Question

If a loan ad is about negative amortizing, which of the following can be put on the advertisement?

Selections

• A. pay zero now!

• B. very low rate!

• C. Get approved over the phone

• D. I can help you finance your home

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Answer: D

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5 Keys Summary

1. Loan advertisements must comply with the federal Truth-in-Lending Act (TILA), also known as Regulation Z, which requires that disclosures must be clearly and conspicuously made to avoid misleading consumers.

2. TILA mandates the full and proper disclosure of financial items in advertising, specifically requiring that the Annual Percentage Rate (APR), loan term, and total costs to the borrower be clearly stated.

3. Negative amortization loans are inherently complex and risky, as scheduled payments do not cover the interest due, leading to an increase in the outstanding principal balance.

4. Specific claims like “pay zero now!” or “very low rate!” (Options A and B) are likely considered deceptive because they may refer only to initial “teaser rates” and fail to disclose the true, increasing cost and risk of the negative amortization feature.

5. A general statement like “I can help you finance your home” (Option D) is permissible because it makes no specific claims about rates or payments that would trigger the stringent, detailed disclosure requirements mandated by TILA for complex loan features.

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