Are you ready to see your company’s “Industry-low rate of 0.001% — no money down!” claim flashed on every newspaper, billboard and television station in your greater metro area? Would you prefer that your well-thought-out and expensive advertisement not be shown at every regulatory agency conference presentation as a “What not to do” warning for the rest of the industry?
By its very nature, effective advertising is designed to hit as many people as possible, with as much power as possible, to cause consumers to act. A consumer who is enticed into acting, but does not receive the value they were promised can easily morph into a consumer complaint, the low-hanging fruit for regulatory action.
The primary regulatory guidance on closed-end loan advertising can be found in the Truth in Lending Act’s Regulation Z and in Unfair, Deceptive and Abusive Acts and Practices (UDAAP) compliance. Regulation Z presents three primary standards: Advertised terms must be available to the consumer; required disclosures must be clearly and conspicuously made; and certain terms must be presented and can trigger additional disclosures.
When advertising a rate, you must present it as the annual percentage rate. A simple annual rate is allowed so long as it is not more conspicuous than the displayed APR. If the advertisement mentions a down payment requirement, a loan term or a payment amount, it must also further describe those terms. If an advertised rate can increase, that fact must also be stated.
UDAAP compliance is an overarching requirement that consumers not be harmed by unfair, deceptive or abusive practices. We can state one seminal UDAAP compliance concept: An advertisement should make clear to consumers what they are getting and how they can get it. Doing so will lessen the chance that a consumer or regulator can claim the advertisement was unfair, deceptive or abusive.
Coming back to our “Industry-low rate of 0.001% — no money down!” claim, ask yourself the following questions: Can someone get a 0.001% interest rate? Have you properly labeled the rate as the APR? Is it for a promotional period? Are there caveats to getting this rate that are not mentioned? Can consumers understand what the real rate is going to be and how they can obtain it? How is your rate “industry-low” and could there be a claim of deception if the company across the street has a lower rate?
Asking these questions prior to finalizing your advertising collateral will go a long way toward keeping your name off of the regulatory conference presentation on “What not to do” and also have the added benefit of creating a loyal customer base that knows you only advertise what you deliver.
Aaron Kouhoupt is Of Counsel in McGlinchey’s Cleveland office. He can be reached at [email protected] or 216-378-4988. McGlinchey is the compliance partner of Auto Finance Excellence, a sister service of Auto Finance News.