Can a 'fixed rate' not really be fixed?

• Author: Pry, Carl G.
• Position: Marketing Compliance

The short answer is no. This may seem like a trick question, but there are legitimate reasons for asking it. It is relevant now due to the issuance of final rules by the federal Reserve amending Regulation Z (Truth in Lending) that affect consumer-purpose open-ended credit plans (such as credit cards, home equity lines of credit, personal or overdraft lines of credit and so forth). The rules, which took effect Feb. 22, 2010, implement parts of the Credit CARD Act passed last May, but don't read too much into that title: Certain advertising provisions in the rule affect all types of consumer open-end credit plans, not just credit cards.

[ILLUSTRATION OMITTED]

It's all part of the Fed's effort at restricting what it sees as unfair or deceptive acts or practices (commonly called UDAP) in marketing. In fact, many of the Credit CARD Act's provisions are meant to control what Congress saw as abusive practices in the lending industry. What this also tells us is that the tea leaves are pointing to increased attention from federal examiners where language, terms, type styles, and font sizes will be closely scrutinized to determine if the ad as a whole fairly represents the product being promoted.

One of these critical marketing provisions deals with how annual percentage rates (APRs) are presented in ads for consumer-purpose open-ended plans (again, despite coming from the Credit CARD Act, this covers any open-ended plan, whether a credit card or otherwise). If the bank uses the term "fixed," or anything similar to represent that the APR cannot change after the plan is open, it cannot raise it later without going through a 45-day written change-in-terms notice process in advance...