Has the concept of a quiet weekend away been lost on us forever? Never mind going away, what about just a quiet weekend? As the communication age blossoms, the full horrors that being continually contactable entail are only now starting to hit home. Leaving aside the pressures of work, which are worth an article in their own right, the need for financial services firms to hit targets and make volume sales has left every one of us a target to increasing levels of advertising and marketing.
Whether we like it or not, press, television and radio promotions are backed up by fax, e-mail and text advertising, while surfing the internet is essentially asking for a full frontal assault from firms’ marketing departments. The days of having a quiet look around at our own leisure are long gone. The upside of course is that consumers are better informed than they have ever been of the mortgages available and where they can get them from, but are financial services firms behaving reputably in their scramble for clients and who is keeping their imaginative and determined marketing departments at bay?
Hot on promotions
In the mortgage world the answer is simple. The overlords reside at Canary Wharf under the mantle of the Financial Services Authority (FSA) and for anyone thinking their borderline campaign will be lost in the thousands of other communications that are taking place to consumers, the advice would simply be to think again. The FSA is hot on monitoring Financial Promotions and a brief glance through the list of firms that have been financially penalised for their actions in recent times shows it is fully prepared to act where needs be (see box overleaf). It should also be remembered that the FSA is keen to nip such activity in the bud and there are also many, many more examples of it intervening in firms’ promotional activity that never get as far as the public domain.
Admittedly none of the cases highlighted are for mortgage-related business, but the point is that should financial firms step out of line with their promotions, they stand to lose tens of thousands of pounds as well as incalculable reputational damage. Even though endowments were an investment product, the stink it left hovering around the mortgage industry is only now starting to dissipate. Do we really want to risk something similar happening in the future?
Consumer help
To help it in its search for illicit promotional material, the FSA has recruited the help of the consumer and through its regular Consumer Bulletin on Financial Promotions, highlights the areas of the market it is currently investigating, illustrates possible problems in the market and beseeches consumers to come forward where firms are straying from the path of ‘clear, fair and not misleading’ promotional activity. These are the three bywords that providers and intermediaries alike must take to heart if they are to stay on the right side of the rules.
Looking at February’s Consumer Bulletin on Financial Promotions from the FSA, a number of financial areas are highlighted. Venture capital trusts take centre stage in February’s communication and so thankfully leave mortgage market practitioners to one side. However, playing a secondary role but sharing the same spotlight comes our old friend, the annual percentage rate, or to give it its stage tag: APR. The FSA states: ‘In adverts for loans, such as mortgages, you may see a percentage figure, called the APR. This expresses the total cost of a loan as an ‘Annual Percentage Rate’ or APR. The APR is a way of comparing the total cost of different loans over the whole term – say, 25 years.’
The FSA makes no mention of firms it believes are acting outside its guidelines but the very fact it is communicating to consumers what they should be looking out for suggests it is keen to ensure there are no transgressions from its rulebook.
The most likely problem for intermediaries and providers arises in whether or not a firm is actually making a promotion, which the FSA defines as ‘an invitation or inducement to engage in investment activity’, and what other information is stated in the promotion.
In explaining exactly when an APR must be given, the FSA states: ‘The promotion must state an APR if it contains price information for specific qualifying credit that relates to: any rate of change; the presence or absence of any payments, fees or charges (other than the fees for advising on arranging a mortgage contract); the amount, frequency or number of payments, repayments, fees or charges; any monetary amounts; or refers to the availability of the credit for consumers who might otherwise consider their access to credit restricted.’ In short the vast majority of promotions must carry an APR and where they do not firms must be sure it is not needed.
Period of grace?
A lot has been made of the period of grace the FSA has given the market to get to grips with its rules and let them bed in. Over a year into regulation it must be clear to all involved that the time for misunderstandings and mistakes is over and those acting outside the rules will be dealt with. Indeed, in its Financial Promotions Mortgage & General Insurance Bulletin of December last year, this point was at the forefront of what the FSA had to say. At the time Teresa Poy, head of the Financial Promotions department at the FSA, said: “The regime has had a year to bed in; where we see problems persisting now we are taking firmer action than previously.”
Poy highlighted the sub-prime and lifetime mortgages as carrying more risk than other sectors as well as dealing with clients deemed to be more vulnerable than elsewhere in the market and so providers and intermediaries writing this type of business must certainly be on their toes. However, others must also keep their guard high.
It is all too easy for firms to believe they are doing the right thing but, by failing to fully appreciate the implications of the FSA’s regulation, be unaware of transgressions they are making. As Poy says: “We have seen circumstances where literature aimed at intermediaries or press releases for personal finance journalists have been available to all on a firm’s website, but without any warnings about their intended purpose and target audience.” There may be no intention of making a non-compliant Financial Promotion in such circumstances but signs of inadvertence will be seen as breaking the rules nonetheless and could land some providers in hot water.
One winner
In future it’s certain some firms will be sanctioned by the FSA as it steps up its action in this area and gets feedback from consumers. While most firms will only need a quiet word in their ear to address the problem, others with a more sinister intent will unquestionably come to blows with the regulator and in such a contest there will only be one winner.
The better firms can monitor their own output and avoid problems, the better it will be for the reputation of the market and the level of confidence the consumer has – something from which we all benefit. The rules are not complicated and there is little excuse for breaking them. Weekends may no longer be quiet, but if the intrusions are ‘clear, fair and not misleading’ then we’ll at least be able to live with them.
Simon Burgess is managing director of Britishinsurance.com
