APR and finance-charge rates in credit advertisements

An advertised note rate is not always the same as the annual percentage rate. Regulation Z requires a rate of finance charge in a credit advertisement to be stated as an APR so consumers can compare credit costs on a common basis. The APR reflects the finance-charge calculation under the regulation; it should not be casually described as identical to the nominal interest rate.

Use the APR label and disclose a possible increase

Under 12 CFR 1026.24(c), an advertised rate must be stated as an annual percentage rate, and it may be expressed as “APR.” If that rate can increase after consummation, the advertisement must state that fact. The rule does not generally require the advertisement to explain the amount or schedule of a future increase. Increases caused by delinquency, default, acceleration, assumption or transfer of collateral are treated under the regulation's stated exception.

Additional treatment for credit secured by a dwelling

For dwelling-secured credit, an advertisement may also state a simple annual interest rate, subject to clear and conspicuous disclosure requirements. When more than one simple annual rate will apply over the term, the advertisement generally must clearly disclose each applicable rate, the period each applies and the APR. A promotional low introductory rate therefore cannot be presented in a way that hides the later rate or omits the required APR information.

Do not confuse rate disclosure with triggering terms

Rate statements sit alongside, but are distinct from, Regulation Z's rules for triggering terms such as a down payment, payment amount or number of payments. A prominent rate can raise APR disclosure questions even when no payment trigger appears; a payment trigger can require additional terms even where the APR is properly stated. Evaluate each part of the advertisement under its own subsection.

Work through an exam question

1. Identify whether the communication is an advertisement for consumer credit.
2. Find every rate of finance charge stated, including introductory or variable rates.
3. Check whether the required APR label and value appear.
4. If the APR can rise after consummation, check for the required notice and its scope.
5. If the credit is secured by a dwelling, check for simple annual rates, multiple-rate periods and other applicable disclosures.
6. Separately test any triggering terms under the relevant advertising provision.

Keep the rate test separate from multiple-rate layout

The core APR requirement tells you how a rate of finance charge is expressed. The separate multiple-rate provision addresses how a dwelling-secured ad presents successive simple annual rates, their periods and the APR. If an ad has both issues, apply both tests rather than assume one disclosure cures the other.

Key takeaway

Credit advertisements generally state finance-charge rates as APR. Dwelling-secured ads may show a simple annual rate too, but they remain subject to APR and additional clear-disclosure rules, especially when rates change over the loan term.