Oct 23, 2026 · 4 min read

What Federal Law Says Your Car Lease Must Tell You About Buying It

Regulation M requires consumer car leases to disclose the purchase option, early termination, wear charges and more. Here is what to look for before you buy out your lease.

By Joe, Managing Director, Champion Auto Finance

Most people meet their lease contract again only when the lease is ending. By then the questions are practical: can I buy the car, what would it cost, and what happens if I just hand it back? A federal rule called Regulation M, issued under the Consumer Leasing Act and published by the Consumer Financial Protection Bureau, requires many consumer car leases to answer several of those questions in writing.

This article walks through the parts that matter at lease end. It is general information, not legal advice, and it describes the rule as published in section 1013.4 of the federal regulations. Whether the rule covers your lease depends on details such as the lease length and whether the car is for personal, family or household use, so check that before relying on it.

The purchase option: does the lease let you buy the car?

The rule says the lease must state whether you can buy the leased vehicle. If you can, it has to give the purchase price at the end of the lease, or the method used to set that price. If the option can be exercised before the lease ends, it has to say when. If you cannot buy the car at all, the lease must say that affirmatively.

In practice, that means the answer to "can I buy it?" and the starting point for "what will it cost?" are written into the paperwork you signed on day one. The CFPB's official commentary also treats a purchase-option fee as part of this disclosure, and so are taxes charged because you exercise the option. Look in the same section of your contract for both.

Early termination: ending the lease before the date

The lease must describe the conditions under which either side may end it early, and the amount or the method for calculating any early-termination charge. The rule requires that such charges be reasonable in light of the harm caused and how hard it is to prove the loss. For motor vehicles, the rule also calls for a prescribed early-termination notice.

If you are thinking about buying out the lease ahead of schedule, this is the section that tells you how your leasing company figures an early payoff. The number it quotes you may not be the same as the end-of-term price, so ask for it in writing.

Wear, use and mileage

For motor vehicles, the lease must include a wear-and-use notice, state who is responsible for maintenance, and give the amount or method for any excess-mileage charge. If the leasing company sets standards for wear and use, the rule says they must be reasonable. The official commentary lists disposition charges and excess-mileage charges as examples of end-of-term charges that the regulation does not itself restrict.

This is useful when you compare buying with returning. Excess-mileage and wear charges generally come up when you return the car, so these disclosures tell you what a return could cost you.

Residual value and what you could owe at the end

The lease must also say whether you are liable for the difference between the residual value and what the car is actually worth when the lease ends, and whether you can get an independent appraisal if that liability depends on the realized value. Another provision explains a presumption: if the residual value exceeds the realized value by more than three times the base monthly payment, it is presumed unreasonable and not in good faith, and the leasing company generally cannot collect the excess without winning a court action and paying your attorney's fees. An exception applies when the excess is due to excessive wear or use.

Other items worth finding

The amount due at signing, itemized, and the payment schedule.
The total dollar amount of official, license, registration, title and tax charges.
Required insurance, including the types and amounts.
Express warranties that apply to you.
Late and default charges, which must be reasonable.
Any security interest the leasing company holds.

How to use this before you decide

Pull out your lease and find the purchase-option section. Write down the price or the method.
Ask your leasing company for a written, dated payoff, since the contract states the method and the leasing company produces the number.
Find the excess-mileage and wear language and estimate what a return would cost.
Compare the two sides, including taxes and fees, before choosing.

If something in your paperwork looks different from what the rule describes, ask the leasing company to explain it, and consider talking to a consumer attorney or your state's consumer protection office.

Common questions

Does the lease have to say whether I can buy the car?

Under Regulation M, a covered consumer lease must state whether you may buy the vehicle and, if so, the price at lease end or the method for setting it. If there is no option, it must say so.

Can my leasing company charge for excess mileage?

The rule requires the lease to disclose the amount or method for any excess-mileage charge. It does not forbid end-of-term charges such as excess mileage and disposition charges.

Does Regulation M cover every lease?

No. It has limits, including lease length and whether the car is for personal, family or household use. Check the rule or ask the leasing company whether it applies to your lease.

The Odometer Statement You Sign When You Buy Your Leased Car

Sources

Champion Auto Finance

Thinking about buying out your lease? Learn more and get started at championautofinance.com, or ask Joe a question.

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Champion Auto Finance is a NJ DOBI-licensed financing partner, not a lender, coordinating lease buyout financing for drivers nationwide. Approvals and terms are subject to lender underwriting. Nothing on this site or in these episodes is legal, tax or financial advice.