During intake, an ad shows an interest rate but omits the APR presentation. What is the best compliant response?
Correct Answer
C) State the rate as an annual percentage rate
Why this is correct: The governing concept is Regulation Z's closed-end credit advertising rule (the governing federal rule If an advertisement states a finance charge rate (like an interest rate), it must also state the Annual Percentage Rate (APR). The APR is a more complete measure of cost. The compliant response is to ensure the rate is stated as an APR. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because borrower willingness does not excuse a violation of disclosure rules. "Ignore the consumer-protection issue unless the borrower complains" is wrong because the MLO has an affirmative duty to provide accurate disclosures. "Document the issue later instead of correcting the compliance problem first" is wrong because the compliance problem must be corrected before proceeding; documentation alone is insufficient. Exam tip: Remember the key pairing: if an ad mentions a rate, it must include the APR.
Why This Is the Correct Answer
The correct response is "State the rate as an annual percentage rate" because Lines 261-265 and 273-277; 12 CFR 1026.24(c).
Why the Other Options Are Wrong
Option A: Continue the activity because the borrower appears willing to proceed.
Continue the activity because the borrower appears willing to proceed. is not correct because it does not apply the rule tested by this file scenario.
Option B: Ignore the consumer-protection issue unless the borrower complains.
Ignore the consumer-protection issue unless the borrower complains. is not correct because it does not apply the rule tested by this file scenario.
Option D: Document the issue later instead of correcting the compliance problem first.
Document the issue later instead of correcting the compliance problem first. is not correct because it does not apply the rule tested by this file scenario.
Memory Technique
mortgage advertising compliance: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
Match the file facts to mortgage advertising compliance; do not choose an exception or shortcut that skips the required rule.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
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