Consumer credit is now regulated by the FCA who can require consumer credit ads in breach of the rules to be withdrawn and may also impose fines along with other sanctions.
As of 1 April 2014, the Financial Conduct Authority (FCA) has taken over the regulation of consumer credit from the Office of Fair Trading, including advertising. Financial services providers will need now need to be authorised by the FCA.
As a result of the transfer, Part IV of the Consumer Credit Act 1974 (CCA) has been repealed. However, much of the law and guidance in the CCA has been replicated by the FCA in Chapter 3 of the Consumer Credit sourcebook (CONC3). Credit advertisements are now referred to as 'financial promotions', in line with the FCA's existing terminology. The over-arching rule of CONC 3 in rule 3.3.1R is that all financial promotions made in respect of a credit-related regulated activity must be clear, fair and not misleading. With the change comes the FCA's enforcement powers. Therefore, if a consumer credit ad breaches CONC 3 rules, then the FCA can not only force the ad to be withdrawn, but may also impose fines upon the firm who published it along with other sanctions.
CONC brings significant changes to high-cost short-term loans, usually referred to as 'payday loans'. In the context of financial promotions, these changes include the requirement to display a risk warning stating "Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk". The warning is already required for financial promotions on payday loans that are sent electronically; for such financial promotions that are broadcast (i.e. by television or radio), the warning will be required from 1 July 2014.
The ASA position
The Advertising Standards Authority (ASA) has a limited role within financial promotions in non-broadcast media. While it can consider complaints about whether a non-broadcast ad is socially irresponsible or offensive, it cannot accept complaints about the technical elements of a financial product or service. Complaints are referred to the FCA. However, under its license from Ofcom, it must consider all complaints about broadcast ads. So, it will liaise directly with the FCA if it receives a complaint about a broadcast advertisement and the issue relates to a technical element of the product or service, such as prominence of an APR.
Recently, the ASA has adjudicated on a number of ads relating to payday loans, with particular focus on social responsibility. In assessing the responsibility of these ads, the ASA considers issues including:
- Undue emphasis on speed and ease of access – The ASA upheld a complaint against WDFC UK Ltd t/a Wonga.com Ltd in respect of a radio ad stating "Mr Wonga you make it easy when the month feels too long" on the grounds that it gave the impression that payday loans could be routinely taken out between paydays to supplement monthly income; and that little consideration was required in committing to one, which was compounded by the simplicity of the application process.
- Targeting vulnerable groups – Ofcom recently reported that children aged 4 to 15 see on average 70 payday loans a year and use of cartoon characters and celebrity endorsements in the ads has been publicly criticised as veiling the hardships caused by payday loans.
- Trivialising taking out a loan – This includes implying that payday loans are suitable for frivolous purchases, such as leisure activities and shopping. The ASA ruled against Stop Go Networks Ltd t/a Payday for an ad featuring cartoon pigs, along with the claim "treat yourself and a loved one to a weekend away and a slap up meal", because the imagery suggested payday loans could be taken out in a light-hearted manner; and that the activities presented were suitable for a payday loan. The ASA took the view that such activities were not urgent or essential, thus unsuitable for a payday loan.
Therefore, when advertising financial services products, marketers should ensure that their ads are not only in line with CONC rules, but are also socially responsible, which can be achieved by:
- Avoiding the implication the loan is suitable for frivolous purchases – Reasonable uses include fixing a car or home repairs.
- Do not suggest they are suitable for long-term purposes or solving financial difficulties between monthly income – Cover for unexpected shortfalls between paydays is more likely to be considered appropriate.
- Non-trivial tone – Focus less on speed and ease of the loan application process, and more on the interest rates and important features of the loan. Creative treatment is also considered, so avoid the use of animation, puppets and humour which trivialises the loan.