What triggering terms activate rules in financial institution advertising

With more people interacting with financial institutions online, there is an opportunity for more online advertising.

Online advertising can be an effective way to communicate quickly with current customers and members — and also potential customers and members. But financial institutions have to ensure their ads follow the applicable regulations, such as Regulation B, Regulation Z, Regulation DD, Fair Housing Act.

Those regulations list  “triggering terms,” which are words that, when used in an ad, require you to include specific information on the credit costs and terms you are offering.

Here are are the “triggering terms” and specific requirements for various advertisement types, including deposits, closed-end loans, open-end loans and non-deposit investment deposit products.

Triggering terms for closed-end loans

The number of payments or period of repayment, such as 48-month payment term or 30-year mortgage (this is often the most overlooked triggering term)

• The amount of any payment ($550 per month)
• The amount of any finance charge ($500 origination fee, 2 points)
• The amount or % of the down payment (credit sales transactions only)

If any of the triggering terms listed above are included in an advertisement, the advertisement needs to include the terms of repayment, including any balloon payment, the annual percentage rate or APR (including a statement that it may increase, if applicable) and the amount or percent of the down payment (credit sales transactions only).

The phrase “terms of repayment” means a potential loan amount, interest rate, payment amount and term of the loan, such as 12 monthly payments of $85.61 per $1,000 borrowed at an interest rate of 5%.

Additional dwelling secured closed-end loans requirements

• The Equal Housing Lender or Equal Housing Opportunity slogan and logo must be included, as applicable by regulator.*
• If more than one interest rate will apply during the loan term, each interest rate and applicable time period must be disclosed, along with the APR.
• Payments listed must include the timing for each payment and all applicable payments of the loan, including a balloon payment.
• Ads for loans secured by a first lien on real property need to include a statement that the payment listed does not include taxes and insurance (if applicable) and actual payments will be greater.
• For principal dwelling secured loan ads, if the advertisement states the loan may exceed the fair market value (FMV) of the property, the ad needs to state*:
  • Interest on the loan greater than the FMV of the home is not tax-deductible for Federal income tax purposes.
  • The consumer should consult a tax advisor regarding the tax deductibility of interest and charges.
• Variable rate loan ads should only use the word “fixed” if it is preceded by “adjustable rate mortgage,” “variable rate mortgage,” or “ARM.” Any time the word fixed is used it should state how long the rate or payment is fixed and indicate that the rate and payment may increase after the fixed period ends.
• Fixed rate loans that allow a payment to increase need to state how long the payment is fixed and state the rate may vary or increase after the fixed period ends.

You can help reduce consumer confusion by reviewing the advertisement to make sure it clearly indicates if the interest rate is a fixed rate or variable rate. Oftentimes ads will state that the interest rate is a fixed rate and then in the fine print the disclosures will indicate that the rate may vary.

*Also, applicable for open-end HELOC advertisements

Triggering terms for open-end loans

• Statement of when the finance charge begins to accrue, including any “free ride” period.
• The periodic rate used to compute finance charge or APR, including stating “no interest.”
• The method used to determine the balance on which the finance charge is computed.
• An explanation of how the amount of the finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined.
• The amount of any charge other than a finance charge that may be imposed as part of the plan, or explanation of how the charge will be determined, including state “no cost.”
• For HELOC ads, a reference to payment terms such as length of draw period, repayment period, how periodic payments are determined and timing of such payments.

The most common triggering term that we see is the APR included on advertisements as a way to capture the consumer’s attention.

If your open-end credit advertisement includes any of the triggering terms listed above, the ad needs to include: any minimum, fixed, transaction, activity or similar charge that is a finance charge along with the periodic rate that may be applied, expressed as “APR,” and any membership or participation fee required for the open-end plan.  

Variable rate plans need to disclose the variable rate feature and include the APR by using the current rate, the APR as of a recent specified date or providing an estimated APR with a disclosure that it is an estimate. Discounted variable rates need to disclose the introductory APR and the time period it will be in effect, along with the current index rate and a statement that the rate may vary.

Additional HELOC requirements include, disclosing any loan fees that are a percent of the credit limit under the plan and an estimate of any other fees imposed for opening the plan. On variable rate HELOC ads, the maximum APR that may be imposed needs to be disclosed. For variable rates not based on the index and margin used to make future adjustments, the advertisement needs to include the period of time the initial rate is in effect and a reasonably current APR that would be in effect using the current index and margin.

Advertisements need to disclose any balloon payment, if applicable, when a minimum periodic payment is listed. HELOC ads should not include any misleading tax-deductible statements.

You should review open-end credit advertisements to make sure that discounted rates clearly indicate the time period they are in effect, as this is sometimes confusing to the consumer.  

Another important thing to do is review HELOC ads with triggering terms to ensure all fees associated with opening the plan are disclosed and not just an origination fee charged by the financial institution.  

Requirements for deposit advertisements

The annual percentage yield (APY) is the triggering term for deposit advertisements, which would require additional disclosures. When the APY is listed, the advertisement needs to include the following:

• List the rate as an “annual percentage yield” using that specific term.
• The “APY” abbreviation, can only be used if the term “annual percentage yield” is used at least once in the ad.
• List the APY to 2 decimal places.
• If an interest rate is disclosed, the term “interest rate” must be used and cannot be more conspicuous than the APY.
• A statement that the rate may change after the account is opened, for variable rate accounts.
• The period the APY will be offered, or that the APY is accurate as of specific date.
• The minimum balance to earn the APY.
• For tiered rate accounts, the minimum balance for each tier in close proximity to the APY.
• The minimum opening balance, if greater than the minimum to earn the APY.
• A statement that fees could reduce earnings.
• For time accounts: the term of the account, indication of early withdrawal penalties, and required interest payouts.
• The official membership of the financial institution should be included, as applicable.

Additional disclosures for deposit advertisements that include a bonus

• The annual percentage yield using that term, which would trigger the above disclosures.
• Time requirement to obtain the bonus.
• The minimum balance to obtain the bonus.
• The minimum balance to open account, if greater than the minimum balance to obtain bonus.
• Timing of when the bonus will be provided.

Deposit interest rate sheets, like loans, are considered an advertisement, if provided to consumers, and would require the information listed above to be included on the rate sheet.

As you create or review a deposit advertisement make sure to closely look at the APY and interest rate listed to ensure it is disclosed to two decimal places, as that is an easy but overlooked requirement.

All applicable tiers should be clearly disclosed on the advertisement to allow consumers to understand the interest rate and APY that will apply to any account balance and be careful to avoid gaps in tiers, every penny should be within one of the tiers.

Bonus advertisements can be difficult to disclose when the bonus is applicable to multiple account types (i.e. Get a $25 gift card for opening any checking account), as it can then require you to disclose multiple APYs and triggered terms for all the available accounts.

The commentary to Regulation DD does provide some options for this scenario by allowing a message that explains that rates may vary by term or type of account, with examples provided.

For example, if an institution offers a $25 bonus on all time accounts and the annual percentage yield will vary depending on the term selected, the institution may provide a disclosure of the annual percentage yield as follows: “For example, our 6-month certificate of deposit currently pays a 3.15% annual percentage yield.” Of course, this would need to be expanded to include the other required disclosures when an APY, triggering term, is disclosed.

Non-Deposit Investment Products (NDIP)

Advertisements for non-deposit investment products must include a statement that the product is not FDIC/NCUA insured; is not a deposit or other obligation of, or guaranteed by, the depository financial institution; and is subject to investment risks, including possible loss of the principal amount invested.

The important thing to keep in mind is that the NDIP advertisements need to be clearly segregated from advertisements of insured products offered by the financial institution in combined advertisements. The official membership (FDIC or NCUA) should not be included on these ads.

UDAAP considerations should always be kept at the top of your mind as advertisements need to be clear and understandable. When creating ads that will be placed on social media, the financial institution should take into consideration the format in which the advertisement will be viewed by the consumer and make sure that any additional disclosures required by triggering terms (listed above) are clearly available to the user. Multi-page advertisements (even via social media) must contain a clear link directing viewers to additional disclosures.

Image ads

Keep in mind, image ads, or ads that don’t advertise a specific product or service, but promote the name of the financial institution, should include the official membership (FDIC/NCUA) disclosure.