JGI/Jamie Grill / Getty Images For example, when advertising closed-end credit products such as mortgages or auto loans, lenders are required by Subpart C of the TILA to include disclosures when they mention the following triggering terms:
The amount or percentage of any down payment: For example, “20% down” or “70% financing.” The number of payments: For example, “monthly payments of less than $100,” “pay just 15% each month,” or “$12 per month.” The period of repayment: For example, “10 years to pay off,” “24 months to pay down,” or “5-year loans available.” The amount of any payment: For example, “you’ll make just 24 small payments” or “36 monthly payments and you’re all paid up.” The amount of any finance charge: For example, “financing costs less than $500,” “less than $200 interest,” or “$250 financing.”
Open-end credit products such as HELOCs are covered by Subpart B of the TILA, which details triggering terms like:
Statements regarding when a finance charge begins to accrueAn explanation of any time period when an outstanding balance is allowed to be repaid without the borrower incurring a finance chargeAPR or any other periodic rateAny explanation of how the balance is determinedFinance charges that may be imposedAny explanation of how any finance charge is determined
How Triggering Terms Work
How triggering terms work depends on the specific products they are regulating; but generally, if one of these terms is used in an advertisement, the provider must also include one or more mandatory disclosures. The TILA requires these disclosures be “clear and conspicuous” so unscrupulous lenders can’t try to hide them or use confusing language. For example, if a lender uses one or more of the triggering terms listed above in an advertisement for a mortgage, the ad must also include:
The amount or percentage of the down payment. The full terms of the repayment over the loan’s term, including any required balloon payment. The loan’s annual percentage rate (using those specific words) as well as whether that rate may increase during the term.
However, disclosures aren’t required when lenders use phrases that aren’t defined as triggering terms for closed-end credit products, such as:
No down payment10% APRRate loans are availableEasy monthly paymentsLoans available at 10% below our standard APRLow down paymentsPay each weekThere are terms to fit your budgetFinancing is available
What Triggering Terms Mean for You
Triggering terms exist to protect consumers and make it easier to comparison shop for loans and mortgages. Triggering terms can make it easier to understand key elements of a loan, such as the repayment terms and whether the APR is variable or fixed. Fully reading and understanding the disclosures can help you see how much borrowing that money will actually cost you in the long run, so you can choose a credit product that fits your needs. Skipping the disclosures might mean you wind up spending more than you had planned on interest and fees.
