All first charge mortgage ads broadcast on UK TV or radio for the first time on or after 31 October 2004 will be governed by new FSA rules. Special guest contributor Paul Denham, Business Consultation Manager at the Broadcast Advertising Clearance Centre, focuses on some of the major changes.
Mortgage Advertising from 31 October 2004 Paul Denham
Business Co-ordination Manager
Broadcast Advertising Clearance Centre
Under the provisions of the Financial Services and Markets Act (FSMA) the Financial Services Authority (FSA) will become responsible for the regulation of mortgage provision and promotion in the same way as it currently regulates investment advertising. It will soon also become responsible in the area of general insurance and a further brief will be produced in connection with that closer to the time. The start date for this involvement will be 31 October 2004 but there will be a brief transition period, 3 months, in the case of television advertising, during which time material published before 31 October will still be OK so long as it would have been OK under the terms of the Consumer Credit Act (CCA). The CCA is being replaced as the relevant regulatory instrument for mortgages from 31 October but will, in a suitably amended form, still apply to credit promotions where the service is not secured on land. FSA have produced rules for the conduct of mortgage business – MCOB – and advertising will have to comply with the relevant sections of these rules.
From 31 October, advertising will have to have either been produced by an authorised person for the purposes of the Act, or authorised by an authorised person for the purposes of the Act. This is similar in effect to the existing regime. As with investment ads, the BACC will start to require a letter confirming authorisation for the purposes of the FSMA. As with investment advertising, there may be occasions on which an advertiser might seek to argue that for some reason the FSMA does not apply to what they are doing. If anyone seeks to make that argument the BACC would reserve the right to consult on whether they are allowed to claim the Act does not apply.
The general requirement will be that advertising must be fair, clear and not misleading. MCOB contains detailed rules intended to ensure advertising complies. These rules are to be found in MCOB section 3.6. It is not practical to reproduce all those rules in this note nor, given that the rules are in the area of legal requirements, should BACC seek to interpret or advise on them and it should be made clear to potential advertisers that it is their responsibility to ensure and confirm compliance. Some key points, however, are set out below – compliance with these points is not prejudicial to the responsibility of the advertiser to comply with MCOB.
1. Advertising will be able to offer comparisons and contracts so long as like is compared with like and the advertising objectively compares one or more material, relevant, verifiable and representative features. In other words an advertiser may be able now to claim to be cheaper or less onerous. This does not mean advertising can denigrate or discredit. If the comparison is in respect of a special offer of some kind, the end date will have to be included. There are other detailed rules in this area with which the advertiser will have to comply. The relevant section of MCOB is 3.3.3.
2. In order to be clear, fair and not misleading, advertising may not omit significant relevant information. Although ultimately it is not our role to interpret this provision we must be aware of it and consider it when clearing scripts – not least because the Ofcom Code on misleadingness will still apply as will the Ofcom Code requirement that advertising has to be legal. Significantly, there is a requirement that where a positive feature of a product is advertised, possible disadvantages related to that feature have to be spelled out with no less prominence. This will almost certainly mean difficulties with relegating the problems to a super. Where features of the product are mentioned, any relevant assumptions have to be clearly and prominently disclosed. Where there is information in the advertising required under the terms of MCOB, it must all appear in the same proximity. Detailed rules are in section 3.6.4. Further detailed advice on how this will apply in practice is found in 3.6.6.
3. Small print cannot be used to qualify prominent claims. This probably means that in most cases it will not be possible to use supers as qualification. If advertising contains any performance, interest or market conditions these have to be relevant and recent. We may have to draw advertisers' attention to the need to withdraw any advertising that may become outdated and we could incorporate that into the script/vtr final action. If the rate of interest is variable, the advertising must not state or imply that it is fixed. These points arise in section 3.6.5.
4. Certain expressions can only be used under appropriate circumstances – the examples in the rules (3.6.8) are overdraft, interest free, 0%, no deposit, guaranteed, pre-cleared, gift or present. Qualifying conditions are set out in the rule.
5. If the availability of a credit deal is conditional on a customer obtaining further products from a specific firm this has to be stated prominently. See section 3.6.11.
6. Since television advertising is transient, no risk warnings will be required. But – this only applies where the advertising appears in general programming. If the programming in which the advertisement appears is dedicated to promoting lending or, if the promotion is a separate feature within a dedicated interactive television environment then there is a requirement to include the risk warnings detailed in 3.6.13 and the rules about prominence in 3.6.14 will apply.
7. Regarding APR – this has to be calculated in a way spelled out by the MCOB rules and expressed as follows: ‘The overall cost for comparison is X% APR’.
8. APR has to be included where the advertising includes any price information or where the advertising refers explicitly or implicitly to the availability of credit to consumers who might otherwise suppose their access to credit was restricted – this is explained in 3.6.19. This statement of the APR has to have no less prominence than any other price information or statement suggesting suitability for those who might suppose their access to credit might be restricted. It must follow immediately on from any statement of any other rate or charge. If the advertisement is for more than one product, each with different APRs, all APRs have to be included. If the APR will vary according to an individual customer’s circumstances then the APR quoted must be representative of that or below which at least 66% of responders would be charged. This has to be determined either through take up of similar products in the past or, in the case of brand new products, has to be calculated through reference to the business plan. Where the rate to be charged varies according to individual circumstances there's a compulsory statement which must be included which reads: ‘The actual rate available will depend upon your circumstances. Ask for a personalised illustration’.
9. Where the product has or may have several rates that may apply during the course of the contract and any of those rates is mentioned in the advertising then all rates must be included and given equal prominence. If any of these rates is variable then the advertisement must say so. The rates have to be presented in their proper sequence and after each rate statement the advertisement must indicate how long the particular rate applies and that the rate then changes.
10. Where a fee is charged for arranging a mortgage, this must be indicated prominently and either the amount of the fee, if known, must be stated or a reasonably representative fee must be stated.