A triggering term (or trigger term) is a word or phrase that, when used in advertising, requires the advertiser to provide additional disclosures. Triggering terms are intended to help consumers compare credit, leasing, and other offers on a fair and equal basis and are regulated under federal law.
- A triggering term, or trigger term, is a word or phrase that, if used in advertising, requires specific, additional disclosures under federal law.
- Ads for consumer loans and other credit-related products are subject to these rules.
- The purpose of triggering terms is to clarify the provisions of a loan or other offering so that consumers aren't taken advantage of and to allow them to compare competing offers on a fair basis.
How Triggering Terms Work
Whether in print, broadcast, or online, credit advertisers must abide by the Truth in Lending Act passed in 1968, which provides for the enforcement of certain advertising standards. The rule helps protect consumers from predatory advertising and lending practices by requiring the disclosure of relevant credit information.
The Truth in Lending Act was implemented by the Federal Reserve Board's Regulation Z, and the two terms are often used interchangeably. Today the Consumer Financial Protection Bureau (CFPB) has most of the rule-making authority for the Truth in Lending Act.
Triggering terms help clarify the conditions under which a consumer would be borrowing money. If an advertiser refers to certain terms in a credit agreement, such as how finance charges are computed and when a charge can be imposed, then the advertisement must also contain certain specified disclosures. In short, particular terms—when used to lure customers—trigger additional disclosures.
Examples of Triggering Terms
Open-end and closed-end credit arrangements each have a set of triggering terms associated with them. In addition to Regulation Z, certain financial products, such as car leases and home equity lines of credit, are subject to special disclosure requirements under other laws.
For example, if any of the following sample triggering terms are used in advertising, the ad must contain certain disclosures:
- 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 the 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 these trigger terms appear in an ad, the ad must disclose the following information:
- The amount or percentage of the down payment
- The repayment terms
- The annual percentage rate (APR); the term of the loan must also be spelled out
- Whether the APR can be raised after the credit is issued
In addition, the law requires that these disclosures be "clear and conspicuous" and in "reasonably understandable form."
As the Federal Trade Commission elaborates in a guide for online advertisers, "For disclosures to be effective, consumers must be able to understand them. Advertisers should use clear language and syntax and avoid legalese or technical jargon. Disclosures should be as simple and straightforward as possible. Icons and abbreviations are not adequate to prevent a claim from being misleading if a significant minority of consumers do not understand their meaning. Incorporating extraneous material into the disclosure also may diminish communication of the message to consumers."
Some terms or phrases, on the other hand, 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.
A common way for credit advertisers 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, it might provide an example that shows a 30-year fixed-rate loan, the repayment amounts, and the interest rate that was in effect at the time of the advertisement.
The Truth in Lending Act also prohibits what is often referred to as bait-and-switch tactics in advertising. "To the extent that an advertisement mentions specific credit terms, it may state only those terms that the creditor is actually prepared to offer. For example, a creditor may not advertise a very low annual percentage rate that will not in fact be available at any time," the CFPB says.
Closed-end credit refers to a loan or other form of credit with a fixed end date by which time it will be paid off. Home mortgages are a common example. Open-end credit, on the other hand, has no fixed end date and can continue for as long as the customer keeps the account open. Credit cards and home equity lines of credit are two examples. Open-end and closed-end credit each have their own set of disclosure rules under the Truth in Lending Act.
Yes, trigger terms also apply to advertising that isn't related to credit. For example, the Federal Trade Commission requires social media influencers to follow certain triggering guidelines whether they're hyping a loan or a lotion. How many of them actually comply with those rules is another question.
According to the Federal Trade Commission, false or deceptive advertising can result in "civil penalties, consumer redress, and other monetary remedies. Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation."
In the case of leasing ads, which are subject to the rules of the Consumer Leasing Act (CLA) and Regulation M, the FTC has the authority to impose fines of up to $50,120 per day if it issues a cease and desist order and the advertiser doesn't comply with it.
The Bottom Line
Federal law requires that advertisements for consumer credit products provide additional disclosures if they make certain claims. Carefully reading those 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 involved can cause them to pay more than they should for credit or become more indebted than they intended.