44. A buyer is planning to buy a 5-acre, residential lot for $5,000. The credit the buyer is using had been advertised by an institutional lender as follows: 'A 5-year, $5,000 loan, with payments of only $100 per month.' Is the advertisement legal?
Answer: D
No, because the annual percentage rate was not mentioned.
The advertisement is illegal because it fails to disclose the annual percentage rate (APR), which is a critical component of loan advertisements. The lack of this information can mislead potential borrowers regarding the true cost of the loan.
A) Yes, because the loan is for $5,000.
This option is incorrect because the legality of a loan advertisement is not solely determined by the loan amount. Even if the loan is for $5,000, it must still comply with disclosure regulations, including the APR, to be considered legal.
B) Yes, because the down payment was not mentioned.
While the absence of a mention of a down payment could raise questions, it is not a violation of the Truth in Lending Act (TILA) as significant as failing to disclose the APR. Therefore, this option does not accurately reflect the legal requirements of loan advertisements.
C) No, because settlement charges were not mentioned.
This option is incorrect as well, since while settlement charges are important, they are not as critical to disclose as the annual percentage rate. The primary legal requirement in this context focuses on the APR to provide borrowers with a clear understanding of the loan's cost.
D) No, because the annual percentage rate was not mentioned.
This is the correct option because the Truth in Lending Act mandates that advertisements for loans must include the APR. Failing to disclose this information can mislead borrowers about the true cost of borrowing, making the advertisement illegal.
Conclusion
The correct option, D, highlights the essential requirement for loan advertisements to include the annual percentage rate, ensuring borrowers are well-informed about the cost of credit. Options A, B, and C fail to address the core legal requirement regarding the APR, rendering their justifications insufficient in this context. Thus, the advertisement's legality hinges on the omission of the APR.