An ad must disclose a number of additional credit terms if it contains a trigger (or triggering) term. A triggering term is any of the following credit terms specifically recited in an ad:
- The amount or percentage of any down payment (e.g., 5 percent down, 95 percent financing, $6,200 down), except when the amount of the down payment is zero
- The number of payments or period of repayment (e.g., 360 monthly payments, a 30-year loan)
- The amount of any payment (e.g., “payments of less than $1,400 per month”)
- The amount of any finance charge (e.g., “total financing costs of less than $3,000”)
The additional disclosure is required even if a triggering term is not stated explicitly but may be readily determined from the ad.
An ad that states “80% financing” implies that a 20 percent down payment is required. In such a case, disclosure is required. However, an ad that states “100% financing” requires no further disclosures because no down payment is required.
Trigger Terms – (continued)
The additional disclosures required in an ad containing a triggering term include:
- the amount or percentage of the down payment.
- the terms of repayment (i.e., the payment schedule, including the number, timing and amount of the payments, including any final balloon payment required to repay the debt).
- the annual percentage rate, using that term or the abbreviation “APR.” If the APR may be increased after consummation of the credit transaction, that fact must also be disclosed.
An ad containing the credit terms could read:
Trigger Terms – (continued)
Disclosures are triggered only when credit terms are specific. When statements about credit terms are general, additional disclosures are not required. General terms that do not trigger the required disclosures would include:
- “Low down payment.”
- “No down payment.”
- “FHA financing available.”
- “Easy monthly payments.”
- “Low interest rates.”
- “Easy credit terms.”
If an ad shows the annual percentage rate without showing any other credit terms (e.g., “6.5% APR” or “1% below our standard APR”), additional disclosures are not required.
An advertiser may include examples of one or more typical extensions of credit that are specific to a particular transaction as a substitute for required disclosures. The ad must contain all of the terms that apply to each example, and the credit terms must actually be available.
If an ad states a rate of finance charge, it must state the rate as an annual percentage rate, using that term or the abbreviation APR. The primary lending rate that may be advertised is the APR. An ad for a loan secured by a dwelling may, in addition, include a simple annual interest rate that applies to the unpaid balance, provided it is not more conspicuous than the APR.
An ad for mortgage credit may show 7% as the interest rate as long as it also includes “7-1/8% APR” (the APR reflects insurance, discounts, points and other charges as well as interest). If the interest rate can change during the loan term, that fact must also be contained in the ad.
Except for television or radio advertisements, additional requirements apply to any ad for credit secured by a dwelling, including promotional materials accompanying applications.
If the ad states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the loan, the ad must clearly and conspicuously (i.e., with equal prominence and in close proximity to any advertised rate) disclose:
- each applicable simple annual rate of interest. In a variable-rate transaction, a rate determined by adding a reasonably current index and margin must be disclosed.
- the period of time during which each simple annual rate of interest will apply.
- the APR for the loan.
If the ad states the amount of any payment, it must also clearly and conspicuously disclose:
- the amount of each payment that will apply over the term of the loan, including any balloon payment. If the loan is a variable-rate loan, the payment amount must be based on a reasonably current index and margin.
- the period of time during which each payment will apply.
- for a first-lien loan secured by a dwelling, the fact that the payments do not include amounts for taxes and insurance premiums, if applicable, and that the actual payment obligation may be greater.
- the APR for the loan.
A television or radio ad stating any of the terms requiring additional disclosures may either:
- state each of the additional disclosures or information required; or
- list a toll-free telephone number, or one that allows a consumer to reverse the phone charges, along with a reference number to be used by consumers to obtain additional cost information.
An Internet or paper ad for a loan secured by the consumer’s principal dwelling may not be misleading with regard to the tax deductibility of the interest paid on the loan. If it states that the advertised credit may exceed the dwelling’s fair market value, it must also clearly and conspicuously state that:
- any interest on the amount of credit exceeding the dwelling’s fair market value is not tax deductible; and
- the consumer should consult a tax adviser for further information.
Prohibited Acts(12 CFR 1026.24(i))
An ad for credit secured by a dwelling must avoid causing confusion between fixed- and variable-rate loans. Therefore, it may not use the word “fixed”:
- in a variable-rate transaction, to refer to rates, payments or the credit transaction unless:
- the phrase “adjustable-rate mortgage,” “variable-rate mortgage” or “ARM” appears in the advertisement before the first use of the word “fixed” and is at least as conspicuous as any use of the word “fixed” in the ad; and
- each use of the word “fixed” to refer to a rate or payment is accompanied by an equally prominent and closely proximate statement of:
- the time period for which the rate or payment is fixed; and
- the fact that the rate may vary or the payment may increase after that period.
- in any other transaction where the payment will increase (e.g., a stepped-rate mortgage transaction with an initial lower payment), to refer to rates, payments or the credit transaction unless each use of the word “fixed” in relation to the payment is accompanied by an equally prominent and closely proximate statement of the time period for which the payment is fixed and the fact that the payment will increase after that period.
- in an ad for both variable-rate transactions and nonvariable-rate transactions, to refer to rates, payments or the credit transaction unless:
- the phrase “adjustable-rate mortgage,” “variable-rate mortgage” or “ARM” appears in the advertisement with equal prominence as any use of the term “fixed,” “fixed-rate mortgage” or similar terms; and
- each use of the word “fixed” either:
- refers only to the transactions for which rates are fixed; or
- if it refers to a variable-rate transaction, is accompanied by an equally prominent and closely proximate statement of the time period for which the rate or payment is fixed and the fact that the rate may vary, or the payment may increase, after that period.
The ad may not include any comparison between actual or hypothetical credit payments or rates and any payment or simple annual rate that will be available under the advertised product if the comparison is for a period less than the full term of the loan, unless:
- the ad includes a clear and conspicuous comparison to the rates and payments required to be disclosed; and
- if the ad is for a variable-rate transaction and the advertised payment or simple annual rate is based on the index and margin that will be used to make rate or payment adjustments over the term of the loan, it includes an equally prominent statement that the payment or rate is subject to adjustment, and the time period when the first adjustment will occur.
Additionally, an ad for credit secured by a dwelling may not:
- state that a product is a “government loan program,” “government-supported loan,” or otherwise endorsed or sponsored by any government entity, unless the ad is for an FHA loan, VA loan or similar loan program that is, in fact, endorsed or sponsored by a government entity.
- use the name of the consumer’s current creditor if the ad is not sent by or on behalf of that creditor, unless:
- the name of the person or lender making the advertisement is disclosed with equal prominence; and
- the ad includes a clear and conspicuous statement that the person making the advertisement is not associated with, or acting on behalf of, the consumer’s current creditor.
- make any misleading claim that the product offered will eliminate debt or result in a waiver or forgiveness of a consumer’s existing loan terms with, or obligations to, another lender.
- use the term “counselor” to refer to a for-profit mortgage broker or mortgage lender, its employees, or any other person working for the broker or lender that are involved in offering, originating or selling mortgages.
- provide information about some trigger terms or required disclosures, such as an initial rate or payment, in a foreign language while providing information about other trigger terms or required disclosures, such as information about the fully indexed rate or fully amortizing payment, only in English.
An ad for a home equity plan may not refer to the plan as “free money” or contain a similarly misleading term.
If an ad shows any finance charges or payment terms related to a home equity plan, it must also clearly and conspicuously show:
- any loan fee based on a percentage of the plan’s credit limit and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range.
- the APR.
- if it is a variable-rate plan, the maximum APR that may be imposed.
An ad stating an initial APR that is not based on the index and margin that will be used to make adjustments during the term of the loan must state, with equal prominence and in close proximity to the initial rate:
- the period of time the initial rate will be in effect; and
- a reasonably current APR that would have been in effect if the index and margin had been used.
If an ad states a minimum periodic payment and a balloon payment may result if only the minimum periodic payments are made, it must state with equal prominence and in close proximity to the stated payment:
- that a balloon payment may result; and
- the amount and timing of that payment based on an assumption that the minimum payments for the maximum period of time permitted are made.
An advertisement for a home equity plan that is distributed in paper form or through the Internet must:
- if it states that the credit limit may exceed the fair market value of the dwelling, also state that the interest on the amount exceeding the fair market value of the dwelling is not tax deductible and that a tax adviser should be consulted for further information.
- clearly and conspicuously, with equal prominence and in close proximity to each listing of any promotional APR or promotional payment, disclose:
- the period of time during which the promotional rate or promotional payment will apply;
- in the case of a promotional rate, any APR that will apply; and
- in the case of a promotional payment, the amounts and time periods during which those payments will apply.
If a consumer asks about the cost of credit and the lender responds orally, the response must state the APR. However, for closed-end credit, a periodic or simple interest rate may also be provided if it is applied to an unpaid balance. If the lender cannot determine the APR for a specific closed-end credit transaction, it may disclose instead the APR in a sample transaction. Other information that applies to the consumer’s specific transaction may also be given (e.g., the contract interest rates and points).
For open-end credit, once a lender states the APR, it may also give the periodic rate.
All loan applicants must be provided with the new federally required disclosures. The Loan Estimate provides information related to the interest rate and principal and interest payments for the loan’s term, as well as insurance and tax information. In the event the loan is a variable-rate loan, it indicates, among many other things, the margin and index upon which the interest rate is based and information regarding the frequency of rate changes.