On August 13 2014, financial regulator the Financial Conduct Authority (FCA) again warned firms in the consumer credit sector about their advertising standards.
The FCA said that of more than 1,500 credit promotions it had reviewed since April 1 2014, 227 were non-compliant.
A quarter of these 227 concerned payday loans and other products meeting the FCA’s definition of high cost short-term credit, with the most common issues concerning failing to disclose the representative ATR or to state required risk warnings.
Some debt management firms were said to be failing to make it clear that their services were not free of charge. Mention was also made of a logbook lender making misleading comparisons of its rates when compared to other lenders, as well as incorrectly stating that the FCA had explicitly endorsed the firm.
General criticisms included promotions that suggested applicants were guaranteed to be approved for credit, and internet search results that incorrectly implied firms are providing a government-backed service.
80% of the non-compliant promotions were digital media communications: online, text message, email etc.
Clive Adamson, director of supervision at the FCA, expressed his disappointment with the findings by saying:
“It is important that all firms ensure financial promotions are fair, clear and not misleading so that customers are able to make informed decisions. We are disappointed to see standards fall short of what we expect, particularly in the consumer credit space, four months from when we took over regulation. We believe that firms in this sector can do more to ensure financial promotions meet the standards we would expect and will continue to monitor performance in this area.”
However, the FCA does concede that the firms concerned have been quick to make amendments when informed of issues with their promotional material.
On August 6 2014, the FCA issued guidance to all authorised firms on social media marketing, highlighting that its rules apply regardless of the medium used; and that due to limits on the length of messages on certain social media platforms, they may be inappropriate for conveying detailed or complex information.
The FCA first reported on the quality of credit promotions in May 2014, when common failings were said to include:
- Encouraging applicants to press the Apply button on a website before they have considered important information
- Targeting under 18s
- Incorrectly suggesting a credit product would repair the borrower’s credit rating
- Suggesting a credit product would ‘clear’ the borrower’s debt, when in fact one form of borrowing would be replaced with another
The FCA has the power to ban financial promotions, and to take enforcement action against firms that breach its rules on promotions. It has an ongoing programme of supervision of the firms it regulates, which includes a series of visits to firms’ premises. But even if a firm is not visited by the FCA, its promotional material may still be highly visible if it is broadcast on TV or radio, or printed in a newspaper. Firms should also be aware that their website is also considered to be a financial promotion, as is an email or postal marketing campaign.