Whether you are a lender or a consumer, you need to know the rules that lenders must abide by when advertising interest rates. A federal law, the Truth in Lending Act, sets the guidelines for lenders when advertising the mortgage or other lending products in the newspaper, brochures or any of the lender’s marketing materials.
Disclosure of Annual Percentage Rate (APR)
The APR is the annual percentage rate. Under Regulation Z (Reg Z) of the Truth in Lending Act, lenders must disclose the APR when quoting interest rates verbally or in writing. The annual percentage rate is the annual cost of borrowing the money, which includes any costs and fees the borrower pays up-front (such as closing costs on a mortgage) and the interest payments.
Changes in Terms
The advertisements must also contain disclosures that spell out any changes in the interest rate that may occur. For example, if it is a fixed interest rate mortgage or loan, then the advertisement must state this. The same statement is required if the interest rate is variable. The act also requires that the advertisement state that the interest rates are subject to change before the borrower submits an application and/or locks in the interest rate.
Promotional or Introductory Rates
The Truth in Lending Act requires advertisements to note if the rate is lower than normal, such as a promotional rate. If it is a promotional rate, then a disclosure in the advertisement must include the time period for which the promotional rate applies. In addition, the advertisement must include what the interest rate calculation is after the promotional rate period expires.