A triggering term is a word or phrase that, when used in advertising literature, requires the presentation of the terms of a credit agreement. Triggering terms are intended to help consumers compare credit and lease offers on a fair and equal basis. Triggering terms are set and monitored by the U.S. Federal Trade Commission (FTC).
Understanding Triggering Terms
Whether in print, broadcast, or online, credit advertising must abide by the Truth in Lending Act passed in 1969, which provides for the enforcement of credit advertising standards. The rule helps protect consumers from predatory advertising and lending practices by assuring the disclosure of consumer credit and lease terms.
- A triggering term is a word or phrase that, if used in credit advertising, requires additional credit agreement disclosures.
- The FTC dictates what qualifies as a triggering term.
- The purpose of triggering terms is to clarify the terms of a loan or agreement and to give consumers the opportunity to compare credit or lease offers.
- Credit companies can often meet disclosure requirements by providing real-life numbers and repayment examples.
Triggering terms help clarify the conditions under which a consumer is borrowing money. If an advertiser uses any number of terms of a credit agreement, such as how finance charges are computed, when a charge can be imposed, and charges computed as an annual percentage rate, then the advertisement must also contain certain specified disclosures. In short, certain terms—when used to lure customers—trigger additional disclosures.
Examples of Triggering Terms
Open-end and closed-end credit arrangements, as well as leases, each have a set of triggering terms associated with them. For example, if any of the following sample triggering terms are used in advertising, then disclosures must be made:
- The amount of a down payment expressed as a percentage or a dollar amount (example: "5% down" or "80% financing")
- The amount of any payment expressed as a percentage or a dollar amount (example: "$15 per month" or "monthly payments of under $100")
- The number of payments (example: "60 monthly payments and you're paid up" or "12 small payments is all you owe")
- The total time required to pay and period of repayment (example: "5-year loans available" or "just 36 low monthly payments")
- The finance charge amount (example: "Less than $200 interest" or "financing costs less than $99")
If any of the above term triggers are used, then the following must be disclosed:
- The amount or percentage of the down payment
- The repayment terms
- The annual percentage rate (APR); the term must be spelled out.
- If the APR can be raised after the credit is extended, then that fact must be disclosed.
On the other hand, some terms or phrases do not trigger additional disclosures. Examples include, financing available, low or no down payment, easy monthly payments, pay weekly, and terms to fit your budget.
Triggering Terms Special Considerations
Carefully reading disclosures can help consumers get an accurate picture of the cost of borrowing money; being oblivious to the terms of a loan and the charges incurred can cause a consumer to pay more than they should for credit or become more indebted than they intended.
Meanwhile, a way for credit companies to meet disclosure requirements is by using real-life repayment examples. For instance, if a mortgage lender is advertising a 5% down payment on loans, they might provide an example that shows a 30-year fixed-rate loan, the repayment amounts, and the interest rate that was used at the time of the advertisement.