As an OFT-commissioned survey indicated worrying levels of non-compliance with consumer credit advertising regulations, it was high time the final version of the OFT’s Guide to the Regulations was published following the draft’s appearance in February 2005.
Topic: Financial services
Who: The Office of Fair Trading
Where: London
When: September 2005
What happened:
As reported in the March 2005 updates on marketinglaw.co.uk, February 2005 saw the publication by the Office of Fair Trading ("OFT") of the consultation draft ("the Draft") of a "plain language" guide to the Consumer Credit (Advertisements) Regulations 2004 ("the Regulations"). See our piece on the Draft at http://www.marketinglaw.co.uk/open.asp?A=1164.
The consultation period for the draft is now well and truly over and slightly later than advertised, the final version of the guide ("Guide") has now been published.
There are a few differences between the Draft and the Guide and in this report we will focus on these differences and also highlight the disturbing outcome of a recent OFT survey into compliance with the Regulations.
Cash purchase must also be allowed
A new paragraph in the Guide reminds us that it is an offence to indicate a willingness to provide credit for the purchase of goods or services if the supplier of those goods or services is not also prepared to sell them for cash.
"Typical APR" quotation triggers
Under the Regulations, there are various types of statement or claim which cannot be made in consumer credit advertising without also quoting the typical APR. One such trigger is a comparative claim. The Draft contained a number of examples of such comparative claims, but the Guide includes some more. These are "save money", "have cash to spare" and an implied comparative indication such as a URL www.bestloanever.org.uk.
There is also a new category of potential typical APR triggers. These are described as claims which "depending upon the nature and circumstances of the advertisement, include indications that no or low fees or charges are payable as compared with other credit deals available." The five quoted examples are "no annual fee", "no fee for cash advances", "low redemption charges", "no arrangement fees" and "broker's fee only 1%".
In this connection the OFT says that whether such claims actually trigger the need to quote the "typical APR" in any case "will depend upon whether these are merely statements of fact or whether they highlight (or purport to highlight) an advantage of the advertised product over those of competitors".
We foresee some debate and legal argument over the OFT's views on this one!
Incentives
Another typical APR trigger is the inclusion in an advertisement of an "incentive".
The Draft included some examples of an incentive. Now the Guide has some additional examples indicating that as well as the normal "gift" style incentive, offers such as "2% off our usual rate", "low rates until 31 March" or "nothing to pay for a year" may also constitute an incentive for the purposes of the Regulations.
Typical APR
Another new provision in the Guide reminds us that the typical APR must be denoted as "x% APR" and accompanied by the word "typical". However, the percentage rate, the word "typical" and the initials "APR" can only be given compliantly in certain sequences. So far as the OFT is concerned, "x% typical APR" will not be compliant. The better way to quote the typical APR will be either "x% APR typical" or "typical x% APR". No explanation is given as to why the first, rejected way to quote a typical APR is not acceptable.
Together as a whole on the internet
Consistent with the OFT's FAQs on the Regulations, a new passage in the Guidance asserts that internet advertisements (including home pages, banner and pop-up ads) will not satisfy the requirement of the Regulations that certain information be presented "together as a whole" if the information is presented on separate pages of a website or it is necessary to click between items.
OFT survey's disappointing results
The importance of proper understanding and appreciation of the effect of the Regulations is underlined by the recent publication of the results of a survey commissioned by the OFT into consumer credit ads in the UK.
The survey consisted of a sweep, carried out in conjunction with Trading Standards, between November 2004 and February 2005. This found that over 60% of advertisements in regional newspapers and 68% of ads in popular car magazines failed to comply with the Regulations. Most breaches concerned the way in which the typical APR was depicted, for example:
- no typical APR being shown where required by law;
- displaying more than one typical APR in an advertisement (as many as 6 were shown in one advert when only one can appear);
- the typical APR not being given the required prominence; and
- the typical APR not being shown together with information on payments and charges.
Why this matters:
Commenting on the OFT survey result, Sir John Vickers, the OFT Chairman, said "the findings of our sweep are most unsatisfactory to consumers, who must have clear information on the cost of loans. The OFT and Trading Standards Services are working with businesses to drive up compliance and will take enforcement action where necessary."
Twenty eight cases had been dealt with under the new Regulations by Summer 2005 and the OFT's press release states that while compliance has so far been achieved through advice or warning letters, it will consider court action in cases of continuing non-compliance.
As regards the Guide, the OFT intends to keep this updated so that it can continue to serve as a source of comprehensive advice to advertisers. It is also currently in the process of consulting on a new appendix to the Guide that gives the OFT's opinion on a range of sample ads. This should prove invaluable in assessing whether draft ads comply with the rules and marketinglaw.co.uk will report on this as soon as more news is available.
As a result of the heightened focus on consumer protection in the financial services industry, it is imperative that advertisers are aware of the rules which apply to any advertising mentioning consumer credit. To this end the Guide is a highly useful document in making sense of the Regulations and ensuring all your credit ads comply with them.
