Using its new powers under the Enterprise Act 2003, the Office of Fair Trading has recently got two credit advertisers to toe the line. We report on the regulatory breaches and question the penalties, or lack of them, for getting it wrong.
Who: The Office of Fair Trading, Ironmarket Home Loans and Mortgages and First Choice Finance
When: June 2004
The OFT took action against two credit advertisers over alleged breaches of the Consumer Credit (Advertisements) Regulations 1989.
In both cases injunction applications were threatened under the Enterprise Act and undertakings obtained from the advertisers to mend their ways before an appearance in court was necessary or any financial penalty had to be paid.
Ironmarket APR drop off
Ironmarket Home Loans and Mortgages based in Stoke-on-Trent placed an ad in the Scottish Sun in January 2004 offering any purpose remortgages and loans worth between £3,000 and £3,000,000. The ad highlighted special terms for high risk borrowers including those with a pension income, county court judgement arrears, bankrupts and people who are self employed.
The OFT considered the ad breached the 1989 regulations by failing to advertise their typical APRs of 5% and 8.2% more prominently than the other rates of charge which were a lower "from" rate of 4.5%. The ad also mentioned that a rate of 0-10% might be charged on loans secured on property without indicating what type of fee this was or how it would be calculated, as was required by the 1989 Regulations.
Following the OFT action, Ironmarket undertook to change its ways.
First Choice Finance quadruple whammy
First Choice Finance placed an ad in the Scottish Daily Mirror of 27 January 2004 which the OFT regarded as in breach of the 1989 regulations on no less than 4 counts:-
- displaying a low rate of interest of 4.25% and not stating the more representative APR of 6.3% more prominently;
- failing to state that the 6.3% APR rate was a representative rate;
- failing to give the required risk warning a prominent enough position in the ad; and
- failing to make it clear that the risk warning and typical example were part of the overall ad.
Following the OFT action First Choice Finance worked with the OFT and its local Trading Standards Services to ensure compliance in the future and gave suitable undertakings.
Why this matters:
As previously reported on marketinglaw.co.uk, the 1989 Consumer Credit (Advertisements) Regulations are soon to be superseded by allegedly simpler to understand and enforce rules. It is unlikely that either of the ads in question here would have fared better under the new rules and these reports certainly suggest that the OFT is going to be more prepared to take action in these areas than it has been in the past. But we question the deterrent effect of settling on the basis of promises to be good, without an earnest of good intent in the form of at least a contribution to enforcement costs.