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#2019147 - 06/08/15 09:45 PM Advertising for Loans
complynewbie13 Offline
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Minnesota
We have never advertised for loans in the past so I am unsure as to if I am doing this correctly.

Our marketing team came up with an ad which shows 3 different products. They have a pic of an auto and boat with a APR, then a pic of a recreational vehicle with another APR, and another one with a picture of a house with another APR. I think we are ok with the auto, boat and recreational vehicle. I am not sure about the home. If we just show a pic of a home and an APR, does that trigger anything? My main concern is that the ad is showing the rate a person can get from our secondary market department. If the loan was kept in-house, the rate would not be that low. It does state in the ad "as low as 2.85%" Also, do we have to explain how we came up with the APR? I was hoping to get a little advice. I don't want to get into trouble with this.

thanks!

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#2019161 - 06/09/15 01:22 AM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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You will find LOTS of threads covering every imaginable aspect of consumer credit ads, but the big picture starts with a determination of the form of credit you are advertising. Section 1026.16 of Regulation Z controls the disclosures for open-end credit ads (credit cards, HELOCs, etc.) and Section 1026.24 controls disclosures for closed-end credit ads (primarily auto, personal, mortgage, and other types of loans that used to come with a payment coupon booklet.)

In open-end ads, the APR is a term that triggers a full advertising disclosure, but in closed-end ads it is not. Your best bet is to read these two sections & let us help you with anything that's unclear.
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#2019288 - 06/09/15 05:27 PM Re: Advertising for Loans complynewbie13
complynewbie13 Offline
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Thanks for the reply and info. They were intending on advertising home loans in general. HELOCs included. They put the APR on the best rate we could offer...but this would only apply to 2nd market loans (which would also only be 1st liens.)

If we placed a note by the home picture saying "Purchase, Refinance, Home Equity" would that satify the requirements? We do also have a notation on the bottom saying that the rate is subject to "program guidelines". If we also wanted to advertise HELOCs (which is the only consumer LOC we offer besides ready reserve loans" could we put another bullet listing the APR of a HELOC and then reference all additional info since APR would be a "triggering term". Or perhaps just place a note on the ad saying that we have HELOCs available as well and to talk you the loan officer to get more info...?
I want to advertise to drum up business, but I also don't want to confuse the customer either or find ourselves with a fine.

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#2019392 - 06/09/15 09:09 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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Be careful advertising your best rate. For one or more reasons, most borrowers will not get that rate & will call your ads deceptive.
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#2019454 - 06/10/15 01:28 PM Re: Advertising for Loans complynewbie13
complynewbie13 Offline
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Minnesota
OK. How about if we disclosed our in-house best rate. I feel comfortable with the fact that we give that rate out pretty frequently. One of my concerns with giving the 2nd market "best rate" is that to get that rate, we had our secondary market lender look at the rate he could get “good credit” customer on that particular day. There is no guarantee that this rate will be available the next day. I know that the Reg says that the rate has to be from a rate in effect within the last 30 days.
I think I will tell the marketing committee that either they do not include home loans on the ad or else quote our in-house rate instead. Is that what some of you would do?

Thanks for the advice.

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#2019472 - 06/10/15 01:52 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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Originally Posted By complynewbie13
we give that rate out pretty frequently
You will be MUCH more comfortable defending this rate as the basis for general advertising. It's always good to be able to say (perhaps in a footnote within the ad itself) that this is a typical rate for qualified applicants on (include a date for reference) and that there are no guarantees. Also, it's good to invite interested applicants to contact one of your lenders (by phone, email, etc.) to submit an application and obtain a real live quote.
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#2019474 - 06/10/15 01:56 PM Re: Advertising for Loans complynewbie13
complynewbie13 Offline
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Minnesota
Ok. I appreciate all the advice!

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#2019488 - 06/10/15 02:22 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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Let's move back to the mechanics of the regulation before you rejoin your marketing team to make some decisions.

The triggering scheme is similar between closed-end and open-end, but the actual trigger terms are different.

For HELOCs and all other revolvers, the APR is a trigger term. If you can stay away from that (at least until you get some experience with public response to your ads), you simplify your Reg. Z duties and cut the chances of an advertising violation by 50%.

For all closed-end credit products, the most common trigger term is the number of payments or term, for example: "30-year financing available." The moment you include that number, you're on the Reg. Z hook for the APR and a example of a payment schedule for a representative loan. For the simplest of loans, that's not a huge burden...however the calculations will have to be rerun each time you run the ad because advertised terms must actually be available to qualified applicants. At the other end of the spectrum, it IS a significant burden to come up with the APR and payment schedule for a complex product like a discounted or premium rate ARM with mortgage insurance. As with open-end ads, if you can live with something less than a trigger term ("competitive terms" rather than "30-year financing", for example), then no calculations are needed, and the odds of a violation are very low.

If you want to mention the APR for closed-end loans, your only additional duty is to disclose whether the rate is variable. You may also state the simple interest rate that yields the advertised APR.
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#2166994 - 03/07/18 02:27 PM Re: Advertising for Loans complynewbie13
Compliance NABW Offline
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Thank you for the explanation on everything Richard. At some point I must have gotten mixed up because I thought the APR was a trigger term for closed-end credit as well. When 1026.24 mentions "the amount of any finance charge" as a trigger, could this not be construed to mean even if expressed as an APR?

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#2167113 - 03/07/18 09:30 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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If I tell you the APR for a loan is 9.999%, can you tell be the dollar amount of any component of the FC for my loan?
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#2167162 - 03/08/18 02:07 PM Re: Advertising for Loans complynewbie13
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Thank you, Richard, I found the specific exemption in the Official Interpretation as well.

[In the last example, the $1,000 prepaid finance charge can be readily determined from the information given. Statements of the annual percentage rate or statements that there is no particular charge for credit (such as “no closing costs”) are not triggering terms under this paragraph.]

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#2167168 - 03/08/18 02:18 PM Re: Advertising for Loans complynewbie13
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I wanted to confirm as well that for closed-end credit a negative statement, such as "no xyz fee," in which the xyz fee is a finance charge, is not considered a trigger term.

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#2167260 - 03/08/18 06:59 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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For closed-end advertising disclosures to be triggered, you would have to state "The amount of any finance charge." In order to be a Finance Charge, any fee (including the "xyz fee") must meet the definition in Section 1026.4, AND it must actually be imposed! Unless there is a charge, how can there be a Finance Charge? Please note that the standard for open-end credit advertising is different.
Last edited by Richard Insley; 03/08/18 07:08 PM. Reason: additional information
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#2167332 - 03/08/18 10:08 PM Re: Advertising for Loans complynewbie13
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Yes, in Open-End a negative statement is a trigger term as well as an affirmative statement.

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#2172947 - 04/11/18 01:52 PM Re: Advertising for Loans Compliance NABW
Newbie06 Offline
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We are updating our lending brochure and are incorporating the terms (5 year, 7 year, etc...) for both closed-end and open-end credit. In a typical ad these terms would be considered triggering terms. Should I be considering these triggering terms for a brochure?

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#2172958 - 04/11/18 02:20 PM Re: Advertising for Loans complynewbie13
rlcarey Offline
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What make a brochure not a "typical ad"?
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#2172959 - 04/11/18 02:22 PM Re: Advertising for Loans complynewbie13
Adam Witmer Offline
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There is no difference between a "typical ad" and a "brochure" as they are both considered advertisements subject to the advertising rules of Regulation Z.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2172961 - 04/11/18 02:28 PM Re: Advertising for Loans Adam Witmer
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Super!! Didn't think a brochure fell outside of what Reg Z considers an advertisement.
Last edited by Runner4fun; 04/11/18 02:29 PM.
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#2173185 - 04/12/18 02:55 PM Re: Advertising for Loans Newbie06
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Adam, if we leave the terms in the brochure can we get away with providing an example of a repayment scenario to remain in compliance utilizing our going rate?

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#2173256 - 04/12/18 06:21 PM Re: Advertising for Loans complynewbie13
David Dickinson Offline
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Not Adam, but I think I can help. Here's an excerpt from our Advertising training manual on closed-end loan advertisements:

a. “Triggering” Terms [§1026.24(d)(1)]:
The mere mention of certain loan terms in an advertisement will trigger a requirement to disclose certain other terms of the loan. The triggering terms for closed-end credit include:

i. The amount or percentage of down payment (applies to “credit sales” only);
ii. The number of payments or period of repayment;
iii. The amount of any payment; and
iv. The amount of any finance charge.


b. “Triggered” Terms [§1026.24(d)(2)]:
If any one or more of the “triggering” above terms of the loan are stated in an advertisement, the following terms must also be disclosed (to the extent they apply):

i. The amount or percentage of the down payment (applies to “credit sales” only);
ii. The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment;
iii. The “annual percentage rate”, or “APR”, using one of these terms; and
iv. If the rate may be increased after consummation of the loan, that fact.
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#2173365 - 04/13/18 01:22 PM Re: Advertising for Loans David Dickinson
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Would we have to have a disclosure for each term listed in the brochure since each term is going to have a different repayment obligations?

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#2173469 - 04/13/18 06:02 PM Re: Advertising for Loans complynewbie13
David Dickinson Offline
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Yes. Each triggering term requires all of the applicable triggered terms.
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#2174080 - 04/18/18 05:09 PM Re: Advertising for Loans David Dickinson
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What is meant by (applies to "credit sales" only) in letter (I) of the disclosures?

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#2174088 - 04/18/18 05:19 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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See Section 1026.24(d)(1), OI #1.
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#2174115 - 04/18/18 06:09 PM Re: Advertising for Loans complynewbie13
Newbie06 Offline
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Is the disclosure below compliant with Reg Z and its additional disclosure requirements? The brochure states: Fixed Term - 5, 7, or 10 years. We would be placing three separate disclosures for each term with the applicable payment, etc...

Credit terms require 20% down payment from borrower. For a $100,000 mortgage loan for a term of 5 years with a x.xx% APR, the monthly payment would be$..... Subject to credit approval and other bank guidelines.

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#2174135 - 04/18/18 07:21 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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Now that you're asking about dwelling secured credit ads, someone else will have to comment about the requirements of Section 1026.24(f) and beyond.

What you provide would be sufficient for fixed rate loans that are not dwelling-secured. Unless you are advertising loans to finance the sales of bank-owned repos and foreclosures, no mention of a downpayment is required. If any of the advertised credits have variable rates, see Section 1026.24(c).
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#2174325 - 04/19/18 06:17 PM Re: Advertising for Loans complynewbie13
David Dickinson Offline
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Yes. But you might be able to shorted up the 3 disclosures. For instance,

20% down payment required. Subject to credit approval and other bank guidelines.
For a $100,000 mortgage loan for a term of:
5 years with an APR of __%, the monthly payment would be $___.
7 years with an APR of __%, the monthly payment would be $___.
10 years with an APR of __%, the monthly payment would be $___.
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#2219778 - 08/15/19 03:59 PM Re: Advertising for Loans complynewbie13
trying_to_comply Offline
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Originally Posted by David Dickinson
Not Adam, but I think I can help. Here's an excerpt from our Advertising training manual on closed-end loan advertisements:

a. “Triggering” Terms [§1026.24(d)(1)]:
The mere mention of certain loan terms in an advertisement will trigger a requirement to disclose certain other terms of the loan. The triggering terms for closed-end credit include:

i. The amount or percentage of down payment (applies to “credit sales” only);
ii. The number of payments or period of repayment;
iii. The amount of any payment; and
iv. The amount of any finance charge.


b. “Triggered” Terms [§1026.24(d)(2)]:
If any one or more of the “triggering” above terms of the loan are stated in an advertisement, the following terms must also be disclosed (to the extent they apply):

i. The amount or percentage of the down payment (applies to “credit sales” only);
ii. The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment;
iii. The “annual percentage rate”, or “APR”, using one of these terms; and
iv. If the rate may be increased after consummation of the loan, that fact.


In regards to the bolded section above (amount or percentage of the down payment), my understanding is down payment is a triggering term for a credit sale transaction, but for a non-credit sale transaction, when a triggering term other than down payment is used, the requirement is to state the down payment, terms of repayment, APR and if the APR can increase.

Is that incorrect?

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#2219789 - 08/15/19 06:10 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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You're almost there! The term "downpayment" has no Reg. Z meaning whatsoever unless the transaction being advertised is a credit sale. See the definition in Section 1026.2(a)(18).
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#2242341 - 09/11/20 07:13 PM Re: Advertising for Loans complynewbie13
Vander Offline
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If we are working on an ad and included the verbiage "Terms up to 20 year fixed rates." There isn't an APR disclosed. I see that we will have to include an example with APR and payment. I also understand we would use an example of a common loan.

We update rates weekly. Would we also need to update the example weekly or frequently?

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#2242343 - 09/11/20 07:22 PM Re: Advertising for Loans complynewbie13
rlcarey Offline
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Where is the ad appearing.
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#2242344 - 09/11/20 07:25 PM Re: Advertising for Loans complynewbie13
Vander Offline
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It is intended to be distributed to local real estate agents to promote our new fixed rate product.

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#2242345 - 09/11/20 07:28 PM Re: Advertising for Loans complynewbie13
rlcarey Offline
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Then I would be inserting an "as of date" and update when you deem it time to update or reproduce them. Not sure the value of such a generic statement to realtors. Can't customers go most anywhere and get a fixed rate loan?
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#2242346 - 09/11/20 07:30 PM Re: Advertising for Loans complynewbie13
Vander Offline
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It's not common in our market without selling to secondary market. The as of date will fix my problem! Thank you for your help!

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#2242353 - 09/11/20 08:13 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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Randy's advice is on the mark, but be careful how often you replace these flyers, and keep a record that could answer a compliance examiner's questions like: "how do you assure that stale ads are being withdrawn or replaced reasonably soon after the advertised rates expire?" In addition to the letter of Reg. Z, there's always the spirit of UDAAP to be considered.
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#2255515 - 06/17/21 07:57 PM Re: Advertising for Loans complynewbie13
mbl4250 Offline
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I am looking over an advertisement that our marketing department wants to send out for our mortgage department that is a flyer and I have a question regarding their wording for the following bullet points that they have:

9 Month Construction period for fixed interest rate
12 Month construction period for adjustable rate

Would this be considered a trigger term?

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#2255530 - 06/17/21 09:28 PM Re: Advertising for Loans complynewbie13
David Dickinson Offline
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Refer to Commentary to §1026.24(d) and §1026.24(d)(1).

The “number of payments” as a triggering term has not given rise to much interpretation, but the “period of repayment” has. “Thirty-year mortgage”, “48-month loan” and the like plainly qualify. But the FRB has said, “monthly payment terms arranged” will not be deemed a triggering term because the number of those monthly payments is not given. The item that turns these statements into triggering terms is the disclosure of how long the loan will last, not the mere mention of the payment interval.

Specific to your question: I think the 9 and 12 month "periods" does trigger additional disclosures.
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#2255607 - 06/18/21 05:36 PM Re: Advertising for Loans complynewbie13
mbl4250 Offline
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I talked to our marketing department and they are wanting to keep the wording like it is so I am looking at the disclosures that are needed since there is a triggering term. Would I need to give two payment examples, one for the 9 Month Construction Fixed Rate and one for the 12 Month Construction Adjustable Rate?

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#2255830 - 06/23/21 07:05 PM Re: Advertising for Loans complynewbie13
mbl4250 Offline
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bump

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#2255924 - 06/24/21 08:22 PM Re: Advertising for Loans complynewbie13
Dan Persfull Offline
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See 1026.24(d)(2) - (ii) The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment.

How can one representative payment example disclose the legal terms for both a 9 month fixed rate term loan and a 12 month variable rate term loan?
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#2255951 - 06/25/21 02:11 PM Re: Advertising for Loans complynewbie13
Richard Insley Offline
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You haven't specified the products. Are these construction-only loans, or the construction phases of construction-perm loans?
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