Who: Financial Conduct Authority
When: 16 May 2014
Law as stated at: 29 May 2014
The Financial Conduct Authority (FCA) has found that one in five adverts from consumer credit firms, including for payday loans and credit cards, fall foul of rules on financial promotions.
Under the rules, adverts must be clear, fair and not misleading for consumers. The FCA looked at over 500 financial promotions in the following sectors: credit cards, debt management, motor/retail finance, home collected credit, logbook loans, pawn broking, payday lending, secured lending and unsecured lending/broking.
The non-compliance it found included:
• Consumers being encouraged to press the “apply” button for a product before having a chance to access important information
• Targeting young audiences, e.g. by distributing branded colouring in sheets, for products that consumers must be over 18 to use (such as high cost, short term loans)
• Key details, such the fee for credit broking services, either being missing or buried in the terms and conditions
• Claiming a product would clear a customer’s debt, when in fact it was simply substituting one debt for another
• Playing down the importance of the annual percentage rate (APR) or giving lack of prominence to APR, which generally enables consumers to compare one product with another to assess the cost of taking out credit
• Risk warnings of the consequences of late payment not being given enough prominence
In total, 108 out of the 554 promotions across all media, including print, online, in-store and direct mail, were identified as not meeting the rules on financial promotions. The FCA states that 75 of the affected firms have since amended or withdrawn multiple promotions, and the remaining are in the process of responding.
Why this matters:
The FCA took over the responsibility for the financial services sector from the FSA on 1 April this year and this investigation shows that it is keen to ensure that adverts for financial products comply with the rules. As well as conducting its own investigations, the FCA also acts on complaints received from the public and through the Advertising Standards Authority.
While the FCA states that it is keen to work with firms to help them comply with rules and improve standards, it also has powers to ask firms to compensate customers and to fine them. The examples set out above show the types of practices the FCA is concerned about. Firms promoting financial services products to consumers should take care that they do not make similar mistakes in their adverts.