How to Advertise…and Not Break the Law

Both federal and state laws regulate credit advertising. Although many advertising laws simply act to prohibit unfair or deceptive advertising, there are also many laws that require that specific disclosures be made in a credit advertisement or solicitation.

The Truth-in-Lending Act and its implementing regulation, Regulation Z, apply to the advertisement of specific terms of consumer credit. Reg. Z generally requires that all advertisements for consumer credit be accurate. Thus, if specific credit terms are provided in an advertisement, the terms must actually be available through the creditor. If the terms are subject to restrictions or qualifications—such as only being available for a limited time period or subject to the applicant’s creditworthiness—the advertisement must clearly state this fact.

In regulating advertising, TILA and Reg. Z use the concept of “triggering terms.” An advertisement that uses the triggering terms “triggers” further disclosure requirements.

The “triggering terms” are:

• The amount or percentage of any down payment;
• The number of payments or period of repayment;
• The amount of any payment; and
• The amount of any finance charge.

If a “triggering term” is used in an advertisement, a dealer must also indicate the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate, using that term or “APR.” Disclosures must be made clearly and conspicuously – so no hiding TILA disclosures in the mouse type. Although rare in used car financing, and likely inapplicable, if the rate can be increased during the term of the obligation, other rules apply.

If the dealer offers a range of possible credit terms, the dealer may use examples of typical credit transactions offered at the dealership. Each of the examples used must contain all the applicable required terms.

Special rules apply to catalogs or multiple-page advertisements. If such an advertisement gives information in a table or schedule in sufficient detail to permit the reader to determine the required disclosures, it will be considered as a single advertisement. The table or schedule has to show all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced cars offered.

For internet-based advertising, essentially the same rules apply, but with some minor differences to accommodate the realities of the Internet. For example, if a dealer uses any of the “triggering terms” described above, the dealer would need to include a link from the triggering term to the additional information Reg. Z requires to be disclosed with the triggering term.

An advertisement made through television or radio stating any of the triggering terms may comply with disclosure requirements either by stating clearly and conspicuously each of the additional disclosures or stating clearly and conspicuously the APR only, and by listing a toll-free telephone number, along with a reference that the number may be used by consumers to obtain additional cost information.

Regulation M, which implements the Consumer Leasing Act (CLA), also contains similar advertising requirements and restrictions. Leasing companies should consult Regulation M rather than Regulation Z in connection with advertising lease terms. And, if you’re dealership engages in leasing and credit sales, Regulations M and Z will apply.

As stated above, advertisements also must comply with state laws. Your dealership will have to consider laws that impact your advertisements for vehicle sales and for any credit terms offered in connection with those sales. Texas, for example, has sales and credit advertising disclosures and restrictions in its Transportation regulations and credit advertising disclosures and restrictions under the Finance Code.

If your dealership is engaged in cross border transaction, you will have to consider multiple states laws related to advertisements.

So, before you sign off on your next best advertising endeavor, consider whether you’re advertising vehicle sales and/or credit, whether you’re using TILA or CLA triggering terms in credit advertisements, and whether your advertisement complies with federal and state requirements and restrictions.