Before closing, the team discovers that an ad shows an interest rate but omits the APR presentation. What is the safest compliant answer?
Correct Answer
D) State the rate as an annual percentage rate
Why this is correct: The Truth in Lending Act (TILA) and Regulation Z (12 CFR 1026.24) govern closed-end credit advertising. When an advertisement states an interest rate, it must also state the Annual Percentage Rate (APR). Discovering an ad that omits the APR requires immediate correction to include it. Why the other choices are wrong: "Wait until after the pre-closing review to decide whether the disclosure, filing, or license issue matters" is wrong because advertising compliance is a pre-activity requirement, not something to be deferred. "Treat advertising and consumer protection as satisfied by an oral manager approval" is wrong because managerial approval cannot override federal disclosure law. "Treat prior mortgage experience as a substitute for the required compliance condition" is wrong because experience does not exempt an MLO from following specific regulatory rules. Exam tip: Safety in compliance means acting immediately to correct a known disclosure error. Do not delay or seek substitutes for a clear regulatory command.
Why This Is the Correct Answer
The correct response is "State the rate as an annual percentage rate". Closed-end credit advertising rules require the finance charge rate to be stated as an annual percentage rate.
Why the Other Options Are Wrong
Option A: Wait until after the pre-closing review to decide whether the disclosure, filing, or license issue matters.
Wait until after the pre-closing review to decide whether the disclosure, filing, or license issue matters. is not correct because it bypasses the rule supported by the explanation.
Option B: Treat advertising and consumer protection as satisfied by an oral manager approval.
Treat advertising and consumer protection as satisfied by an oral manager approval. is not correct because it bypasses the rule supported by the explanation.
Option C: Treat prior mortgage experience as a substitute for the required compliance condition.
Treat prior mortgage experience as a substitute for the required compliance condition. is not correct because it bypasses the rule supported by the explanation.
Memory Technique
When an ad mentions a rate, look for APR.
Exam Tip
When an ad mentions a rate, look for APR.
Common Mistakes to Avoid
- -The note rate and the APR are not interchangeable advertising disclosures.
More Ethics & Fraud Questions
In a file escalation meeting, the supervisor sees facts tied to RESPA Kickbacks and Referrals. What should the file reflect?
In a closing-readiness check, a disclosure specialist sees facts tied to Appraisal Fraud Detection. What should the file reflect?
At closing, an MLO adds a single-premium credit-life policy to the loan amount even though the borrower declined it and the policy is not required for approval. Which practice is the clearest concern?
A refinance eliminates a borrower's fixed-rate loan, adds substantial fees, provides no cash or lower payment, and restarts a 30-year term. What should the MLO do before recommending it?
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