Calls for broker awareness and action on Financial Promotions followed a MI – News investigation into a selection of adverts printed in the Evening Standard’s Homes & Property section on 3 and 10 November 2004 – days into the new statutory regulation environment.
The advertisements, classed as non real-time qualifying credit promotions (MCOB 3.6), do not appear to fit within the guidance levels given by the FSA on Financial Promotions in a number of areas. Notable examples included:
Incorrect or missing required risk statements.
The use of small print which the MCOB rules state should be avoided to ‘qualify prominent claims’.
The omission of an ‘overall cost for comparison % APR’ where reference was made to customers ‘who might consider their access to credit restricted’, for example, individuals with CCJs/arrears. Plus, the ommission of a statement regarding ‘The actual rate will depend upon your circumstances. Ask for a personalised illustration’.
No prominent indication of broker fees or the amount the customer can be expected to pay based on the firm’s average fee over the last six months.
When contacted a number of the firms advertising outlined how they were currently updating their advertisements while others expressed surprise that their adverts could be construed as non-compliant.
One firm said: “We’re taking advantage of the three-month exemption period. Our advert doesn’t break the Consumer Credit Act rules which is why we can take advantage of this.
“We’ve flagged this up with all our advisers and told them they must change their adverts. We wanted to get everything done for 31 October but because of the size and the resources of the company we couldn’t get it done.”
One other firm, whose advert had been signed off by a firm offering compliance services, were at a loss as to why its advert did not state an APR when refering to clients who may be interested in debt consolidation.
“This hasn’t been picked up by any of our compliance people,” a spokesman said. “No-one has got back with this. It really aggrevates me because we were the only one who changed our adverts. We’ve had this checked and they seem to have it wrong.”
Compliance experts believe a number of the firms could be confused about the FSA’s exemption period and the areas its transitional period covers.
The FSA has given regulated firms three months from 31 October to update adverts and literature. Also an advertisement published on or after 31 October but submitted prior to this will be ‘in compliance with the rules in MCOB 3.6 if it satisfies the advertising requirements under the Consumer Credit Act 1974’.
The FSA has also allowed firms 12 months to update directories and annual publications, for example, firms who are listed in the Yellow Pages.
Many in the industry though are confused as to why firms would chose not to update their adverts immediately.
“I find it astounding that people haven’t taken time to change their adverts for weekly or daily publications,” said Julian Wells, head of marketing at Mortgages plc.
“This has been covered extensively in the trade press and it’s not a major exercise to make your adverts compliant.”
“There’s no doubting that the FSA will be very hot on Financial Promotions,” said Frank Thurlby, head of compliance at Genesis Home Loans.
“It’s beefed up its Promotions team considerably. These firms are treading a very fine line by running these adverts.”
The FSA insist that all promotions are ‘clear, fair and not misleading’ but it has admitted that the formula is open to interpretation.
“The ‘misleading’ part of it is particularly difficult to prove,” said FSA spokesperson Robin Gordon-Walker.
“Whereas if a customer sees the advert, comes in and sorts out a mortgage, then feels they are mis-led, this is much easier to prove.”
Bill Warren, director of The Complete Network, agreed that interpretation of the rules can differ. “If you put two compliance people in a room they are likely to disagree,” he said.
“It is difficult to know how you interpret certain words but the FSA will still expect the Promotion to be compliant.”
Gordon-Walker confirmed the FSA’s approach. “Any advert that appears post 31-October should be within the Financial Promotions rules,” he said.
“If you were planning an advertising campaign three weeks ago you should have been aware of what the rules were and when the advert would be appearing.”
Wells believes that firms have no excuse when it comes to changing their adverts.
“In a sense you could claim that firms are abusing the transitional period,” he said.
“There’s every chance that firms will leave it until the last minute but it’s a very dangerous game to play. After all if you look at MCOB 3 the FSA have told you what to write. There’s no reason not to have compliant adverts.”
Gordon-Walker advised anyone who felt a Promotion broke the ‘clear, fair and not misleading’ formula to contact the Financial Promotions hotline on 08457 300168 or fill in a reporting form online.
“If the promotion is reported to us we can act on it,” he said. “For example, we can order it to be withdrawn if it does contravene our rules. We will be setting precedents so those with similar adverts can act.”
Thurlby had a final word of warning for those firms yet to act. “It would be very unwise for firms to continue with their pre-‘Mortgage Day’ promotions.
“If you’ve run an advert post-31 October which the FSA say is uncompliant then you might get a rap on the knuckles or you might get something a lot more serious.”
