As the new rules regime for credit ads beds down following the Halloween 2004 ‘in force’ day, we offer help to those still getting to grips with a “CCARs” Q&A.
Analysis
New Consumer Credit Advertisem Consumer Credit Advertisements Regulations effective 31 October 2004
Q: Where can I find the new rules?
A: The Consumer Credit (Advertisements) Regulations 2004. (www.legislation.hmso.gov.uk/si/si2004/20041484.htm). The DTI published guidance on the new regulations in August 2004 and a copy is on their website at www.dt.dti.gov.uk/ccp/topics1/consumer_finance.htm. The Office of Fair Trading has also recently published some very helpful frequently asked questions (with answers). These are on the OFT website at www.oft.gov.uk.
Q: When do they come into force?
A: With limited exceptions, they apply to all advertising published on or after Sunday 31 October 2004. The exceptions are catalogues or directories of at least 50 pages published on or before 30 May 2005, provided that they comply with the previous set of regulations in force up to Halloween 2004, the Consumer Credit (Advertisements) Regulations 1989.
Q: What sort of credit does the ad have to refer to to be caught by the new rules?
A: Consumer credit for amounts up to £25,000 and second charge mortgages or other loans secured on land, irrespective of the amount.
Q: What sort of advertisements do the regulations apply to?
A: The Consumer Credit Act 1974 ("CCA") defines "advertisement" broadly as including "every form of advertising" communicated "in any…way". So it can even include oral representations to an individual by telephone or in person.
Q: If they only apply to ads for consumer credit, what about business credit?
A: The new regulations ("Regulations") do not apply to ads which indicate clearly that they are only offering credit for business purposes. However, if the ad indicates either expressly or impliedly that credit is also available for non business purposes, the regulations will still apply.
Q: Who has to comply?
A: The Regulations apply to any person who causes an advertisement to be published. This can include the publisher for instance the newspaper owner for a press ad, the agency that devises the advertisement and any other person involved in the publication process including of course the provider of the product being advertised or the automotive brand if for instance it is a car ad offering a loan to assist the purchase.
Q: Who enforces the Regulations?
A: Local Authority Trading Standards Officers and the Office of Fair Trading. Action taken can be either a prosecution before the local magistrate or Crown Court with fines of up to £5,000 per offence at the end. Alternatively there can be an application to the Court under the Enterprise Act 2002 for an immediate banning order in respect of the advertising in question. The Court will have the power to grant such an order if it is persuaded that the advertising in question harms or would harm the collective interests of consumers.
Q: Are there any defences?
A: Publishers of offending credit ads can get off the hook on the basis that they did not know and had no reason and had no reason to suspect the publication would be an offence. It is also a defence for a person to establish that the act or omission in question was due to a mistake or reliance on information supplied to him or an act or omission by another person and that he took all reasonable precautions and exercised all due diligence to avoid such an act or omission by himself or any person under his control.
Q: How do the Regulations work?
A: The rules are in two broad categories. First there are requirements on the presentation of the contents, as to intelligibility, legibility, prominence etc. Secondly there are rules as to what you must, can and cannot say in the ad.
Q: So what information has to go into credit ads?
A: All ads caught by the Regulations must include the name of the advertiser. If the ad contains no financial information, in other words nothing more than name, contact details and general information about the products on offer, including perhaps general statements as to the type of loans available, it will only have to comply with the general requirements for all credit ads. In other words it will have to use plain and intelligible language and it must be easily legible. It must also of course, like all credit ads, comply with the requirement under Section 46 of the CCA. This makes it an offence to convey false or misleading information in any credit advertisement.
Another blanket rule applies to all advertisements for secured lending, principally mortgages secured on land which are not regulated by the Financial Services Authority. With the exception of most broadcast ads, these must all carry a warning, which has to be more prominent than any other "rate of charge" (for most purposes any other interest rate quoted) apart from the typical APR (more on this later) and various other fields of information which are set out in the Regulations. There are various prescribed warnings, but the most likely one that you will need to use is "Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it".
Q: So is that it then?
A: Unfortunately not. There are various other compulsory disclosures and rules as to what particular types of information about the deal on offer can be included in what particular circumstances. Space does not allow us to go into these in detail here, but the primary rules to bear in mind are those that trigger the obligation to quote "the typical APR".
The "APR" is the annual percentage rate of charge for credit determined in accordance with separate regulations, although to keep credit card issuers on their toes, the Regulations alter the approach to calculating the APR in this sector. There will be an APR for all credit deals. The trick is calculating it in accordance with the relevant rules!
Q: What is the "typical APR"?
A: Where the interest rate for a product is expected to vary according to the type of loan or the type of borrower, the APR must be representative of the business that it is expected to generate. In other words the typical APR quoted must represent the rate at or below which the advertiser reasonably expects be providing credit under at least 66% of agreements entered into after and as a result of the advertisement.
Q: So what are the things that trigger having to quote the typical APR?
A: The typical APR has to be quoted if the ad specifies any other interest rate or any other charge for the credit or if there is any reference to the frequency, number and amount of repayments or, to any other payment or charge or to the total amount payable by the debtor.
Even if none of this information appears, the typical APR must still be quoted if there is any indication in any way, including by means of the name or address given for the business that the credit is available to persons who might otherwise consider their access to credit restricted. Another trigger is any indication by any means (e.g. wwwcheapestloans.com or Low Interest House in respectively a digital or postal address) that the terms on which credit is available are more favourable than other terms applied either by the advertiser for other deals or by any of its competitors. Another trigger is any incentive to apply for credit. This might include a cash back offer or reward points or for instance "2% off our usual rates".
Q: So is there any problem with something like "low interest rates"?
A: Yes there is. The OFT says that this will be regarded as a trigger for having to quote the typical APR. Why? Because there is an implied comparison with other deals.
Q: So what about the things you can't in any circumstances say?
A: The expression "interest free" cannot be used unless the total amount repayable is exactly the same, whether you pay by cash or credit.. The expression "loan guaranteed" or "pre-approved" or any similar expression cannot be used unless the offer is truly unconditional. Another example of a restricted expression is anything like "weekly equivalent" unless weekly payments are allowed under the agreement.
Q: So what about representative rates of interest?
A: You can quote these, but this cannot take the place of the typical APR, which must be shown with greater prominent than any other rate of interest quoted. There must also be no risk of confusion between any representative rate of interest quoted and the typical APR.
Q: Are there any special rules for on-line credit ads?
A: No, but a common sense approach has to be taken. This means for instance that in relation to the requirement that all compulsory information has to be shown "together as a whole", this must all appear on the same page of a website. That does not mean that it must appear on the same screen at one go, but it must be possible to easily scroll down to the remainder of the compulsory disclosures. Having to click through to another ad or another part of the website for the remainder of the disclosure simply will not do.
Q: What about the "easily legible" requirement in the context of billboards?
A: The OFT says this should be judged by reference to a consumer standing on the opposite side of the road, but not necessarily one in a passing vehicle. It would not be enough in this context that the ad can be read by someone standing directly in front of the billboard, as it will clearly be designed to be seen by a much wider audience.
Q: How prominently must the typical APR appear ?
A: The APR must be one and a half times the size of any reference in the ad to the amount of credit, any deposit required, the cash price of any advance payment, the frequency, number and amount of repayments, any other payments and charges or the total amount payable by the debtor.
Q: What about the address of the advertiser?
A: The advertiser's name has to appear in all credit advertising but not necessarily the address. The address will only have to feature (and this must be a postal address, which can include a PO box number, rather than en e-mail address or website url) if what are known as any of the "key indicators" appear. These are the frequency, amount and number of payments, mention of any other charges and fees associated with the credit such as annual fees or brokerage fees or the total amount repayable.
Q: Surely that must be all?
A: Unfortunately not, but these are most of the main features. However, this article should not be relied on before signing off on any relevant ad. Check out the full rules or take advice before finalising any credit advertisement that is to be published on or after 31 October 2004.
