HOUSE BILL REPORT

                  HB 2680

             As Reported By House Committee On:

             Financial Institutions & Insurance

Title:  An act relating to clarifying the definition of capitalized cost for purposes of the consumer leasing act.

Brief Description:  Clarifying the definition of capitalized cost for purposes of the consumer leasing act.

Sponsors:  Representatives L. Thomas and Wolfe.

Brief History:

  Committee Activity:

Financial Institutions & Insurance:  1/29/98, 2/2/98 [DPS].

HOUSE COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  Signed by 11 members:  Representatives L. Thomas, Chairman; Smith, Vice Chairman; Zellinsky, Vice Chairman; Wolfe, Ranking Minority Member; Grant, Assistant Ranking Minority Member; Benson; Constantine; DeBolt; Keiser; Sullivan and Wensman.

  Staff:  Jim Morishima (786-7191).

Background:  Consumer leases of vehicles are governed by federal and state law.  Both federal and state law require that a lessor disclose certain information to the lessee.  However, the requirements of federal and state law are not the same. 

I.  Federal Law

Federal law defines Agross capital cost@ as the amount agreed upon by the lessor and the lessee as the value of the leased property and any items that are capitalized or amortized during the lease term.

Federal law also requires that the lessor disclose, among other things, the total amount to be paid prior to or at consummation.  For vehicle leases this disclosure must include an itemization of how the amount due will be paid by type and amount.  Federal law also requires a warning to consumers that early termination may result in significant costs. 

II.  State Law

Under state law, Acapitalized cost@ is defined as the amount the lessor places on the vehicle.  This definition can be superseded by federal law. 

In consumer leases of motor vehicles, a statement of any capital cost reduction stated as a total must be stated in the lease along with a statement of the adjusted capitalized loss, which is the gross capitalized cost minus any capitalized cost reduction.  The lease must also contain a warning to consumers that early termination may result in significant costs.  This warning is similar but not identical to the warning required by federal law. 

Disclosures complying with the federal law are to be deemed to comply with state law. 

Summary of Substitute Bill:  SHB 2680 further harmonizes state law with federal law.  The term, Acapitalized cost@ is changed to Agross capitalized cost@ which enables the federal definition of gross capitalized cost to supersede the state definition. 

Again tracking the federal law, a statement of the total amount to be paid prior to or at consummation must be disclosed in the lease agreement.  This disclosure must itemize how the amount due will be paid by type and amount.

The requirement that the lease must contain the capital cost reduction stated as a total is removed.  The warning requirement is also removed.

Substitute Bill Compared to Original Bill:  The substitute bill replaces the requirement that a motor vehicle lease state any capitalized cost reduction stated as a total.

Appropriation:  None.

Fiscal Note:  Not requested.

Effective Date of Substitute Bill:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  This bill harmonizes Washington law with federal law.

Testimony Against:  None.

Testified:  Jim Austin, American Automobile Manufacturers Association (pro); and Steve Blankenship, Ford Motor Company (pro).