Web Page Home Equity Disclosures

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Question:

What kind of and how extensive are the necessary disclosures when advertising home equity loan rates on a site's web page? Should payment amounts be listed per one thousand or per ten thousand? I have seen it both ways on many web sites. Is it mortgage loan or consumer loan specific (i.e., 10k for mortgages and 1k for consumer)? Does the FDIC care as long as it is specifically stated and correct?

Answer:

If rates are mentioned in ads for credit, you are obligated to quote the APR and explain if it is variable. You may also quote the simple interest rate so long as it is no more conspicuous than the APR.

For closed-end credit ads (car loans, mortgages, etc.), a complete advertising disclosure is triggered when you mention any of the following items of information:

term of repayment in years months or installments.
the dollar amount of any payment.
the amount of any component of the Finance Charge (or do-it-yourself information that leads to this info: example--"one point for loans over $75,000.")
the amount of any downpayment--BUT ONLY IF YOU ARE ENGAGED IN A CREDIT SALE.

When you mention a trigger term, you must give:

the APR, indicating any variable feature.
a representative example of the terms of repayment.
required downpayment--BUT ONLY IF YOU ARE ENGAGED IN A CREDIT SALE.

The most common violation of Regulation Z is failure to provide complete and accurate ad info when a trigger term has been used. You can find a variety of these problems on web sites everywhere.

Perhaps the commonest of all e-vios is the lack of a representative example of the terms of repayment. You have a great deal of latitude in selecting the example, but the repayment schedule must be true to the terms selected. Some lenders show a "per thousand" quote because it consumes fewer character positions than examples based on larger amounts. Reg Z has no limitations about the selection of your hypothetical loan amount.

As lenders refine the design of web ads to better comply with these requirements, the last stubborn problem seems to be a failure to show the entire payment schedule in the example. You see this problem in ads for balloon and in ARM loans where there are multiple streams of payments, but the ad only reflects the amount of the first payment. A fully-compliant ad will reflect (on a per-thousand basis or otherwise) the amounts of all the different payment levels that would be disclosed on an early or final TIL.

First published on BankersOnline.com 10/21/02