Hot on the heels of its ‘FAQs’ on the new 2004 regulations for consumer credit advertising, the OFT has now published a ‘Consultation draft’ booklet on the same topic. We pick some highlights and ask if we need yet more official guidance in this area.
Topic: Consumer credit advertising
Who: The Office of Fair Trading
Where: London
When: February 2005
What happened:
The Office of Fair Trading published a "Consultation draft" ("Draft") of a booklet explaining in plain language the rules governing the content of advertisements for credit offered to consumers.
At the current time, these rules apply to any credit offered to consumers up to a limit of £25,000, although this limit is set to be increased by new consumer credit legislation currently going through Parliament.
The underlying law is contained in the Consumer Credit Act 1974 ("CCA"), sections 43-47 and The Consumer Credit (Advertisements) Regulations 2004 ("Regulations").
Exemptions table
The Draft includes a useful table of exemptions. This makes it quite clear, for example, that if an advertisement indicates that credit is available for business purposes only it will be exempt from the rules.
The Draft also makes it clear that those obliged to comply with the rules include "any person who causes an advertisement to be published", which could include an advertising agency drafting copy or indeed a newspaper publisher, although publishers who did not know and had no reason to suspect that the publication would be an offence will have a good defence.
The Draft also reminds us that apart from the detailed requirements of the Regulations, the CAA itself makes it quite clear it will be a criminal offence for any consumer credit advertisement to convey information which in a material respect is false or misleading.
Enforcement
The Draft confirms that both the OFT and Trading Standards have power to take enforcement action and that under the Enterprise Act 2002 there are powers to seek court orders against businesses that infringe the relevant obligations where this harms the collective interests of consumers. There are also information-gathering powers and powers of inspection where non-compliant activity is suspected.
This section closes with three key elements in the OFT's enforcement policy being identified. These are the level of detriment caused or likely to be caused by the advertising in question, whether the breach was inadvertent or whether it was a deliberate or wilful flouting of the legal requirements and whether the breach is an isolated incident of non-compliance or forms part of a pattern.
Helpful content section
A helpful section of the Draft then focuses on the content of advertisements, with a clear table indicating where the inclusion of certain types of information will also trigger a requirement for other information to be supplied.
For example, any indication as to the frequency or number of repayments will trigger a requirement to include the typical APR and all credit advertisements have to include the name of the advertiser.
If the ad goes further and indicates the amount of any repayments or the total amount payable, then a raft of disclosure requirements comes into play, such as a need to include the postal address of the advertiser, the amount of credit and any deposit required, the cash price of goods or services referred to, any advance payment, the frequency number and amounts of repayments, a description and amount of any other payments and charges, the total amount payable and the typical APR.
Typical APR triggers
There are other triggers of the need to include the typical APR and a section of the Draft gives helpful examples of these.
Any indication in any way that any of the terms on which credit is available are more favourable than corresponding terms applying in any other case or offered by any other creditor will mean that the typical APR has to be included. This includes comparisons with the advertiser's other products or any existing loan.
A non-exhaustive list of examples of comparative indicators that will trigger the APR includes expressions such as "we won't be beaten on rates", "best loans in town", "best buy" and "low cost loans." Perhaps the last is most worth bearing heavily in mind.
Incentive trigger
Inclusion in advertising of any incentive to apply for credit will also trigger the need to include the typical APR. Examples in the Draft of such incentives include "no fee on loans over £10,000", "apply for our Platinum card and receive a free Walkman", "cash within 24 hours of application", "cash back", "Air Miles" or "Reward points." The Draft also points out that an incentive may be created by comparative information, for example "2% off our usual rate" or "low rates until 31 March." In both these cases also, the typical APR will have to be included.
A question that arises here is when a particular feature of a consumer credit product that is designed to particularly appeal to the market the advertising is directed at becomes "an incentive" and triggers the need to quote the typical APR.
For instance, is a special low rate for the lifetime of use of the credit card just one aspect of the product or is it an incentive?
Prominence of incentives dilemma
A related question arises out of the rule that the typical APR must be shown more prominently than any incentive.
So what happens with a prize promotion that is run as an incentive to consumers to take a particular credit card and the prize is, for example, a car. Presumably, since the car is part of the incentive, any picture of the prize cannot in any circumstances be anything other than smaller than the typical APR, which suggests that we are either going to see some very small pictures of prizes or some very large typeface quotations of the typical APR.
The above are just some edited highlights of what is overall a very helpful set of draft guidelines.
Why this matters:
As the regulation of financial services advertising becomes increasingly complex, any assistance that the OFT can give as to the interpretation and application of the rules in this category is welcome. It is to be hoped that the Draft is very soon approved and released in final form to be used alongside the FAQ's.
