoken promises are placed in writing. If the dealer will not put his promises in writing they may not be enforceable by a court.
[Return to top] Does the law offer me any protection when leasing a vehicle?
Yes. In 1992, Congress passed the Consumer Leasing Act (also known as "Truth in Leasing"). 15 U.S.C. 1667. The Act requires that leasing companies disclose the important terms of the lease agreement so that you have a better chance of understanding what you are signing. The Act also requires certain disclosures in the advertising of leases.
[Return to top] What leases does the law cover?
The law applies to personal property (not only vehicles - but also furniture, appliances, and other personal property) leased by an individual for more than four months for personal, family, or household use. The total contractual obligation may not exceed $25,000. It does not cover daily car rentals or month-to-month rentals that you can cancel without penalty at the end of the period. It also does not cover leases for apartments or houses or the furniture that comes with an apartment. Property leased to companies or individuals for business use is excluded. 15 U.S.C. 1667 (1).
[Return to top] What does the law require that the leasing company disclose to me before I sign a lease?
First the law requires that you receive a written statement of the costs including:
- The amount of any advance payment (such as a security deposit),
- The number, amount, and dates your regular payments are due,
- The total amount of your regular payments,
- The amount that you must pay for license, registration and taxes, and for any other fees, such as maintenance.
Second, the law requires that you be told in writing about certain terms of the lease including:
- The kind of insurance that you need,
- Any express warranty on the property,
- Responsibilities for maintenance and repairs,
- Any standards for "normal wear and tear",
- Penalties for default or late payment,
- How either party can cancel the lease and any charges to do so, and
- Whether or not you can buy the property and under what terms.
[Return to top] Does the law limit the amount which may be charged?
Generally no. There's one exception, however. "Balloon payments" are presumed to be excessive if they exceed three times the average monthly payment in an open end lease (unless you agree to make a higher payment or you use the property more than the average). The leasing company may seek a larger payment by going to court, where it has the burden to prove that its original estimate, although wrong was reasonable and made in good faith. The leasing company must pay your attorneys fees in such a lawsuit, whether or not it wins.15 U.S.C. 1667b(a).In an open end lease, if you disagree with the leasing company's determination of residual value, you may obtain at your own expense, a professional appraisal of the leased property by an independent third party agreed to buy both you and leasing company. That appraisal is final and binding on both. 15 U.S.C. 1667b(c).
There is no specific limit on the penalties or other charges for delinquency, default or early termination which may be specified in lease. Such charges ,however, must be "reasonable" in light of the anticipated or actual harm caused by the delinquency; default or early termination; the difficulties of proof of loss and the inconvenience or difficulty in otherwise obtaining an adequate remedy. 15 U.S.C. 1667b(b).
[Return to top] What restrictions does the law place upon the advertising of leases?
If the leasing company advertises the amount or number of payments or that there is no down payment , the ad must also mention several other important terms. Included are (a.) the total regular payments, (b.) your responsibilities at the end of the lease, and (c.) whether or you may purchase the property. This is to make sure you get enough information from the advertisement to understand the offer and compare it with others. 15 U.S.C. 1667c.
[Return to top] What are the penalties if the leasing company violates the law?
If the leasing company fails to give you the required information, or does so improperly, you may sue for damages equal to 25% of the total of the monthly payments (but not less than $100 nor more than $1,000) plus any actual damages which are suffered. 15 U.S.C. 1667d(b) & 1640 (a)(2) (A). If an advertisement violates law you may sue the leasing company for your actual damages. 15 U.S.C. 1667d(b). In any successful lawsuit you may also recover your court costs and reasonable attorneys fees. 15 U.S.C. 1640 (a) (3). You must sue within one year of the termination of the lease agreement. 15 U.S.C. 1667d(c). The law also provides criminal penalties for violators.The Federal Trade Commission (FTC) is responsible for enforcing the Consumer Leasing Act. You may contact the regional office in San Francisco at (415) 744-7920. If you have been damaged by a violation you may wish to contact an attorney. If you cannot afford attorney you may contact:
Washoe Legal Services, Inc.
650 Tahoe Street
Reno, Nevada 89509
(775) 329-2727
FAX: (775) 324-5509
Is the leasing company required to disclose whether the vehicle is a "salvage vehicle"?
Yes, effective October 1, 2003, dealers and leasing companies must (a) disclose in writing any information that the dealer knows or reasonably should know concerning whether the vehicle is a "salvage vehicle" before executing a contract of sale or a long-term lease; (b) provide a copy of the disclosure to the buyer; and (c) retain the written disclosure in his records. A "salvage vehicle" means a motor vehicle that at any time has been declared a total loss vehicle, flood-damaged vehicle, non-repairable vehicle or had "salvage" or a similar word placed on any title issued for it. Moreover, a dealer shall not remove or conceal a marking on a title which indicates that the vehicle is a salvage vehicle.If you are harmed by a dealer who violates the new law, contact an attorney immediately. Violators may be charged with a crime and ordered to pay restitution to the victim. A person who violates the new law, with the intent to defraud, is liable to any purchaser or lessee of a motor vehicle who is harmed by that violation for either three times actual damages, $5,000 or actual damages plus any punitive damages allowed by the court, whichever is greater. If you win a lawsuit, you can recover costs plus reasonable attorney's fees.
Washoe Legal Services, Inc.
650 Tahoe Street
Reno, Nevada 89509
(775) 329-2727
FAX: (775) 324-5509
Consumer links related to used car purchases
The following web sites may provide additional information or assistance regarding consumer law:American Bankruptcy Institute (ABI) Consumer Information Center http://www.abiworld.org/consumer/A.html
Better Business Bureau
http://www.bbb.org/Consumer Law Page (Alexander Law Firm)
http://consumerlawpage.com/Fair Debt Collection (FTC)
http://www.ftc.gov/bcp/conline/pubs/credit/fdc.htmNational Association of Consumer Advocates (NACA) Home Page
http://www.law.umkc.edu/lawresources/naca/naca-home.htmNational Consumer Law Center
http://www.consumerlaw.org/
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