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).
Breaking Down Triggering Term
Credit advertising, whether in print, broadcast, or online, must abide by the Truth in Lending Act passed in 1969, which provides for the enforcement of credit advertising standards. The act helps protect consumers from predatory advertising and lending practices by assuring the disclosure of consumer credit and lease terms. For more information, see the Truth in Lending (Regulation Z).
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. Put, certain terms — when used — trigger certain disclosures.
Triggering Term Disclosures
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 then subsequent required disclosures below must be made:
- The amount of a down payment expressed as a percentage or a dollar amount (ex: "5% down" or "80% financing")
- The amount of any payment expressed as a percentage or a dollar amount (ex: "$15 per month" or "Monthly payments of under $100")
- The number of payments (ex: "Just 60 monthly payments and you're paid up," or "12 small payments is all you owe)
- The total time required to pay (period of repayment) (ex: "5-year loans available" or "Just 36 low monthly payments")
- The finance charge amount (Ex: "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.
Triggering Term Exceptions
The following statements are some examples of language that do not trigger disclosures:
- Financing available; low/no down payment; easy monthly payments; pay weekly; terms to fit your budget; 15% annual percentage rate
It is important for consumers to read all of the disclosures carefully to get an accurate picture of the cost of borrowing money. An excellent way to meet disclosure requirements is by using a real-life repayment example. Being oblivious to the terms of a loan and the charges that can be incurred can cause a consumer to pay more than they should for credit or become seriously indebted.