The main purpose of the Truth in Lending Act is to assure the meaningful disclosure of consumer credit and lease terms, including those in advertisements, so that consumers can easily compare terms and shop wisely for credit.
Before passage of the Act, an advertiser might have used only the most attractive credit or lease terms, thus distorting the true cost of the credit or lease. For example, an advertisement might have read, "'63 Chevy, only $30 per month." Whether this is a bargain depends upon information missing from the advertisement, such as the downpayment and the number of payments. The ad also omits the annual percentage rate and does not state whether the transaction is a credit sale or a lease. The Act requires that the advertisement tell the whole story.
For example, if an advertisement contains any of a number of terms specified in the Act, then that advertisement must also include certain prescribed disclosures. In other words, the specified terms "trigger" the disclosures. If, on the other hand, the ad does not use "triggering" terms, it need not make the disclosures. The type of transaction you advertise—closed-end credit, open-end credit, or a consumer lease—determines whether a term is a "triggering term" and, if so, what disclosures are required.
If you, as an advertiser, are unclear about what type of plan is being advertised, or about any of the specific terms of the plan — including the annual percentage rate—you may want to contact the creditor directly to obtain this information. This may help ensure that the credit terms you advertise are accurate.
If you place an advertisement that promotes "consumer credit" or a "consumer lease" as defined in the Act, you must comply with the law. Thus, advertisers, not just creditors and lessors, must comply, including associations, manufacturers, real estate brokers, builders, and government agencies.
There is no liability under the Act for the media in which advertisements appear. The media can, however, protect their customers by screening advertisements to make sure that they comply with the law.
Certain rules apply only to creditors. If a consumer orally asks you, a creditor, about the cost of credit, you must state the annual percentage rate. For closed-end credit, you also may give a periodic or simple interest rate that is applied to an unpaid balance. For open-end credit, once you state the APR, you also may give the periodic rate.
If you cannot determine the annual percentage rate for the specific closed-end credit that the consumer asks you about, you may disclose instead the annual percentage rate in a sample transaction. You also may give other information that applies to the consumer's specific transaction, such as the contract interest rates and points.
If you fail to comply with the advertising requirements of the Act, you may be subject to law enforcement actions. Advertisers of consumer credit and consumer leases under the FTC's jurisdiction are subject to enforcement actions that could result in remedies such as:
If you are under the jurisdiction of a federal regulatory agency other than the FTC, you may wish to consult with that agency to determine your liability for placing a credit or lease advertisement that fails to comply with the law.
In addition, anyone actually harmed by a non-complying consumer lease advertisement may sue you for:
Keep the following principles in mind when you design or review an ad promoting consumer credit or consumer leases.
All advertising disclosures required by the Truth in Lending Act must be printed "clearly and conspicuously." This means that disclosures must be legible and reasonably understandable.
Under certain circumstances, a catalog or other multi-page advertisement may constitute a single advertisement. This means that only one set of advertising disclosures may be necessary. If so, all required disclosures for the credit advertised must be provided clearly and completely in a table or chart in the catalog. Any credit or lease terms appearing elsewhere in the advertisement must include a clear and conspicuous reference to the page containing the table of disclosures.
Only credit or lease advertisements that consist of a series of sequentially numbered pages, such as a newspaper supplement, qualify as "multi-page advertisements." Separate pieces of paper, even those mailed in the same envelope, are separate ads. Thus, if a mailing consists of several pieces of paper and each promotes a different item of merchandise sold on credit or available by lease, each piece of paper containing a "triggering term" must include a full set of disclosures.
You may advertise only credit or lease terms that are actually available to the consumer. "Bait and switch" credit or lease promotions are not allowed. For example, no advertisement may state that a specific installment payment or a specific downpayment can be arranged unless the creditor is prepared to make those arrangements. However, you may advertise terms that will be offered only for a limited time or terms that will become available at a known future date. You need not, of course, promote every credit or lease plan that you offer.
The following definitions may be helpful as you read this manual.
Advertisement: An "advertisement" subject to the Truth in Lending Act is any commercial message that promotes consumer credit or a consumer lease. "Advertisements" may appear:
(a) in newspapers, magazines, leaflets, flyers, catalogs, direct mail literature, or other printed material;
(b) on radio, television, or a public address system;
(c) on an inside or outside sign or display, or a window display; or
(d) in point-of-sale literature, price tags, signs, and billboards.
A "commercial message" is any message that promotes a sale or lease. Thus, materials that are educational and do not solicit business or that are required by law are not "advertisements." For example, a brochure issued by a bank explaining FHA mortgages is not a commercial message, nor is a rate sheet prepared and used solely for internal business purposes. A state-required sign posted by a finance company explaining credit terms is not an "advertisement," nor is a merchandise sales ticket that conveys no credit information. On the other hand, a brochure or sign that combines a sales message with educational or state-required information is an "advertisement."
Annual Percentage Rate: The "annual percentage rate" is the charge for credit, stated as a percentage, and expressed as an annualized rate.
Closed-End Credit: "Closed-end credit" includes all consumer credit that does not fit the definition of open-end credit (see below). Closed-end credit consists of both sales credit and loans. In a typical closed-end credit transaction, credit is advanced for a specific time period, and the "amount financed," "finance charge,' and "schedule of payments" are agreed upon by the lender and the customer.
Consumer Credit: "Consumer credit" may be either closed-end or open-end credit. It is credit that is extended primarily for personal, family, or household purposes. It excludes business and agricultural loans, and loans exceeding $25,000 that are not secured by real property or a dwelling. It also must be extended by a "creditor" (although it can be advertised by someone else, such as a builder, real estate broker, or advertising agency).
Consumer Lease: A "consumer lease" is a lease of personal property to a private individual. The lease must be for personal, family, or household purposes and must be for a term of more than four months. So, renting a car for a weekend is not a "consumer lease." The term excludes leases where the customer will have to pay a total of more than $25,000. The term includes leases under which the customer has the option to buy at the end of the lease. However, a "lease" in which the payments equal or exceed the value of the property and which allows the consumer to buy the property at the end of the lease term for a nominal payment or no further payment is actually a credit sale ("closed-end credit"), and not a consumer lease.
Credit Sale: A "credit sale" is a transaction in which the seller is also the creditor, at least initially. Often, the seller-creditor will later assign the installment sales contract to another entity, such as a finance company or a bank.
Creditor: A "creditor" is a person or organization (a) that regularly extends consumer credit for which a finance charge is required or that is repayable in more than four installments even without a finance charge, and (b) to whom the obligation is initially payable—for example, the finance company, bank, automobile dealer or other lender identified on the face of the credit agreement. A person or organization is considered to extend credit "regularly," if it has extended credit more than 25 times during the preceding year (or more than 5 times for transactions secured by dwellings).
Downpayment: A "downpayment" is an amount paid to reduce the cash price of goods or services purchased in a credit sale transaction. The value of a trade-in is included in the downpayment. It can include a "pick-up" or deferred downpayment that is not subject to a finance charge and is due no later than the second regularly scheduled payment. The downpayment does not include any prepaid finance charges such as points.
Finance Charge: The "finance charge" is the dollar amount charged for credit. It includes interest and other costs, such as service charges, transaction charges, buyer's points, loan fees, and mortgage insurance. It also includes the premiums for credit life, accident, and health insurance, if required, and for property insurance, unless the buyer may select the insurer.
Open-End Credit: In "open-end credit," the creditor:
(a) reasonably expects the customer to make repeated transactions;
(b) may impose a finance charge from time to time on the unpaid balance; and
(c) generally makes the amount of credit available again to the consumer as the outstanding balance is paid.
Examples of "open-end credit" are bank and retail gasoline credit cards, department stores' revolving charge accounts, and cash-advance checking accounts.
Terms of repayment: The phrase "terms of repayment" generally refers to the payment schedule, including the number, timing, and amount of the payments (including any final "balloon" payment) scheduled to repay the debt.