Connecticut is likely to be the first state to require lessors to disclose a percentage lease rate in all consumer leases, effective next year.
The state legislature passed the disclosure requirement in July as part of a general auto leasing disclosure bill. The statute, which takes effect July 1, 2000, creates problems for leasing companies, who believe lease rates can be too easily manipulated.
'Two lease transactions can have the same term and same payment on the same car, but have different rates,' said Liz Huber, a Los Angeles attorney with Hudson Cook, a Washington, D.C., law firm specializing in auto finance.
The statute prescribes a formula for figuring the lease rate, but the calculation is unworkable, said Huber. 'The way the legislature is requiring (lessors) to calculate the rate could cause some weird results - like a negative interest rate or lease rate,' she said.
Huber and other industry lobbyists are going to go back to the Connecticut Legislature to ask lawmakers to postpone the statute's effective date. The industry would use the extra time to develop a better lease rate formula.
Some industry advocates believe the Connecticut measure passed because of strong support from Attorney General Richard Blumenthal. The attorney general's consumer Web site advises lease shoppers to ask what the lease rate is.
'The industry response was not enough (to fight the lease rate bill),' said Randall McCathren, general counsel for Bank Lease Consultants Inc. in Nashville, Tenn. Bank Lease Consultants is a consulting firm with major captive finance companies and large banks as clients. 'This is not the first time that a state legislator has floated a lease rate disclosure bill.'
Similar proposals have come up in Colorado, Indiana and Michigan in recent years, but industry advocates persuaded sponsors to drop the lease rate proposal by explaining the loopholes and technical problems, said McCathren.