A processor asks how to handle a file where an ad shows an interest rate but omits the APR presentation. Which response is most accurate?
Correct Answer
A) State the rate as an annual percentage rate
Why this is correct: The governing concept is Regulation Z's closed-end credit advertising rule under 12 CFR 1026.24(c). This rule mandates that if an advertisement states a finance charge rate (like an interest rate), it must also state the Annual Percentage Rate (APR) clearly and conspicuously. The APR is a broader measure of credit cost that includes interest and certain other finance charges. Therefore, the only compliant action is to correct the ad by stating the rate as an annual percentage rate. Why the other choices are wrong: "Continue the activity because the borrower appears willing to proceed" is wrong because consumer willingness does not waive mandatory federal disclosure requirements. "Ignore the consumer-protection issue unless the borrower complains" is wrong because the MLO has an affirmative duty to ensure advertising compliance, regardless of consumer complaints. "Apply the correct general concept to the wrong income calculation stage rather than the APR in advertisements rule" is wrong as it misapplies a compliance concept; the issue is specifically about APR disclosure in ads, not income calculation. Exam tip: For advertising questions, remember the core rule: If you mention a rate, you must disclose the APR. Borrower consent or lack of complaint does not excuse this violation.
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 B: 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 C: 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: Apply the correct general concept to the wrong income calculation stage rather than the APR in advertisements rule.
This distractor shifts the issue to a different trigger, product, or timing rule instead of applying the rule tested in the stem.
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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