Which regulation requires disclosure of the annual percentage rate in advertising?
A triggering term is a word or phrase that, when used in advertising literature, requires the presentation of the terms of a credit agreement. Triggering terms are intended to help consumers compare credit and lease offers on a fair and equal basis. Triggering terms are set and monitored by the U.S. Federal Trade Commission (FTC). Show
Understanding Triggering TermsWhether in print, broadcast, or online, credit advertising must abide by the Truth in Lending Act passed in 1969, which provides for the enforcement of credit advertising standards. The rule helps protect consumers from predatory advertising and lending practices by assuring the disclosure of consumer credit and lease terms. Key Takeaways
Triggering terms help clarify the conditions under which a consumer is borrowing money. If an advertiser uses any number of terms of a credit agreement, such as how finance charges are computed, when a charge can be imposed, and charges computed as an annual percentage rate, then the advertisement must also contain certain specified disclosures. In short, certain terms—when used to lure customers—trigger additional disclosures. Examples of Triggering TermsOpen-end and closed-end credit arrangements, as well as leases, each have a set of triggering terms associated with them. For example, if any of the following sample triggering terms are used in advertising, then disclosures must be made:
If any of the above term triggers are used, then the following must be disclosed:
On the other hand, some terms or phrases do not trigger additional disclosures. Examples include, financing available, low or no down payment, easy monthly payments, pay weekly, and terms to fit your budget. Triggering Terms Special ConsiderationsCarefully reading disclosures can help consumers get an accurate picture of the cost of borrowing money; being oblivious to the terms of a loan and the charges incurred can cause a consumer to pay more than they should for credit or become more indebted than they intended. Meanwhile, a way for credit companies to meet disclosure requirements is by using real-life repayment examples. For instance, if a mortgage lender is advertising a 5% down payment on loans, they might provide an example that shows a 30-year fixed-rate loan, the repayment amounts, and the interest rate that was used at the time of the advertisement. With more people interacting with financial institutions online, there is an opportunity for more online advertising. Online advertising can be an effective way to communicate quickly with current customers and members — and also potential customers and members. But financial institutions have to ensure their ads follow the applicable regulations, such as Regulation B, Regulation Z, Regulation DD, Fair Housing Act. Those regulations list “triggering terms,” which are words that, when used in an ad, require you to include specific information on the credit costs and terms you are offering. Here are are the “triggering terms” and specific requirements for various advertisement types, including deposits, closed-end loans, open-end loans and non-deposit investment deposit products. Triggering terms for closed-end loansThe number of payments or period of repayment, such as 48-month payment term or 30-year mortgage (this is often the most overlooked triggering term)
If any of the triggering terms listed above are included in an advertisement, the advertisement needs to include the terms of repayment, including any balloon payment, the annual percentage rate or APR (including a statement that it may increase, if applicable) and the amount or percent of the down payment (credit sales transactions only). The phrase “terms of repayment” means a potential loan amount, interest rate, payment amount and term of the loan, such as 12 monthly payments of $85.61 per $1,000 borrowed at an interest rate of 5%. Additional dwelling secured closed-end loans requirements
You can help reduce consumer confusion by reviewing the advertisement to make sure it clearly indicates if the interest rate is a fixed rate or variable rate. Oftentimes ads will state that the interest rate is a fixed rate and then in the fine print the disclosures will indicate that the rate may vary. *Also, applicable for open-end HELOC advertisements Triggering terms for open-end loans
The most common triggering term that we see is the APR included on advertisements as a way to capture the consumer’s attention. If your open-end credit advertisement includes any of the triggering terms listed above, the ad needs to include: any minimum, fixed, transaction, activity or similar charge that is a finance charge along with the periodic rate that may be applied, expressed as “APR,” and any membership or participation fee required for the open-end plan. Variable rate plans need to disclose the variable rate feature and include the APR by using the current rate, the APR as of a recent specified date or providing an estimated APR with a disclosure that it is an estimate. Discounted variable rates need to disclose the introductory APR and the time period it will be in effect, along with the current index rate and a statement that the rate may vary. Additional HELOC requirements include, disclosing any loan fees that are a percent of the credit limit under the plan and an estimate of any other fees imposed for opening the plan. On variable rate HELOC ads, the maximum APR that may be imposed needs to be disclosed. For variable rates not based on the index and margin used to make future adjustments, the advertisement needs to include the period of time the initial rate is in effect and a reasonably current APR that would be in effect using the current index and margin. Advertisements need to disclose any balloon payment, if applicable, when a minimum periodic payment is listed. HELOC ads should not include any misleading tax-deductible statements. You should review open-end credit advertisements to make sure that discounted rates clearly indicate the time period they are in effect, as this is sometimes confusing to the consumer. Another important thing to do is review HELOC ads with triggering terms to ensure all fees associated with opening the plan are disclosed and not just an origination fee charged by the financial institution. Requirements for deposit advertisementsThe annual percentage yield (APY) is the triggering term for deposit advertisements, which would require additional disclosures. When the APY is listed, the advertisement needs to include the following:
Additional disclosures for deposit advertisements that include a bonus
Deposit interest rate sheets, like loans, are considered an advertisement, if provided to consumers, and would require the information listed above to be included on the rate sheet. As you create or review a deposit advertisement make sure to closely look at the APY and interest rate listed to ensure it is disclosed to two decimal places, as that is an easy but overlooked requirement. All applicable tiers should be clearly disclosed on the advertisement to allow consumers to understand the interest rate and APY that will apply to any account balance and be careful to avoid gaps in tiers, every penny should be within one of the tiers. Bonus advertisements can be difficult to disclose when the bonus is applicable to multiple account types (i.e. Get a $25 gift card for opening any checking account), as it can then require you to disclose multiple APYs and triggered terms for all the available accounts. The commentary to Regulation DD does provide some options for this scenario by allowing a message that explains that rates may vary by term or type of account, with examples provided. For example, if an institution offers a $25 bonus on all time accounts and the annual percentage yield will vary depending on the term selected, the institution may provide a disclosure of the annual percentage yield as follows: “For example, our 6-month certificate of deposit currently pays a 3.15% annual percentage yield.” Of course, this would need to be expanded to include the other required disclosures when an APY, triggering term, is disclosed. Non-Deposit Investment Products (NDIP)Advertisements for non-deposit investment products must include a statement that the product is not FDIC/NCUA insured; is not a deposit or other obligation of, or guaranteed by, the depository financial institution; and is subject to investment risks, including possible loss of the principal amount invested. The important thing to keep in mind is that the NDIP advertisements need to be clearly segregated from advertisements of insured products offered by the financial institution in combined advertisements. The official membership (FDIC or NCUA) should not be included on these ads. UDAAP considerations should always be kept at the top of your mind as advertisements need to be clear and understandable. When creating ads that will be placed on social media, the financial institution should take into consideration the format in which the advertisement will be viewed by the consumer and make sure that any additional disclosures required by triggering terms (listed above) are clearly available to the user. Multi-page advertisements (even via social media) must contain a clear link directing viewers to additional disclosures. Image adsKeep in mind, image ads, or ads that don’t advertise a specific product or service, but promote the name of the financial institution, should include the official membership (FDIC/NCUA) disclosure. What is APR in advertising?Annual percentage rate.
The advertised annual percentage rate may be expressed using the abbreviation “APR.” The advertisement must also state, if applicable, that the annual percentage rate is subject to increase after consummation. 5.
What is the regulation letter for the Truth in Lending Act?Regulation Z is a U.S. Federal Reserve regulation that implemented the Truth in Lending Act and introduced new protections for consumer borrowers.
When an institution states a rate of return in an advertisement it must?Advertising rate information (§ 230.8(b)) When an institution states a rate of return in an advertisement: . It must state the rate as an “annual percentage yield,” using that term, .
What is the one click away rule?The one-click-away rule: Those disclosures must be made either in the message itself or on a Web site that's one click away from the message. (Twitter is an exception; more on that in a moment.) As we'll see, that makes meeting your disclosure requirements very simple.
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