TRUTH IN LENDING

(Continued from Previous Bulletin)

If an advertisement states any of the following specific credit terms it is subject to the full disclosure requirements of 226.10(dX2):

1. The amount of the downpayment or that there is "no downpayment" required (this includes statements such as "No closing or other costs until your first monthly Payment");

2. The amount of any installment payment;

3. The dollar amount of any finance charge (this of course would encompass reference in the advertisement to the dollar amount of points, finder's fee or other charges that will become part of the finance charge);

4. The number of installments or the period of repayment (this includes statements such as "Up to 30 year financing available); or

5. That there is no charge for credit.

If any of the above five categories of statements is used in a consumer credit advertisement of real estate, then the advertisement must disclose all of the following:

1. The cash price;

2. The amount of the downpayment required or that none is required, as applicable;

3. The (a) number, (b) amount and (c) due dates or period of payments scheduled to repay the debt; and

4. The annual percentage rate of finance charge.

There is no need to state the total dollar amount of finance charge in any advertisement and there is no need to state the deferred payment price in the case of the sale of a dwelling or the sum of the payments of a loan secured by a first lien on a dwelling to purchase that dwelling.

A hypothetical may be used to illustrate typical terms when all sales or loans are not made on the same basis. For example:

"Typical VA financing of 30 year loan: Cash price of 'Hilton' model $22,040; no downpayment; 360 monthly payments of $204 (including estimated taxes) at 7'/2% Annual Percentage Rate."

A note of caution is in order here. An advertisement that states a "7 1/2% Annual Percentage Rate" is improper if it relates to a transaction that, after calculation of points, discount, and other extra charges, turns out to be 7.99% at closing time. The seller usually knows about these additional charges when he places the advertisement and he should not ignore what he knows is common practice when he advertises the property.

Further, since Regulation Z provides (226.6(a)) that whenever the term "Annual Percentage Rate" is required to be disclosed it must be printed more conspicuously than other required terminology, advertisers should make this term more predominant than other required terms in their advertisements.

General terms such as "Small Downpayments Accepted," "FHA or VA financing available" and "Compare our liberal mortgage rates" are not within the scope of Regulation Z.

The advertising provisions of the Truth in Lending Act are intended to encourage the use of the Annual Percentage Rate by advertisers (thus the exemption from disclosing the other terms in 226.10(dX2)) and to promote full disclosure of specific credit terms or none at all.

Federal Trade Commission