Reg Z- HELOC Advertising

Posted By: Last Mango

Reg Z- HELOC Advertising - 05/23/01 07:28 PM

Section 226.16(b)(2) requires an APR to be disclosed "clearly and conspicuously". The Commentary notes that credit terms need not be of a certain font type or size.

An ad for a discounted HELOC rate not based on the index and margin must have the APR prominently displayed with the nominal rate.

What about a rate that is based on the index and margin used for an adjustment? 226.16 appears to state that one could advertise a rate at the top using a huge font and the APR could be at the bottom of the ad in small font. Am I reading this correctly?

Posted By: David Dickinson

Re: Reg Z- HELOC Advertising - 05/23/01 09:21 PM

Section 226.16(d)(2) states:
If an advertisement for a home equity plan with a variable rate states a discounted rate (i.e. an initial APR that is not based on the index and margin used to make later rate adjustments) the advertisement must:
a) State the period of time the initial rate will be in effect; and
b) Show, with equal prominence to the initial rate, a reasonably current APR that would have been in effect using the index and the margin.

Therefore, I believe you need to state the fully indexed APR as large and as clearly as the introductory rate.

Posted By: Last Mango

Re: Reg Z- HELOC Advertising - 05/24/01 01:11 PM

David, thank you for responding. However, the section that you quote seems to say that the display of the APR with "equal prominence" is only for HELOCs that have a "discounted" rate. We are contemplating a "non-discounted" rate. Any idea?
Posted By: David Dickinson

Re: Reg Z- HELOC Advertising - 05/24/01 01:33 PM

I didn't see your point the first time. Seciton 226.16(d)(1) states ...the advertisement also shall clearly and conspicuously set forth the following... Later, in seciton 226.16(d)(1)(iii), it requires the ad to state any periodic rate used to compute the finance charge, expressed as an annual percentage rate ...

My thoughts are that if you put the interest rate in large print and the APR in small print, I can argue that you did not CLEARLY and CONSPICUOUSLY disclose the APR. I think you have a loop hole, but I wouldn't go for it.

By the way, what's the difference between your interest rate and APR? This is open-end credit. Usually, they are the same.

Posted By: Last Mango

Re: Reg Z- HELOC Advertising - 05/24/01 03:09 PM

There is no difference between the rate and APR. The intention is to use "Prime + 0" in the ad.

I am not sure that "clearly and conspicuously" is the equivalent of "equal prominence". Our intention is to make the APR visable, not to bury an APR in fine print.

Thanks for your input!

Posted By: Lucy Griffin

Re: Reg Z- HELOC Advertising - 05/24/01 09:56 PM

When designing an ad for Regulation Z compliance, you must remember that "APR" is a sacred term and not to be toyed with. Admitttedly, "clear and conspicuous" is not actually defined. The FRB has avoided setting definitions to give creditors the ability to choose their own options, such as type size which could vary depending on the size of the space ad. However, because "APR" is a sacred term, it should NEVER be less prominant than -- or very far away from -- the contract rate of interest, no matter how that is described. At a minimum, "clear and conspicuous" means "at least as large as."

You could also look to the privacy notice guidance and the new e-rules. These are the places where we are beginning to get some definition of what clear and conspicuous means.

Posted By: Princess Romeo

Re: Reg Z- HELOC Advertising - 05/24/01 11:17 PM

FWIW - I will throw this thought out there - if I understand correctly, the bank really wants to trumpet PRIME + 0 as the eye-catcher in the Ad. Fair enough since most people understand that Prime + 0 is a good deal and think what the heck is an APR anyway?

What about putting in parenthesis directly underneath the BANNER (so-to-speak) in a font about half the size - (Current APR 7.0% effective 5/24/01)

By putting the APR directly beneath the eye-catching phrase, would you consider that clear and conspicious? It's not as if you hid the thing underneath the mice print.

Just a thought - getting ready for a holiday weekend (and preparing more privacy training stuff! : P )

Posted By: Last Mango

Re: Reg Z- HELOC Advertising - 05/25/01 08:16 PM

Thanks Lucy and Bonnie. I understand your concern Lucy, but . . . the rule does seem to say that no font size or exact placement is specified. I did suggest that the APR be placed just under the Prime + 0. Although it is not of equal size, it is very prominent.

Again, thanks for your help!