As more prominent retailers discontinue their fight with the Office of Fair Trading over “Interest Free Option” promotions we ask : what’s the problem?
Topic: Credit
Who: Office of Fair Trading, Dixons Group, Allied Carpets, Harveys Furnishings etc
When: May 2002.
Where: UK
What happened:
The Office of Fair Trading announced that following negotiations, a further three retailers had agreed to drop advertising "interest free credit options". As previously reported on marketinglaw, other national retailers had already agreed to drop this approach in their advertising in late 2001 after the OFT had written to them.
At the root of the problem is regulation 7(c) of the 1989 Consumer Credit (Advertisements) Regulations. These ban any ad that states that consumers can get interest free credit except where “the total amount payable by the debtor does not exceed the cash price.” The OFT takes the view that where, as in these cases, failure to make any individual payment on time can lead to further charges being made by the borrower on top of the basic purchase price, it is possible in certain circumstances that the total amount payable will exceed the cash price and therefore to describe the deal as "interest free credit" breaches regulation 7(c). The retailers in question have not necessarily unconditionally agreed with the OFT's approach, but after lengthy debate with them have decided that in this context an agreement to amend their advertising was something they were prepared to live with.
Why this matters:
In their discussions with at least one of these major retailers, the OFT appeared unable to point to a single consumer complaint about the offering of these options. Perhaps this is not surprising, since the obligation to pay anything extra over and above the basic purchase price only arises if contractual payments are not made on time. If it is not legally possible to describe such a deal as an interest free option, then one has to ask the question whether the phrase "interest free" can compliantly be used in connection with any credit deal.
Presumably, however easy the terms of a credit deal might be, the credit provider is at some stage going to cut up rough and seek interest or costs or other penalties if it has to sue to recover its monies following a failure to repay. So here again we have an instance where more than the original cash price will end up being paid. So why in this case can the deal still be described as “interest free” while our “interest free option” cannot, particularly if the advertisement in question makes it clear how extra payments may end up having to be made and is therefore not in the least misleading?
Marketinglaw has already questioned the OFT’s position here and continues to be of the view that the OFT's approach has been unnecessarily heavy-handed and will ultimately operate to the consumer's detriment by denying it information about perfectly reasonable alternative credit packages available.
