As discussed in our previous article, “Truth in Lending Act – Generally”, the Truth in Lending Act imposes a burden on creditors to make certain disclosures prior to consummation of the agreement in a form the buyer can keep. The burden of disclosure applies not only to the actual retail installment contract but to all phases of advertising as well.
PENALTY FOR VIOLATION OF TILA ADVERTISING RULES
TILA provides no private cause of action against a creditor who violates the advertising rules. So a creditor deemed in violation will have a cease and desist action brought against them by the FTC and face a possible fine of $11,000 per violation. However, some attorneys have successfully argued that a violation of TILA is in and of itself an unfair or deceptive trade practice under state law. Washington state dealers should be especially wary given that Washington has its own Consumer Protection Act that the attorney general is quite fond of using.
WHAT QUALIFIES AS AN ADVERTISEMENT?
According to the Federal Reserve Board which promulgates Regulation Z and the commentary on TILA, an advertisement is any “commercial message in any medium that promotes, directly, or indirectly, a credit transaction.” As you can see they have a pretty broad definition of advertisement. Telephone solicitations, internet messages, and price tags with credit information are among the more surprising forms of “advertisements” listed by the Federal Reserve Board.
WHAT IS NOT AN ADVERTISEMENT?
Communications relating to the negotiation of a specific transaction, whether oral or written, are not advertisements. Thus, when you’re working an actual car deal, the TILA advertising requirements don’t come into play. That said, you never want to be in a situation where it appears you are purposefully hiding information from consumers. When in doubt be forthright about the terms of the transaction.
TILA ADVERTISING REQUIREMENTS
There are several TILA advertising requirements so we’ll begin with the most general and work our way to the more complicated requirements.
- If the advertisement states a rate of finance charge it must also state the rate as an “APR” or “annual percentage rate”. Language is important here. You must use one of the aforementioned terms.
- TILA requires that your advertisements state only those credit terms you will actually arrange or offer.
- Certain terms are “triggering terms” because they “trigger” particular disclosure requirements. “Triggering terms” include: a) amount of any finance charge, b) amount of any payment, c) number of payments or period of repayment, d) percentage or amount of any downpayment. If your advertisement uses any “triggering terms” it must also include each of the following: a) terms of the repayment, b) percentage or amount of downpayment, and c) the APR.
USE OF EXAMPLE CREDIT TERMS IN ADVERTISING
If your ad offers a range of possible credit terms it is permissible to use examples of transactions in your advertisements provided that each example contains all of the necessary terms.
SPECIAL RULES FOR MULTI-PAGE ADVERTISEMENTS & TABLES
It is important to note that TILA has special requirements for multi-page advertisements and tables. Unfortunately, the rules for such advertisements extend beyond the purpose of this document. Consult an attorney if you aren’t 100% certain you know what you’re doing.