After fifteen years of continuous brick-bats aimed at the 1989 rules, new consumer credit advertisement regulations are coming in October 2004. They demand urgent attention, but are they an improvement?
Topic: Credit Advertising
The Consumer Credit (Advertisements) Regulations 2004
Since 1989, advertisers wishing to make any reference in advertising aimed at consumers to a purchase being assisted by credit have had to take care. This is because compliance with the Consumer Credit (Advertisements) Regulations 1989 has been mandatory.
These regulations have allowed only three types of reference to credit in consumer advertising. These have been in either "simple", "intermediate" or "full" credit advertisements.
In each category only certain types of information about the credit being offered are allowed. In addition to these regulations, there is the overall requirement under the Consumer Credit Act 1974 that all consumer credit advertisements must not be misleading.
The 1989 regulations have been consistently criticised as over-complex, over restrictive and requiring the inclusion of far too much information for the consumer's own good.
Finally, after much delay, the government has now finally got its act together to produce revised rules.
What will change:
Under the Consumer Credit (Advertisements) Regulations 2004, the old "simple, intermediate and full" regime will fall away.
Instead we will have three new general requirements. These are that all credit advertisements shall:-
use plain and intelligible language;
be easily legible (or, in the case of any information given orally, clearly audible); and
specify the name of the advertiser.
Another general requirement is that any person who causes a credit advertisement to be published shall ensure that the advertisement complies with all applicable requirements of these regulations. As with the existing regime, this would appear to encompass advertising agencies as well as their clients.
Triggers for more information
As for the detailed content of the advertising, instead of the "simple", "intermediate" and "full" advertisement categories, we will now have a regime where the inclusion of some types of information will automatically trigger a requirement to include other types of information.
For instance, if a credit ad includes any reference to the frequency, number or amounts of repayments of credit, either as a sum of money or as a specified proportion of a specified amount, or includes references to any other payments or charges which are payable under the credit deal advertised, or if there is reference to the total amount payable under the deal, other than in cases where it is 0% credit or the cash price of any particular item is not mentioned, then the following further information must be included:-
all the information types set out in schedule 2 to the Regulations other than those already in the ad. This means all the categories of information mentioned above plus the amount of the credit, any deposit required, the cash price, and any advance payment;
the postal address at which the advertiser may be contacted, except in the case of TV or radio ads, ads on the premises of a dealer or creditor (not being ads that are to be taken away) and ads which already include the name and address of a dealer or the name and postal address of a credit broker.
With regard to how the information should be presented, the new rules say that all of the items of information listed must be given equal prominence and shown together as a whole.
Typical APR rules
Another general requirement is that if the credit ad specifies any other rate of interest, or includes reference to the frequency, number and amount of repayments, any other payments or charges required or the total amount repayable, the "typical APR" must also be mentioned.
"Typical APR" is defined as "an APR at or below which an advertiser reasonably expects, at the date on which an advertisement is published, that credit will be provided under at least 66% of the agreements he will enter into as a result of the advertisement."
We foresee some interesting disputes over whether there was a "reasonable expectation" that 66% of resulting deals would be at a particular rate.
A requirement to specify the typical APR will also be triggered if there is any indication that credit is available to persons who might otherwise consider their access to credit restricted or any indication that the terms of credit available are more favourable than the corresponding terms applied in any other case or by any other credit provider. Typical APR must also be included if the advertisement "includes any incentive to apply for credit or to enter into agreement under which credit is provided."
More APR rules
There are yet more detailed rules concerning how the APR should be mentioned.
Where an APR is subject to change, it must be accompanied by the word "variable." It must use the word "typical." It must be presented together with all of the other mandatory fields of information specified above (for instance any deposit or advance payment required or the total amount payable). It must also be given greater prominence in the advertisement than other rate of interest charged which is quoted in either the other information fields specified in schedule 2 and any reference to any incentive to take out credit.
Furthermore, if any of the items set out in schedule 2 appear in printed or electronic form, the typical APR must appear in characters at least one and a half times the size of the characters in which those other items appear.
Some other general rules forbid the use of expressions such as "interest free" or any similar expression except where the total amount payable by the debtor does not exceed the cash price.
"No deposit" cannot be used unless no advance payments are to be made and the expression "gift", "present" or any similar expression cannot be used except where there are no conditions which would require the debtor to return the credit or items that are the subject of the claim.
The expression "weekly equivalent" can also not be used unless weekly payments are provided for under the agreement.
When it comes to credit deals where security may be required, statutory warnings are required similar to the current ones such as "Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it."
These must be given greater prominence than is given to any rate of charge other than the typical APR, but they are not required in the case of TV or radio ads "in the course of programming the primary purpose of which is not advertising" or words published by exhibition of a film, (for instance in a cinema) or where the ad contains only the name of the advertiser. Towards the end of the regulations there is an "exclusions" section.
This indicates that the regulations do not apply to an advertisement which expressly or by implication indicates clearly that a person is willing to provide credit for the purposes of another person's business and does not indicate, whether expressly or by implication, that a person is willing to provide credit otherwise than for the purposes of such a business.
The Consumers' Association has expressed concerns that the new regulations do not go far enough to protect consumers.
Our own concern is that although well intentioned, these regulations have ended up being just as restrictive and difficult to construe and apply as the 1989 version.
Next important date
31 October 2004, when the new regulations come into force.