A triggering term is a word or phrase that legally requires one or more disclosures when used in advertising. Triggering terms are defined by the Truth in Lending Act (TILA) and are designed to protect consumers from predatory lending practices.
Different sets of triggering terms apply to closed-end credit products such as mortgages, and open-end credit products such as home equity lines of credit (HELOCs). Let’s take a closer look at how triggering terms work and what they mean for you.
Definition and Examples of Triggering Terms
Triggering terms are words or phrases that must be accompanied by a disclosure when they’re used in advertising. These disclosures are mandated by the TILA, which is designed to protect consumers from inaccurate and unfair credit billing and credit card practices.
For example, when advertising closed-end credit products such as mortgages or auto loans, lenders are required by Subpart C of the TILA to include disclosures when they mention the following triggering terms:
- The amount or percentage of any down payment: For example, “20% down” or “70% financing.”
- The number of payments: For example, “monthly payments of less than $100,” “pay just 15% each month,” or “$12 per month.”
- The period of repayment: For example, “10 years to pay off,” “24 months to pay down,” or “5-year loans available.”
- The amount of any payment: For example, “you’ll make just 24 small payments” or “36 monthly payments and you’re all paid up.”
- The amount of any finance charge: For example, “financing costs less than $500,” “less than $200 interest,” or “$250 financing.”
Open-end credit products such as HELOCs are covered by Subpart B of the TILA, which details triggering terms like:
- Statements regarding when a finance charge begins to accrue
- An explanation of any time period when an outstanding balance is allowed to be repaid without the borrower incurring a finance charge
- APR or any other periodic rate
- Any explanation of how the balance is determined
- Finance charges that may be imposed
- Any explanation of how any finance charge is determined
Both affirmative (“12% APR”) and negative (“no interest for three months”) references to triggering terms for open-end credit products like HELOCs require disclosures.
How Triggering Terms Work
How triggering terms work depends on the specific products they are regulating; but generally, if one of these terms is used in an advertisement, the provider must also include one or more mandatory disclosures. The TILA requires these disclosures be “clear and conspicuous” so unscrupulous lenders can’t try to hide them or use confusing language.
For example, if a lender uses one or more of the triggering terms listed above in an advertisement for a mortgage, the ad must also include:
- The amount or percentage of the down payment.
- The full terms of the repayment over the loan’s term, including any required balloon payment.
- The loan’s annual percentage rate (using those specific words) as well as whether that rate may increase during the term.
However, disclosures aren’t required when lenders use phrases that aren’t defined as triggering terms for closed-end credit products, such as:
- No down payment
- 10% APR
- Rate loans are available
- Easy monthly payments
- Loans available at 10% below our standard APR
- Low down payments
- Pay each week
- There are terms to fit your budget
- Financing is available
What Triggering Terms Mean for You
Triggering terms exist to protect consumers and make it easier to comparison shop for loans and mortgages.
If you come across a lender that uses triggering terms without also including the legally required disclosures, be wary.
Triggering terms can make it easier to understand key elements of a loan, such as the repayment terms and whether the APR is variable or fixed. Fully reading and understanding the disclosures can help you see how much borrowing that money will actually cost you in the long run, so you can choose a credit product that fits your needs. Skipping the disclosures might mean you wind up spending more than you had planned on interest and fees.
- Triggering terms are words or phrases that require disclosures when used in advertising.
- Requirements for triggering terms vary depending on the product being advertised.
- Triggering terms are required by the Truth in Lending Act (TILA).