With a completely new set of rules for consumer credit ads in force from 31st October 2004, the OFT promises full guidance in January 2005, but for the moment it has produced some very helpful FAQs and answers.
Topic: Consumer Credit Advertising
Who: Office of Fair Trading
When: October 2004
With new rules for UK Consumer Credit Advertising coming into force on Sunday 31 October 2004, the Office of Fair Trading has published 59 pages of "frequently asked questions" on the new rules (with answers).
These are available at the OFT website reference number OFT746.
The FAQs are very helpful and cover topics such as the scope of the new rules, transitional arrangements for existing credit ads, comparative ads and the quoting of APRs. Here we will mention a few highlights, but an early comprehensive read is recommended for all those involved in this sector.
The regulatory regime
The FAQs start off by reminding us that aside from the new Consumer Credit (Advertisements) Regulations 2004 ("Rules") coming into force 31 October 2004, there is the general rule in section 46 of the 1974 Consumer Credit Act that any advertiser who conveys information in a consumer credit advertisement which in a material respect is false or misleading commits an offence.
Section 47 of the same act makes it clear that the offences may be committed by the publisher of the ad in question, any person who in the course of business devised it and any other person who procured its publication unless in the case of a publisher he or she can show that he did not know and had no reason to suspect the publication would be an offence.
Status of the FAQs
The OFT indicates that it will be producing a full guidance booklet on the Rules in January 2005, on the draft of which it will consult. In the meantime this initial guidance is in the form of FAQs but it cannot be regarded as completely definitive, the OFT says, and only represents the views of the OFT as an enforcer of the Rules. Ultimately it is for the courts to decide whether an offence has been committed in any particular case.
The OFT and Trading Standards have responsibility for enforcement. Breaches may also be actionable under the Enterprise Act 2002. This gives enforcers power to seek court banning orders against businesses that infringe or are likely to infringe specified legal obligations to consumers, such as those contained in the Rules, where this harms or would harm the collective interests of consumers.
The OFT says that in its enforcement activity it will act in "a proportionate manner". The key elements in its decisions will be the level of detriment caused, whether any breach was inadvertent or was a deliberate flouting of the Rules and whether the instances of non-compliance form part of a pattern.
The Rules do not apply to ads which indicate clearly that they are for credit or hire agreements which are solely for business purposes. The Rules will apply, however, if the ad indicates (whether expressly or impliedly) that credit or hire is also available for non-business purposes.
The Rules do not apply to ads for credit for amounts above the financial limit, which is currently £25,000 and which are not secured on land. The Rules will apply if credit is also available for amounts below that financial limit.
The Rules do not apply to advertisements for mortgages which are regulated by the Financial Services Authority. The most common example of FSA regulated ads will be marketing for first mortgages, but ads for second mortgages will not be caught by the FSA regime and will come under the Rules.
If a mailshot includes pre-contract information then this will very likely be regarded as a consumer credit ad and therefore governed by the Rules. An example of this might be key product features shown in a summary box.
When is an ad published?
A consumer credit ad will be regarded by the OFT as published whenever it is handed to a consumer, while a website is published each time it is accessed. A poster is published each time it is seen by a consumer.
What about ads first published before 31 October 2004?
The new rules apply from 31 October 2004 to advertisements published on or after that date, with the exception of ads published in certain catalogues, diaries or reference works comprising at least 50 printed pages, provided that they complied fully with the old 1989 Consumer Credit (Advertisements) Regulations when they were first published.
Otherwise, there is no grace period for compliance and even if an ad was first published before 31 October in a manner compliant with the old rules, if it is published again on or after 31 October 2004 it must comply with the new ones.
Typical APR – triggering the "typical APR" quotation requirement
The "typical APR" must be stated if the ad specifies any rate of charge, including an interest rate or another APR apart from the typical APR. The typical APR will also have to be quoted if the ad indicates in any way that credit is available to persons who might otherwise consider their access to credit to be restricted, or if there is any suggestion that the terms on which credit is available are more favourable than corresponding terms applied in any other case by the same advertiser or by any other advertiser. The inclusion in a consumer credit ad of any incentive to apply for credit will also trigger the need to quote the typical APR.
Examples of "typical APR" quotation triggers
Indications that credit is available to persons who might otherwise consider their access to credit to be restricted might include references to credit history or adverse or low credit ratings or references to county court judgments or employment or housing circumstances or to arrears or being turned down for credit.
Comparative information would in the view of the OFT include "low cost loans", "our lowest rates", "best buy", "reduce your monthly payments" and "have cash to spare".
An incentive to apply for credit might in the OFT's view be a gift or a special offer. Cash back, reward points, "2 per cent off our usual rates" are all other examples quoted by the OFT.
More than one "typical APR"?
The OFT makes it clear that even if an ad refers to various different products, only one "typical APR" can be quoted. This will apply unless it can be said that there are discrete and separate advertisements for each and every product.
"Typical APR" for a new product
Since the typical APR must for a product with variable APR be the rate at which at least 66% of respondents to the ad will end up obtaining credit, assessing this will be somewhat difficult with a new product. Here the OFT suggests that the advertiser should "use reasonable assumptions", taking into account any relevant information and must be able to justify these in the event of a challenge.
"From" or "to" rates
A "from" APR rate may be quoted if it is the lowest APR at which credit is expected to be provided under at least 10% of agreements. However the typical APR must also be shown separately and in accordance with the Rules it must appear more prominently than any other rate of charge, whilst any other rates quoted must all be of equal prominence themselves.
The Rules do not in the view of the OFT preclude the use of representative information, but this must be in addition to an overall typical APR. Any such representative rate must also be genuinely representative of the APRs in question and it must be made clear that it is representative, with there being no risk of confusion with the typical APR.
"Together as a whole"
Compulsory information has to be shown in an ad "together as a whole" and with equal prominence. Here, the OFT expresses the view that it is not permissible to show all of the items that must be shown "together as a whole" in the "small print" and also "cherry pick" certain items into the main body of the ad where they will be more prominent. The OFT says that the "equal prominence" Rule will apply to each occurrence in the ad of the specified information. For example, if a monthly payment is shown in two separate places in an ad, each time this occurs the payment must be accompanied by the other compulsory information, shown together as a whole and with equal prominence.
"Together as a whole" on-line
On a website the OFT considers that the "together as a whole" requirement will not be satisfied if information is presented on separate pages or it is necessary to click between items. It should all be on the same page, and even if it is not all on the screen at the same time, it should be possible to scroll down easily to the other parts of the requisite information. Similarly, the requirements cannot be satisfied by including some information in a pop-up ad or banner and remaining information on another part of the advertisement.
The Rules require that a credit advertisement must be easily legible. This applies to every item of information in the ad, not merely the items required or permitted by the Rules.
In the case of a billboard ad, legibility should be judged by reference to a consumer standing on the opposite side of the road, but not necessarily one in a passing vehicle. An in store poster should be easily legible by somebody standing a reasonable distance away, whilst "clearly audible" in a broadcast ad context means that the information should not be conveyed at speed if this may render it unclear or inaudible.
Plain and intelligible language?
Information which must be shown in plain and intelligible language must be clear and easily comprehensible and should where possible avoid use of legal or technical language.
Why this matters:
This is the first time that the OFT has published guidance in an FAQ format on consumer credit ad regulations. It is a development to be welcomed, and until such time as the full guidance notes appear early in the new year, these are a very useful aid for all those involved in the production and publication of advertising which makes any reference whatsoever to the availability of credit to consumers.