Reasonableness Standard

AAA

DEFINITION of 'Reasonableness Standard'

1) A requirement of the Consumer Leasing Act that takes into consideration the individuals' circumstances according to the amount of harm experienced by the lessor if they early terminate, make late payments or cease to make payments. The reasonableness standard looks at delinquency, default or early termination based on the anticipated or actual harm caused by such delinquency, default or early termination; the difficulties in proving the loss; and finally the inconvenience in finding a solution.


2) A benchmark used in court when reviewing the decisions made by a particular party. The reasonableness standard is a test which asks whether the decisions made were legitimate and designed to remedy a certain issue under the circumstances at the time. Courts using this standard look at both the ultimate decision, and the process by which a party went about making that decision.

BREAKING DOWN 'Reasonableness Standard'

1) A good rule to use in evaluating the early termination of any vehicle lease is to compare the blue book value of the car at the time to the total payments made under the lease up to the surrender date. Under the Consumer Leasing Act, you have the right to get an independent appraisal by someone agreed to by you and the leasing company.


2) Along with the business judgment rule, the reasonableness standard makes up the backbone of many business-related court cases. Courts must determine whether or not a particular decision is arbitrarily made, or if it is designed to address a defined issue or risk. One of the major factors influencing a court's decision is whether a party's actions affect "health, happiness and enjoyment of life", and that a party's actions do not disproportionately affect others.

RELATED TERMS
  1. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  2. Consumer Credit Protection Act ...

    Federal legislation that created disclosure requirements that ...
  3. Corporate Action

    Any event that brings material change to a company and affects ...
  4. Business Judgment Rule

    A regulation that helps to make sure a corporation's board of ...
  5. Lease

    A legal document outlining the terms under which one party agrees ...
  6. Excess Judgment Loss

    The amount of additional loss that an insurer is required to ...
Related Articles
  1. Investing Basics

    Understanding Stock Splits

    We explain what they are, the thinking behind them as well as their results.
  2. Mutual Funds & ETFs

    Proxy Voting Gives Fund Shareholders A Say

    You have the right to take part in important company decisions - even if you cannot attend the meetings.
  3. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  4. Personal Finance

    How To Get The Best Price On A New Car

    Find out tips that'll save the haggling and get you the best price on a new car.
  5. Insurance

    The True Cost Of Owning A Car

    Driving is often the most convenient way to get around, but it'll cost you.
  6. Economics

    Is Argentina a Socialist Country?

    Find out why it does not really make sense to call Argentina a socialist country, even though the South American nation has many socialistic tendencies.
  7. Stock Analysis

    Why Walmart Raised Its Minimum Wage

    Read about the potential pros and cons of Walmart's promise to increase its minimum starting salary to $10 an hour.
  8. Savings

    A Look at the Cost and Tax Treatment of College

    Is there more we can do to improve the affordability of post-secondary education? We take a look at how students and colleges are taxed today.
  9. Taxes

    What's Wrong with the American Tax System

    American's are highly taxed and we still run a deficit. We explain why.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Global Healthcare

    Learn more about the iShares Global Healthcare exchange-traded fund which tracks the health care segment of the S&P Global 1200.
RELATED FAQS
  1. What role does the Inspector General play with the Securities and Exchange Commission?

    The inspector general of the U.S. Securities and Exchange Commission (SEC) oversees, audits and conducts investigations of ... Read Full Answer >>
  2. What is a private secondary market?

    Two kinds of private secondary markets exist. The first is a form of buying and selling of pre-existing financial commitments ... Read Full Answer >>
  3. What are the ethical arguments against government subsidies to companies like Tesla?

    The ethical argument behind government subsidies is that they should be put into place to help industries that will, in turn, ... Read Full Answer >>
  4. Has deregulation helped or hurt the profitability of companies in the telecommunications ...

    Deregulation is almost always a double-edged sword in terms of business profitability. The profits of legally protected monopolies ... Read Full Answer >>
  5. What do I do if I think an accountant is in violation of the Generally Accepted Accounting ...

    The Financial Accounting Standards Board (FASB) promulgates generally accepted accounting principles (GAAP) in the United ... Read Full Answer >>
  6. What are the primary risks an investor should consider when investing in the retail ...

    The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!