Marketing is wanting to give the loan Rate Sheet to Realtors in the area. Does anyone else do this? What is the responsibility of the bank when the rates change? We will disclose that the rates may change but I can see any number of problems with this. I would appreciate any feedback.

I know lots of banks that do this. Date the rate sheet and add a disclaimer that says "things can change".

What's your concerns?

Regardless of agreements or assurances, realtors will hand your rate sheets to prospective purchasers--making the rate sheets advertisements. Knowing this is happening and making no effort to get the sheets into compliance with Reg. Z could be viewed as a willful violation...subject to TILA's criminal penalties. How do your marketeers look in blaze orange?

I hate to say this, but I disagree Richard. If I give the rate sheet to a business, it is exempt from Reg Z (in the definition of advertisement). IF they hand it out to prospective purchasers, that doesn't make it an advertisement. The rate sheet could also say "for business use only" if you really want to try to cover yourself. I don't think that's a willful violation.

(I say all of this knowing that Richard is the KING of Reg Z and can run circles around me in technical knowledge - with all due respect, Sir!)

In the immortal words of Jimmy Durante, "Stop da music!!" I had a pretty good grip on Reg. Z before it was "simplified" in 1980. Since then, my technical knowledge has steadily evaporated--like a mud puddle on a hot sunny day. When I retired in 2008, I quit studying changes that affected anything other than Appendices D and J...so feel free to shoot me down when I wander off the reservation on other topics.

Have I missed changes dealing with advertising? My post was based on Section 1026.2(a)(2) and the related Official Interpretation:

The regulation:
Advertisement means a commercial message in any medium that promotes, directly or indirectly, a credit transaction.

The interpretations:
1. Coverage. Only commercial messages that promote consumer credit transactions requiring disclosures are advertisements. Messages inviting, offering, or otherwise announcing generally to prospective customers the availability of credit transactions, whether in visual, oral, or print media, are covered by Regulation Z (12 CFR part 1026)....

2. Persons covered. All persons must comply with the advertising provisions in §§1026.16 and 1026.24, not just those that meet the definition of creditor in §1026.2(a)(17). Thus, home builders, merchants, and others who are not themselves creditors must comply with the advertising provisions of the regulation if they advertise consumer credit transactions.

Unquestionably, a rate sheet exists solely for the purpose of "promoting (indirectly in this case) a consumer credit transaction." That makes the rate sheet an advertisement if it ever reaches the hand of a consumer. There's no coverage or violation when a creditor gives rate sheets to another business. When those "home builders, merchants, and others who are not themselves creditors" hand rate sheets to consumers, however, they fall under the "all persons must comply with the advertising provisions in §§1026.16 and 1026.24" rule. If these related players make no effort to comply and the producer of the rate sheet also makes no effort, there is a violation for which no one is responsible?

Since the rate sheets are never intended for distribution to consumers, they will contain numerous trigger terms but no advertising disclosures. Knowing that these rate sheets will violate Reg. Z if the bank gives them directly to consumers and then learning that consumers are getting them indirectly from realtors, I think the bank would have some responsibility for the end result--non-compliant advertisements.

Granted, TILA criminal cases are extremely scarce & this type of problem is an even greater stretch...but who wants to flirt with something that could land you in jail?

Further down in the OSC to 1026.2(a)(2):

ii. The term does not include:

A. Direct personal contacts, such as follow-up letters, cost estimates for individual consumers, or oral or written communication relating to the negotiation of a specific transaction.

B. Informational material, for example, interest-rate and loan-term memos, distributed only to business entities.


I would have to agree that rate sheets distributed to Realtors for informational purposes only are not advertisements by definition. We have been doing this for years and the rate sheets are reviewed by the FDIC in each of our exams and in the 14 years I've been here none of the EICs for our exams have questioned or criticized the Realtor rate sheets.

I'm not ignoring this section and agree that rate sheets are not advertisements when they are given to business entities.

My problem begins with the wide-open definition of "advertisement" that applies to non-creditors. When a non-creditor passes the rate sheet on to a consumer, this act must be judged separately. Since this redistribution is not to a business entity, the cited exclusion no longer applies. Returning to the general definition of "advertisement", you can find no exclusion. The realtor, builder, or other entity does not have to be a creditor for the distribution to be an advertisement. All that matter is whether or not the material "...promotes, directly or indirectly, a credit transaction"--which it obviously does.

Since the second distribution upgrades the rate sheet to an advertisement, then all that remains is assigning responsibility for compliance. Official Interpretation #2 under Section 1026.2(a)(2) states that "the owner and the personnel of the medium...through which [an advertisement] is disseminated, are not subject to civil liability for violations." It's hard to imagine a TIL violation for which no one can be held accountable, and who's the last player left standing? The bank.

Regulators have no reason to challenge the distribution of rate sheets to realtors, but if they discover that these same B2B documents routinely end up in the hands of consumers, some kind of action is likely. (As a regulator, I can remember occasions when we cited the "spirit" of a law when criticism of a bank practice could not be tied to a specific section of a regulation.)

Placing "I am not a duck" boilerplate on a rate sheet does not change the way the definition of "advertisement" is applied. It seems that such a statement would need to be accompanied by some amount of follow-up to be sure that the businesses receiving the rate sheets honor the bank's instructions regarding redistribution to consumers.

Dan beat me to it, but that's the exemption I'm leaning on. We have many clients that distribute rate sheets to auto dealers and Realtors. I see no problem with this and believe the reg is very clear. As I stated above, if you're concerned, add "For Dealer/Realtor use only" (as applicable).

I don't think a bank is going to announce "We give our rate sheets out to businesses and know they distribute them to consumers". I don't see this as a risk issue. IF it came up, I could easily defend it.

If a regulator challenged me on this, I would say (politely), "so you're interpretation that these rate sheets MIGHT get from the business to a consumer trumps the exemption spelled out in Reg Z?"

Last, even if I "lose the battle", I've never seen a bank get any more than a slap on the wrist for advertising violations - unless there's deception involved. No one is going to get a CMP or go to jail for handing out a rate sheet. In fact, the rate sheet might meet all of the advertising disclosure requirements.

When I measure the risk/penalty and likely of even being detected, I don't see this as an issue that I would give 2 minutes to.

I understand Richard's concerns but I have to agree with David's opinion on this issue.

As I said we have been doing this for the 14 years that I have been at this bank and we also did it at the credit union I worked at before here.

The piece presented to the Realtor is an informational piece. We have in bold letters that the sheet is for informational purposes only and intended for the Realtor's use only. The NCUA and the FDIC has had no problems with this.

Once again, I have no concern about banks delivering rate sheets to realtors. This delivery is B2B and clearly exempt from Reg. Z. If regulators never look beyond this exemption, they should never cite a violation.

The exemption does not stay with the document, however. It only applies to delivery by one business to another business. Unfortunately, we all know that realtors, builders, etc. have been known to print up lots of copies and put out a stack when they have an open house or hand them out when they meet with prospective buyers. By doing this, the realtors convert documents that were not covered by Regulation Z into advertisements that are covered by Regulation Z--and these advertisements lack the disclosures necessary to comply with Section 1026.24.

Should a bank take any steps to actually confirm that realtors are not redistributing the sheets to non-business entities? Apparently, regulators don't think so. As long as that attitude continues, this is merely an academic discussion and I'm willing to agree to disagree.

Having lived through the Rodash lawsuit and the early days of BSA when willful blindness became a crime, I stopped accepting "but we've always done it this way and the regulators never questioned it."

I know that there is some disagreement on this thread, but I am dusting it off because I have a question. We would like to share our rate sheet with local realtors. If we assume that this is not an advertisement and there for not subject to the Reg Z rules on such, all we would really need on these would be that they are for Dealer/Realtor use only, a date, and that the rates are subject to change? We wouldn't need to include that the monthly payments are interest/principal only. We would not need to include that the APR will vary, that taxes, insurance etc are not included with the payment, etc etc?

bump

IF you assume it's not an advertisement, then what you describe is fine. You can read the comments posted above concerning the controversy/risk about making that assumption.