Advertisements are everywhere these days. Everywhere you look, especially online, TV, or driving down the road, we see advertisements. For credit unions it is crucial to ensure that your advertisements or marketing materials are compliant with the regulatory requirements issued by regulators. This blog is a refresher on those general requirements for both open-end and closed-end credit advertisements. Please note that state laws may also come into play, so credit unions may want to work with local counsel to ensure compliance with all applicable state laws.
Let’s first start with what an advertisement is. Section 1026.2(a)(2) of Regulation Z defines an “advertisement” as “a commercial message in any medium that promotes, directly or indirectly, a credit transaction.” The commentary to this section explains this includes any message “inviting, offering or otherwise announcing generally to prospective customers the availability of credit transactions.” The commentary continues by elaborating that these types of messages are covered regardless of the media via which they are communicated. Basically, almost everything seems like an advertisement. But here are a few examples of “advertisements” include messages in fliers, newspapers or magazines, announcements on the radio or television, telephone solicitations, electronic advertisements, and many more.
Open-End Credit Rules
The requirements for open-end credit advertising, such as credit cards or home-equity plans, is located in Regulation Z’s section 1026.16. Section 1026.16(a) requires that all advertisements state only those terms that are actually available. The commentary to this section elaborates on this stating:
“To the extent that an advertisement mentions specific credit terms, it may state only those terms that the creditor is actually prepared to offer. For example, a creditor may not advertise a very low annual percentage rate that will not in fact be available at any time. Section 1026.16(a) is not intended to inhibit the promotion of new credit programs, but to bar the advertising of terms that are not and will not be available. For example, a creditor may advertise terms that will be offered for only a limited period, or terms that will become available at a future date.”
Based on the information above, a credit union is prohibited from sending out an advertisement with a rate that is not available and must only advertise terms that are actually available.
It is important to note that section 1026.16(b) includes “alternative disclosure” options that credit unions may use to provide the additional disclosures required due to the use of one or more trigger terms in an advertisement. The trigger terms are those required to be disclosed under section 1026.6(b)(3) and include the APR, transaction fees, annual fee and certain other charges. This applies to trigger terms stated in the positive ($50 annual fee) and in the negative (no annual fee). If a credit union’s open-end advertisement includes a trigger term, the following disclosures must be clearly and conspicuously stated:
- Any minimum, fixed, transaction, activity or similar charge that is a finance charge under section 1026.4 that could be imposed;
- The APR and if the plan provides for a variable APR, that fact shall be disclosed; and
- Any membership or participation fee that could be imposed.
Closed-End Credit Rules
The requirements for closed-end credit advertising, such as a personal loan or mortgage, is located in Regulation Z’s section 1026.24. Section 1026.24(a) provides requirements for credit terms stating:
“If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor.”
Furthermore, section 1026.24(c) provides that if an advertisement states a rate of finance charge that it must be stated as an “annual percentage rate,” using that term or the abbreviation “APR.” The commentary to this section adds that “[t]he advertisement must state that the rate is subject to increase after consummation if that is the case…” Regulation Z does not specify what rate must be advertised, only that the rate should be calculated in accordance with section 1026.22. Where multiple rates could apply depending on the applicant’s creditworthiness or other factors, a credit union must consider what rate to advertise and how to do so by considering what rates are actually available.
Based on the rules above, a credit union may decide to use broad language or possibly include an asterisk to indicate eligibility requirements for a specific rate. Ultimately, what language a credit union uses is a fact-based analysis the credit union will need to determine for itself, perhaps with the assistance of counsel.
Lastly, a credit union may want to consult with counsel to review the specific language within its advertisement to determine its compliance with both state and federal regulations. However, the general guidance discussed above for both open-end and closed-end advertisements is a good start when creating marketing materials. Legacy NAFCU’s Advertising Guide is also a great resource for additional information.