Our previous Counselor’s Corner provided an overview of deception and unfairness within federal advertising law. This time, let’s discuss more practical applications by discussing “trigger terms” in retail and leasing advertising.

The Truth-In-Lending Act has two very important sets of regulations dealing with advertising. The first is Regulation Z, dealing with retail installment sales, and Regulation M, which applies to consumer lease transactions. Both of these regulations contain provisions that require specific disclosures when advertising a retail installment sale or lease offer. Trigger term compliance within the Truth In Lending Act, Regulations Z and M, is one of the most easily and frequently checked matters by federal and state regulators. If credit or lease terms are advertised, the advisement must meet the specific requirements of the Truth-In-Lending Act.

In the context of retail installment sales, an advertisement must include four separate disclosures. These are as follows:

1. The amount of or percentage of any down payment;
2. The number of or periods of repayment;
3. The amount of the monthly payment; and
4. The annual percentage rate (APR).

If one of the first three disclosures (down-payment, length of repayment, or monthly payment) is advertised alone, that “triggers” the disclosure of the remaining three. However, federal law states that if a dealer only advertises an annual percentage rate, that does not “trigger” the other three. Consequently, a minor exception occurs when only advertising a percentage rate when it pertains to Regulation Z compliance, but don’t forget to include other disclaimers, such as, “for qualified buyers only.”

A common violation that I see is when a dealer, or even major manufacturers, advertise, for example “0% financing for 60 months,” without any further disclosures. The period of repayment, i.e. 60 months, actually “triggers” and requires the two remaining disclosures of monthly payment and the amount or percentage of down payment to be included. A more compliant way to advertise this type of promotion is to simply leave out the time frame and use a phrase such as “limited term financing.”

Of course, dealers can advertise the amount of time for the finance terms so long as the proper disclosures are included in the advertisement. For example, some promotions will include a proper disclosure which will read as follows for 60-month financing: “$16.67 per month per $1,000 financed with 0% down payment on approved credit.” Please remember that this disclosure must be clear and conspicuous so that a reasonable consumer can see it. Also, advertising such terms as deferred payments and balloon payments have to be clearly identified along with amounts and due dates of those payments.

Turning to leases, similar requirements exist under Regulation M of the Truth In Lending Act. I am only going to address closed-end leases as most dealers do not offer open-end leasing, which has additional disclosure requirements. Like retail installment sales, lease advertising is about “trigger terms.” If you advertise either a monthly payment or anything about the drive-off cost (i.e. capitalization cost reduction, security deposit, “no down payment” etc.) it “triggers” the need for the following disclosures:

1. A clear statement identifying the transaction as a lease;
2. The number, amounts, and period of scheduled payments;
3. The total amount due on or before delivery; and
4. A statement indicating whether or not a security deposit is required.

An example of a valid lease disclosure with “trigger terms” would be “Lease for $419 a month for 36 months. $1,999 due at lease signing. No security deposit required.”

Again, please remember that all the above disclosures must be clear and conspicuous. Also, please be aware of the “equal prominence rule,” which we discussed previously. This advertising principle generally states that if you state anything about a component of the drive-off cost, such as “no down payment,” then the total amount that is due at the time of delivery must be disclosed “no less prominently than any such component.”

I do appreciate and recommend that mileage restrictions and mileage overage charges be clearly disclosed, but they do not fall under the purview of “trigger terms” within regulation M.

Consequently, with leasing, I encourage dealers to make very clear that the car being advertised is a lease and that if there are any other disclosures, that similar size font be used to describe any drive-off cost. Failure to do so can result in violations of

Regulation M under the Truth-In-Lending Act.
Regulation Z and M are very specific and unintentional mistakes can be made. Please make sure that you choose counsel experienced in advertising law.

I certainly hope that these two Counselor’s Corner have provided you some guidance in this ever-complex world of advertising that we operate. The next Counselor’s Corner will conclude our advertising series by addressing the West Virginia Prize and Gift Act. t