On May 6, 2022, the Financial Conduct Authority (FCA) issued a letter to almost 28,000 companies that provide credit broking services or high-priced credit products. With millions facing the biggest cost-of-living crisis in more than a decade, the FCA issued a strong reminder to consumer credit companies that they have a responsibility not to take advantage of this circumstance.
The FCA underscored the fact that it expects greater credit demand while aptly warning that it will be monitoring the sector closely to avoid unsustainable and unaffordable lending.
It clearly expects authorized companies to ensure that financial promotions are clear, fair and not misleading – and comply with the rules set out in its Consumer Credit Sourcebook (CONC 3). The FCA drew attention to unacceptable practices and noted that it identified promotions:
- Using terminology such as “loan without a credit check“, “loan guaranteed”, “pre-approved” or “no credit check” which may apply to loan brokers but could mislead consumers into believing that the lender will not check credit at all;
- Offering brokerage or direct lending services for expensive short-term loans without the required risk warning (“Warning: Late repayment can lead to serious money problems. For help see moneyhelper.org.uk”);
- missing representative annual interest rate; and
- from loan brokers who do not indicate that they are brokers rather than lenders,
all of which may violate the rules under CONC 3.
While the FCA recognized that some advertising media appeared to pose difficulties in meeting FCA requirements, the FCA believed that its rules were generally media neutral and it was possible to comply with them regardless of character restrictions.
In addition, the FCA reminded companies that they must also comply with the CAP code administered by the Advertising Standards Authority (ASA). In addition, the FCA cited the ASA recommendation on short-term and payday loans, which clearly expresses the need for socially responsible marketing. The ASA report also clarifies that the ASA ratings of ads likely account for an inappropriate emphasis on speed, ease of access, targeting at-risk groups, and whether an ad might trivialize obtaining a loan. Any assessment may base itself on its facts, but this advice provides clear guidance that companies should consider in order to avoid violating the CAP Code.
Despite the problems encountered with the listing, the FCA was aware that this list should not be considered exhaustive. The FCA suggested that firms should review their financial promotions to ensure they are in compliance with CONC 3, review systems, processes and controls for financial promotions to ensure they are adequate to comply with CONC 3, and their board of directors should draw attention to the writing.
The FCA will be proactive in monitoring the market to assess compliance and expects companies to put the interests of their customers at the heart of their business – including when designing their financial advertising.
Businesses should take this letter as both an example of guidance on some key areas on the FCA’s radar and a clear warning that, given the current economic circumstances, action will be taken against businesses that fail to comply with their rules.
The content of this article is intended to provide a general guide to the topic. Professional advice should be sought in relation to your specific circumstances.