Lately I have reviewed multiple closed-end loan advertisements, with the same compliance issue – not providing the required disclosures when a trigger term was present. A trigger term is an advertised term that requires additional disclosures.
Trigger terms when advertising a closed-end loan include:
(1) The amount or percentage of any downpayment;
(2) The number of payments or period of repayment;
(3) The amount of any payment; or
(4) The amount of any finance charge.
Stating “No downpayment” does not trigger additional disclosures.
If any of the above trigger terms are present then the additional terms that must be disclosed include:
(a) The amount or percentage of the downpayment (the word “downpayment” need not be used in making this disclosure – For example, it can be stated as “3% cash required from buyer”);
(b) The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment; and
(c) The “annual percentage rate,” using that term, and, if the rate may be increased after consummation, that fact shall also be included.
A simple way to meet the requirements for additional disclosures is to have a repayment example. For example: “For a $25,000 auto loan for a term of 60 months with a 2.75% APR, the monthly payment will be $______.” A repayment example may also be stated as a unit cost: “60 monthly payments of $30.25 per $1,000 borrowed.” These examples can be incorporated into the body of the advertisement or reference in the disclosures.
For more specific information reference Truth in Lending (Regulation Z) Subpart C – Closed-End Credit Advertising.