Reviewed May 2016
The Federal Trade Commission has provided guidelines for advertisers who are subject to the federal Truth in Lending Act. Any person who advertises consumer credit transactions, including real estate agents, can be considered an advertiser under the act, even if not actually extending credit himself.
- An “advertisement” is any commercial message that promotes consumer credit. This may include flyers, catalogs, direct mail literature, radio or TV ads, window displays, or point-of-sale literature.
- “Consumer credit” includes credit extended for primarily personal, family or household purposes, but not commercial, business or agricultural loans.
- “Credit,” as defined in the act, refers only to loans extended by a creditor.
- A “creditor” is a person who regularly extends consumer credit for which a finance charge is required or that is payable in more than four installments even without a finance charge, and to whom the obligation is initially payable.
- “Regularly” means more than five times a year, for transactions secured by a dwelling.
‘Triggers’ require disclosure
First and foremost, you can advertise only terms which are available to the consumer. Next, you must consider whether the ad you design has used any “triggered terms,” because if it does, certain required disclosures must be included. Triggers for closed-end credit (including a home loan) include:
- Amount of down payment: “10% down”; “$1000 down”; “90% financing”; “Move in for $1000.”
- Amount of any payment: “Monthly payments under $800 on all our loan plans”; “$697 per month.”
- Number of payments or period of repayment: “Up to 20 years to pay”; “30-year mortgages available.”
- Amount of any finance charge: Note that the annual percentage rate, or “APR,” is not a triggered term. If the APR is disclosed, a simple interest rate may also be included, so long as it is not more conspicuous than the APR. Some general statements are not triggers. These include:
- No down payment;
- Low down payment accepted;
- Terms to fit your budget;
- Financing available;
- Easy monthly payments;
- No closing costs;
- Take years to pay.
Include this information
Once you determine that your ad includes one or more triggering terms, you must be sure to include all of the following information:
- Amount or percentage of down payment;
- Terms of repayment;
- The APR and disclosure of whether the APR will increase after closing. The APR must be calculated to include all components of the finance charge, such as points and mortgage insurance premiums paid by the buyer.
- If the deal involves a buydown of the interest rate, you must disclose how long the lower rate will be in effect, the simple interest rate for the remainder of the loan, and the APR. The actual APR will depend on whether the buydown is stated as part of the credit contract;
- Ads for variable rates must state that the rate may increase. There is a special method for calculating the APR for variable rate loans. Note that buydowns, graduated rates, and step-rates are not variable, because they are known in advance. Discounted variable rates (special first-year introductory rates) must be disclosed.
‘Typical credit terms’
You may meet the law’s requirements by advertising “typical credit terms” where that is appropriate, such as in the ads for a home builder who wants to advertise credit terms for several houses, each with a different price. Such an ad must be clearly labeled and include all the required terms.
This brief summary only touches the highlights of the Truth in Lending Act requirements for advertising. For more information, send for the booklet “How to Advertise Consumer Credit” from the Federal Trade Commission, call (877) FTC-HELP, or visit their web site at www.ftc.gov. You may want to consult an attorney familiar with federal truth-in-lending law and Arizona laws and regulations governing advertisement of credit.
Reprinted from the RAMN Roadrunner with permission from REALTORS® Association of New Mexico
Revised by AAR’s Counsel 8/99