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The Federal Trade Commission advises that real estate brokers violate Regulation Z, “Truth- in- Lending” more frequently than any other advertiser This appears due to the fact that they are not familiar with the requirements of advertising under Regulation Z.

The following information has been compiled from information furnished to the Licensing Board by the Federal Trade Commission.

The advertising provisions of Regulation Z (226.10) apply to any advertisement that is intended to promote an extension of consumer credit (that is, credit offered to a natural person in which the money, property or service is primarily for personal, family, household or agricultural purposes and which involves a finance charge or is, by agreement, payable in more than four installments). If the advertisement in question does not involve an offer of consumer credit the advertising provisions of Regulation Z are not applicable.

The term “advertisement” itself is quite broad and covers all forms of commercial messages, including disp~auyi signs in store windows. For example, multiple listing cards, if displayed to the public, would constitute an “advertisement.” On the other hand, literature such as multiple listing cards that is not on public display and is only used in connection with and in response to on individual prospective buyer’s inquiry would not be considered an “advertisement.”

Liability for compliance with the advertising provisions of Regulation Z extends beyond that of the extender or arranger of consumer credit. Once it is determined that the subject of the advertisement is a consumer credit transaction, the provisions of 226.10 apply to any advertiser regardless of his role in the transaction. The test is whether the advertisement is to promote consumer credit, not whether the advertiser is a creditor, consumer creditor, arranger, etc.

When a licensed real estate broker advertises a house owned by his principle is the advertisement covered by Regulation Z?

The answer to this question depends on whether the advertisement is to promote the extension of a customer credit sale. The answer is yes if the sale of the advertised home is one which will trigger the disclosure requirements of Title 11 of Regulation Z. The broker is subject to the advertising provisions of Regulation Z, even though he advertises on behalf of a private seller, so long as the transaction will qualify as an extension or arrangement of “consumer credit” as defined in Regulation Z.

What parts of the advertising provisions of Regulation Z apply to the real estate industry?

Generally only Sections 226.10(a) and (d) will apply to real estate transactions.

226.10(a) sets forth the overriding principal that no advertisement should contain terms (such as monthly payment amounts or downpayment amounts) that are not usually and customarily arranged by the creditor.

Example: An advertisement offering new homes at “$1,000 down” is improper if the seller will not usually accept this amount as a downpayment, even if all of the other required credit terms are disclosed in the advertisement.

Advertising of Real Estate Credit

Advertisements of assumptions generally involve the use of the one credit term that does not trigger the full disclosure required in 226.10(d)(2) – the rate of finance charge. In order to comply, the advertiser may state the rate and nothing else, but it must be expressed as an “Annual Percentage Rote” using that term.

Example: “Assume 7Y2% mortgage” is improper.

“Assume 7Y2% Annual Percentage Rate mortgage” is correct.

Further, the term “Annual Percentage Rate” should be spelled out ]d not reduced to “A. P.R.” or otherwise abbreviated.

Some transactions that are commonly called “assumptions” are not within the disclosure requirements of 226.8(k) (Assumption of an obligation), and are therefore not subject to the advertising provisions of Regulation Z. For the purposes of the disclosure requirements of Regulation Z, an “Assumption” occurs only when, by written agreement entered into between a subsequent customer and the creditor, that subsequent customer is or will be accepted by that creditor as an obligor on an existing evidence. of debt.

Advertisements Involving New Financing

If an advertisement states any of the following specific credit terms it is subject to the full disclosure requirements of 226. 1 0(d)(2):

1 . The amount of the downpayment or that there is “no downpayment” required (this includes statements such as “No closing or other costs until your first monthly payment”);
2. The amount of any installment payment;
3. The dollar amount of any finance charge (this of course would encompass reference in the advertisement to the dollar amount of points, finder’s fee or other charges that will become port of the finance charge);
4. The number of installments or the period of repayment (this includes statements like “Up to 30 year financing available”); or
5. That there is no charge for credit.

If any of the above five categories of statements are used in a consumer credit advertisement of real estate, then the advertisement must disclose all of the following:

1. The cash price of the home;
2. The amount of the downpayment required or that none is required, as applicable;
3. The (a) number, (b) amount and (c) due dates or period of payments scheduled to repay the debt; and
4. The annual percentage rate of finance charge.

There is no need to state the total dollar amount of finance charge in any advertisement and there is no need to state the deferred payment price in the case of the sale of a dwelling or the sum of the payments of a loan secured by a first lien on a dwelling to purchase that dwelling.

A hypothetical may be used to illustrate typical terms when all sales or loans are not made on the some basis. For example:

“Typical VA financing of 30 year loan: Cash price of ‘Hilton’ model $22,040; no downpayment; 360 monthly payments of $204 (including estimated taxes) at 7V2% Annual Percentage Rate.”


A note of caution is in order here. An advertisement that states a “7Y2% Annual Percentage Rate” is improper if it relates to a transaction that, after calculation of points, discount, and other extra charges, turns out to be 7.96% at closing time. The seller usually knows about these additional charges when he places the advertisement and he should not ignore what he knows is common practice when he advertises the property. Further, the term “Annual Percentage Rate” must be printed more conspicuously than other required terminology.

The Use of General Terms

General terms such as “Small Downpayments Accepted,” “FHA or V/A financing available” and “Compare our liberal mortgage rates” are not within the scope of Regulation Z.

The advertising provisions of the Truth in Lending Act are intended to encourage the use of the Annual Percentage Rate by advertisers and to promote full disclosure of specific credit terms or none at all.

This article came from the March 1970-Vol1-1 edition of the bulletin.