Advertising compliance is critical for three overriding reasons.

It’s the law. You and your company can be penalized severely (through monetary fines and loss of reputation) for non-compliance.

• It maintains USP and Brand consistency. A strong USP and brand is a powerful asset. It can help increase market share, improve customer loyalty, assist in the sales process, and help recruit and maintain employees. It is essential for continued success.
• It’s the right thing to do.

Potential Impacts of Noncompliance

If advertising is not compliant with state and federal laws, investor requirements, or company regulations and policies, then the following may result:

• Reputation damage to YOU, your company and the industry
• Unintentional product and/or service misrepresentation to consumers
• Monetary and civil penalties
• Regulatory cease and desist orders that impact new business opportunities

Keys to Compliant Advertising

• Include the required specific additional disclosure language when using triggering terms. When using triggering terms, the required language must include the down payment percentage or the dollar amount, the term of the repayment with a monthly payment example, and the APR (in bold).
• Avoid misleading advertising tactics, such as using the word “savings.” For example, if the word “savings” is used in an ad, it must refer to actual savings over the life of the new loan vs the remaining amount to be paid on the existing loan.
• Offer only rates, products and/or services that are currently available.

Note: Disclosure requirements are different for closed-end and open-end types of credit.

Where a range of possible combinations of credit terms is offered, the advertisement may use examples of typical transactions, as long as each example contains all of the applicable terms required by regulation. The examples must be labeled as such and must reflect representative credit terms that are made available by you and your company to present and prospective customers.

If all finance charges are calculated as a percentage of the loan and these percentages are the same for all loan amounts, the annual percentage rate will be the same for any of those amounts. If any of the finance charges are flat fees, then examples of typical loan amounts with the corresponding APR must be used in the advertisement.

Advertisements With Terms Requiring Additional Disclosure

Terms That Require Additional Disclosures

When any of the following triggering terms are used in an advertisement, the advertisement must also include the additional disclosures listed below:

• Number of payments (e.g., “Only 180 payments”)
• Period of repayment (e.g., “15-year loans available” or “30-year mortgage”)
• Amount or percentage of any payment (e.g., “Monthly payments under $1,000”, “$525 per month”, or “Pay 5% each month”)
• Amount or portion of any finance charge (e.g., “$100 financing”, “Less than $1,000 interest”, or “$50,000 mortgages, 2 points to the borrower”)

Additional Disclosures

These additional disclosures are required when any of the triggering terms mentioned above are used in an advertisement:

• Terms of repayment
• Annual percentage rate (using those exact words) (If the rate may be increased after loan consummation, then that fact must be stated.)

Terms That Do Not Require Additional Disclosures

When any of the following terms are used in an advertisement, the advertisement does not need to include the additional disclosures above:

• 6% annual percentage rate loans available
• Easy monthly payments
• FHA/VA loans available
• Terms to fit your budget
• Adjustable rate mortgages available

Advertisements With Rate/Finance Charge Information

• If the advertisement states an interest rate or other finance charge, then the advertisement must state an annual percentage rate, using those exact words or the abbreviation APR.
• If the APR may be increased after loan consummation, then the advertisement must state that fact.
• The advertisement must not state any other rate except a simple annual rate of periodic interest.

Such a rate may not be more conspicuous in the ad than the annual percentage rate.

Advertisements With Adjustable Rate Mortgage Information

If an advertisement requiring disclosures promotes a mortgage with an adjustable rate feature (and the initial interest rate advertised is less than current market rate) a composite annual percentage rate must be stated in the advertisement. This rate should be based on the initial rate for as long as it remains in effect and the fully indexed rate for the remainder of the term.

Example: in a 30-year loan with a rate tied to the one-year Treasury Bond Index rate plus 2%, ABC Mortgage may advertise a rate of 4% for the first year, although the Treasury Bond rate at the time is 7.5%. The disclosure should reflect a composite APR based on 4% for one year and 6% for 29 years.

When the advertised program contains a cap feature the APR should reflect that cap. In this example, the APR would be based upon 4% for the first year, 6% for the second year, and 8% for 28 years.

The advertisement must state that the rate is subject to increase after consummation. It does not need to describe the rate increase, its limits, or how it would affect the payment schedule.

Advertisements With Reduced Payment Rate Buydowns Information

In a temporary buydown transaction, you or your company may advertise the reduced payment rate, provided that the advertisement shows:

• The limited term to which the reduced rate applies
• The simple interest rate applicable to the balance of the term

Example: Temporary buydown mortgage in which the buydown agreement provides for 4% payment rate in the first year, 5% in the second year, 6% in the third year, and a 6% note rate, the following is an acceptable rate disclosure:

• 4% 1st year
• 5% 2nd year
• 6% 3rd year
• 6% remainder of loan
• 6.25% annual percentage rate

Although an advertiser may disclose the different payment rates which are in effect during the life of the loan, each loan has only one annual percentage rate. In this example, it would not be proper to disclose any annual percentage rate other than 6.25% (varies depending on other charges and whether or not the seller pays the points).

Payment Schedule

The advertisement may also show the effect of the buydown agreement on the payment schedule for the buydown period. For example, the advertisement may state, “This buydown arrangement will reduce your monthly payments for the first three years of the mortgage term by (any dollar amount necessary as a result of a specific buydown).”

In buydown transactions, the consumer’s payments may be based upon an interest rate lower than the rate at which interest accrues. The lower rate may be referred to as the effective rate, payment rate, or qualifying rate. Such rates may be advertised by stating:

• The interest rate upon which the reduced rates are calculated
• The rate at which the interest accrues
• The annual percentage rate

Since we are discussing full disclosure, her is “My Fine Print:”

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