Who: Financial Conduct Authority
When: October 2013
Law stated as at: 29 October 2013
The Financial Conduct Authority (the “FCA”) will be taking over the regulation of the consumer credit industry as of 1 April 2014. In March 2013 they consulted on their high level proposals for their new regime. As a result of feedback from this initial consultation, the FCA has made changes to its proposed approach and published a new consultation paper detailing the changes and asking for further consultation from interested parties. The consultation runs until 3 December 2013.
The FCA proposes a number of measures which could affect advertisers who offer credit to consumers. Although the consultation states that firms should not be imposed with further burdens, the consultation includes recommendation that those who offer high-cost-short-term lending credit, including payday lending firms, should:
• assess the potential for a loan to adversely affect the customers financial situation;
• limit the number of times a consumer can seek payment using a continuous payment authority;
• inform customers about sources of debt advice before refinancing a loan; and
• put risk warnings on high cost short term credit financial promotions.
Complete credit cold calling ban not ruled out
The FCA states that they will reflect the existing OFT guidance on cold-calling and other unsolicited direct marketing. Firms will therefore have to identify themselves and their purpose on such calls and confirm whether it is an appropriate time to speak to the caller.
However, although this does not extend existing requirements, the FCA has stated that they may consider banning cold-calling altogether in the future.
In relation to the content of advertising for payday loans, the FCA wants firms to highlight the effects of “roll-over” (where customers roll over their debt rather than repaying at the end of the agreed loan term) in any publications and adverts. The consultation states that consumers find the total cost of credit easier to understand than APRs.
However, the FCA is unable to change the rules on display of price information in relation to consumer credit advertisement because these provisions are dictated by EU law. Moreover they do not believe that changing the way in which prices are displayed will help to protect consumers because consumers consider product features such as speed, flexibility and ease to be more important than cost.
The provision of further, or different, information about the price of credit therefore might not inform consumers, in an effective way, of the risks of irresponsible lending and borrowing.
New pay day loan risk warning
Adverts for payday loans are not currently required to contain any further information than other consumer credit advertisements. The FCA now proposes that all financial promotions for high-cost short-term loans will need to carry a ‘risk warning’. The consultation includes the below example, which the FCA suggests is displayed in a prominent way:
“Think! Is this loan right for you? Over 2 million short-term loans were not paid off on time in 2011/1243. This can lead to serious money problems. If you’re struggling, go to www.moneyadviceservice.org.uk for free and impartial help.”
This warning would be targeted at consumers who are unaware of the risks and costs associated with failing to pay back a loan on time and those consumers that would benefit from impartial debt advice.
The FCA propose that these warnings, and the requirement to include provisions directing consumers to free debt advice, will come into effect for electronic communications on 1 April 2014 and on 1 July 2014 for non-electronic communications.
The ASA will retain responsibility for dealing with complaints about offensive or irresponsible payday loan ads and the FCA will concentrate on how and when cost information such as information on interest rates and the display of prescribed risk warnings.
Why this matters:
The regulation of payday lender advertisements is a current “hot topic”. There have been a number of recent ASA adjudications on consumer credit ads and requirements to display certain APR information (for example, BishBoshBosh Ltd, Cash EuroNet UK LLC, Shop Direct Finance Company).
This FCA consultation adds more complexity to the area and the introduction of a new requirement to show risk warnings on advertisements will undoubtedly impose a greater burden on the advertiser.
However those who have expressed concern about the pay-day loan sector may be concerned that even if these proposals are adopted, there will be delays of some months before these changes come into force.