Consumer credit firms must raise advertising standards, says FCA

Credit firms need to do more to ensure their adverts and promotions do not mislead potential customers. The findings come as Financial Conduct Authority (FCA) statistics show that one in five adverts from consumer credit firms, for products including payday loans, fell short of the FCA’s financial promotion expectations - although most firms were quick to make changes once the shortcomings were pointed out.

The rules state that any advert must be clear, fair and not misleading for consumers. The FCA examined over 500 advertisements for a range of consumer credit products after assuming responsibility for the sector on 1st April 2014 and found a number of examples where key information which should have been included in the advertisement was either missing or difficult to find.

Clive Adamson, director of supervision at the FCA, said:

“It is particularly important in this sector that advertisements for financial products enable customers to make informed decisions. We think that more can be done to ensure that advertisements are fair, clear and not misleading.

“Firms have responded well when challenged about ads which have not met the standards. We will continue to work with firms and monitor their performance in this area to ensure the high standards we are looking for are met.”

The FCA found examples where consumers were encouraged to hit the ‘apply’ button for a product before having a chance to access important information, a tactic which is against its rules.

Other examples which did not meet the regulations included firms:

• targeting young audiences with promotions for products that consumers must be over the age of 18 to use, such as distributing branded colouring-in sheets with their pamphlets for high-cost, short-term loans,
• claiming that their product would help repair credit ratings,
• claiming a product will clear a customer’s debt, when in fact it is just substituting one debt for another.

In total, 108 promotions were identified as not meeting the rules with examples of poor advertising across all mediums including print, online, in-store and direct mail. Of the 108, 75 firms have responded, all of whom have amended or withdrawn multiple promotions. The remaining firms are in the process of responding.

The FCA will continue to monitor these promotions and will be working with firms to help them comply with the rules and improve standards to the benefit of consumers.  The FCA also acts on complaints received from the public and via the Advertising Standards Authority.

Notes for editors

1. Since 1 April 2014, the FCA has reviewed 554 consumer credit financial promotions, opening 108 cases, in the following sectors:

   Sector	Cases
   Credit cards	8
   Debt management	18
   Motor/retail finance	8
   Home collected credit	5
   Logbook loans	7
   Pawn broking	4
   Payday lending	38
   Secured lending	1
   Other unsecured lending/broking	19

   Themes across sectors, included:

   High cost short term credit (payday loans)

   • Lack of or prominence of risk warning:
     “warning: late repayment can cause you serious money problems. For help, go to: moneyadviceservice.org.uk”  
   • Fee for credit broking services either missing or buried in the terms & conditions
   • Play down the importance of the annual percentage rate (APR) in an attempt to explain the reason why the APR is so high.  The APR enables consumers to compare one product or provider with another in relation to the cost of taking out the credit.
   • Lack of or prominence of a representative APR
   • Focus on the benefits or the loan and no explanation of the downsides/risks of non-repayment.

   Debt management

   • Lack of clarity/being misleading about lower monthly payments: no indication that (where debt is rescheduled) lower payments may increase the loan, or its term; or are due to relief from charges
   • Misleading statements about the firm’s ability to freeze interest and charges of lenders.

   Home-collected credit (HCC)

   • Misleading explanation of the higher APRs for HCC: suggesting that banks leave out certain charges from their APR calculations, when this is not required in the calculation of an APR
   • Suggesting HCC providers offer loans to credit-impaired customers, whereas banks do not – this is not necessarily the case
   • In one case, cherry-picking the representative example information to play down the less positive features i.e. APR and interest rate.

   Log book loans

   • Lack of clarity/prominence on the point that a customer would lose ownership of a car, and it may be repossessed if they fall behind with payment.

   Motor finance

   • Referring to a monthly repayment but not being clear about what type of credit it is.  For example, some are rental rather than ownership.

   Pawn broking

   • Firms not being clear enough that their goods serve as a security and what might happen if a repayment is not made
   • Firms not including the representative APR / representative example.
2. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
4. Find out more information about the FCA.