## Facts

- Leonard Applebaum leased a 1995 Nissan Maxima under a standard-form 36-month closed-end motor vehicle lease originated by Reitenbaugh Enterprises and assigned to Nissan Motor Acceptance Corporation (NMAC).
- The lease’s early-termination clause stated that remaining payments and the vehicle’s residual value would be discounted to present value using the “Constant Yield Method” at the implicit lease rate, then reduced by the vehicle’s realized value, yielding an “Early Termination Charge”; any excess would not be refunded.
- The lease referenced the “Constant Yield Method” and “residual value,” but did not explain the constant yield method or disclose the residual value dollar amount set at lease inception.
- About 10 months before the lease term ended, Applebaum ended the lease to obtain a 1997 model lease; the dealer gave a payoff amount of $18,111 and a trade-in value of $12,500, leaving $5,611 as the practical early-termination liability.
- Applebaum requested an explanation of the payoff calculation; he alleged the dealer refused and characterized the method as proprietary.
- Applebaum sued NMAC and Reitenbaugh in a putative class action, alleging violations of the Consumer Leasing Act (CLA) and Regulation M for failing to disclose (i) the method for determining early-termination charges and (ii) the specific residual value used in that determination.
- The district court granted summary judgment for defendants, reasoning the CLA did not require disclosure of the exact formula or definition of “constant yield method,” and treated the lease’s disclosure as sufficient.

## Issues

1. Whether the lease satisfied the CLA and Regulation M requirement to disclose the “method of determining” any early-termination charge when it referenced discounting by the “Constant Yield Method” without explaining it.
2. Whether the CLA and Regulation M required the lease to disclose the specific residual value amount assigned at lease inception when that figure was a key input to the early-termination charge.

## Decision

- The Third Circuit reversed the summary judgment for NMAC and Reitenbaugh and remanded.
- The court held the early-termination disclosure did not comply with the CLA and Regulation M because it did not clearly and conspicuously disclose the method of determining the early-termination charge from the standpoint of an average consumer.
- The court held the lease was required to disclose the specific residual value amount because it was a central component of the early-termination computation.
- The court accepted that the statute does not demand a precise mathematical formula, but concluded that a mere label (“Constant Yield Method”) without an intelligible consumer-level explanation is inadequate.

## Legal Principles

- The CLA and Regulation M require clear and conspicuous disclosure of the method by which an early-termination charge is determined.
- Compliance is assessed from the viewpoint of an average consumer, not industry professionals.
- A disclosure that relies on undefined technical jargon, without explaining how the method operates in general terms, may fail the “method of determining” requirement.
- When the early-termination calculation depends on a residual value selected at lease inception, the method disclosure must include the specific residual value amount to permit meaningful understanding and verification.

## Conclusion

The Third Circuit held that a motor vehicle lease violates the CLA and Regulation M when it references an early-termination calculation using an unexplained “Constant Yield Method” and omits the specific residual value used in that calculation, reversing summary judgment for the lessor and dealer and remanding for further proceedings.


Applebaum v. Nissan Motor Acceptance Corp., 226 F.3d 214 (3d Cir. 2000)