Advertising Closed-End Loans
By Amy Kudlacek
Most of you are aware that when you make certain statements in an advertisement for a closed-end loan, there are additional disclosures you must also include in the advertisement. Section 226.24(c)(1) states, "if any of the following terms is set forth in an advertisement, the advertisement shall meet the requirements of paragraph (c)(2) of this section:
(i) The amount or percentage of any downpayment.
(ii) The number of payments or period of repayment.
(iii) The amount of any payment.
(iv) The amount of any finance charge.
Section 226.24(c)(2) goes on to state, "an advertisement stating any of the terms in paragraph (c)(1) of this section shall state the following terms, as applicable:
(i) The amount or percentage of the downpayment.
(ii) The terms of repayment.
(iii) The annual percentage rate, using that term, and, if the rate may be increased after consummation, that fact.
This may seem pretty straight forward but you need to take a closer look at the definition of "downpayment". Section 226.2(a)(18) defines downpayment as "an amount, including the value of any property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a downpayment may be treated as part of the downpayment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge".
Based on this definition, the "amount of percentage of downpayment" is only a triggering term [§226.24(c)(1)] or a triggered term [§226.24(c)(2)] if the advertisement is for a credit sale (a transaction where the lender is both the seller and the creditor).
I would guess that very few financial institutions advertise credit sale transactions, but still include the "downpayment" in their advertisements. So put a smile on your face, it isn't every day in the world of compliance that someone tells you that you can disclose less. 