Following an EU Directive, the UK’s laws governing all advertisements mentioning consumer credit, in all media, are set to change very soon, and this applies even to ads for zero interest credit deals. Is it goodbye to “Typical APR”? Nick Johnson extends his credit.
Topic: Financial services
Who: BIS, OFT
Where: UK
When: 1 February 2011
Law stated as at: 12 January 2011
What happened:
On 1 February 2011 the Consumer Credit (Advertisements) Regulations 2010 come into force. These implement article 4 of the Consumer Credit Directive (Directive 2008/48/EC) and replace the Consumer Credit (Advertisements) Regulations 2004 other than where credit is secured on land.
The Department for Business, Innovation and Skills (BIS) issued guidance on the new Regulations in August 2010. The Office of Fair Trading has not to date updated its August 2008 guidance on the 2004 Regulations but says on its website that it will do so "in due course".
Key changes include the following:
- Typical APR replaced with "Representative APR": The old "Typical %APR/%APR Typical" formula is replaced with a requirement to state a "representative" %APR. This is more than just a name change. The underlying basis of calculation is also different. Whereas "Typical APR" has been the rate at or below which the advertiser reasonably expects that credit will be provided under at least 66% of the agreements entered into as a result of the advertisement, "Representative APR" sees that figure drop to 51%.
- "Representative example": The old requirements to provide certain items of information "together as a whole" in certain circumstances are replaced with the concept of a representative example. The information required to be provided will change slightly. Also, the previous requirement for the Typical APR to be 1.5 times the size of the other information in printed/electronic media no longer applies: the Representative APR instead has to be given prominence equal to that of the other items of information in the representative example.
- Triggers for representative example: We're going to be seeing more information tables under the new regime, as the range of situations triggering disclosure has on balance broadened. Under the new Regulations, any reference to a rate of interest or an amount relating to the cost of credit will trigger the representative example requirement. On the one hand, this means a reference to the number or frequency of repayments may not of itself trigger any disclosure requirement (whereas previously this triggered a statement of Typical APR). On the other hand, any statement of an interest rate will (subject to some exceptions – see below) trigger the full representative example information. This includes a reference to a period of 0% interest. It also appears to catch many situations where the advertiser voluntarily states a Representative APR.
Representative example exceptions
As under the previous Regulations, there is a requirement to state the Representative APR where an advertisement (a) indicates that credit is available to those with poor credit status; (b) includes any favourable comparison with other products/providers; or (c) includes any incentive to apply for credit or enter into a credit agreement. Unless the advertisement also includes an interest rate or cost figure, there will be no requirement to provide a representative example in those circumstances alongside the Representative APR.
Bizarrely this means that an ad with a bald statement of Representative APR will trigger the full disclosure requirement. However that requirement drops away if you add an incentive (eg "£50 vouchers if you apply before 31 July"), a comparative indication (eg "our lowest rates", "reduce your monthly payments") or a non-status indication (eg "Poor credit history? We can help", "Refused elsewhere?").
Transitional provisions
Limited transitional arrangements provide that credit ads which would have complied with the 2004 Regulations will continue to be governed by the previous legislation:
- (for catalogues, diaries and works of reference comprising 50 pages or more) if the content is first published before 1 March 2011 and its date/period is prominently stated; or
- otherwise if the ad was first published before 1 February 2011 and ceases to be published before 1 March 2011.
Why this matters:
Those advertising credit cards, car finance deals and other forms of consumer credit will need to adjust the information they provide so as to comply with the new Regulations. Careful media planning will be required to ensure that ads published under the previous Regulations are replaced at the appropriate time.
Further, the broader range of disclosure triggers under the new legislation means that certain creative approaches may no longer be workable for media where space/time is limited, such as radio ads and internet banner ads. The BIS guidance (see sections 6.23-6.26) strongly suggests that a click-through from a banner ad to a web page with the full standard information will not be adequate for compliance if the banner ad contains a reference to any interest rate or amount relating to the cost of credit. With these media, advertisers will either need to ensure they include an incentive or comparative indication – in which case the Representative APR can also be stated without the full additional information – or limit themselves to a basic statement as to credit being available and/or matters not related to the consumer credit aspects of the product/package.
(By the way, when reading the Regulations, make sure you are looking at the correct version! The original SI 2010/1012 had some minor defects and was replaced with SI 2010/1970.)
