16th May 2014
Consumers are being misled by payday loan and credit card companies and pushed into apply for loans without knowing the full terms, with one in five adverts falling foul of the City watchdog’s rules.
The Financial Conduct Authority (FCA) has released figures that show 20% of adverts from consumer credit firms – including payday loans – fell short of the ‘financial promotions’ rules, which govern what financial services firms can and cannot say in adverts and the information that must be provided to consumers.
The rules start any advert must be ‘clear, fair and not misleading’ but after examining 500 adverts for a range of consumer credit products the FCA found key information was being omitted or was difficult to find.
The regulator also found online examples where consumers were encouraged to hit the ‘apply’ button for loans and credit cards before having access to important information, for example costs, which is against the rules.
Adverts also broke the rules by targeting younger consumers with branded colouring-in sheets slotted into their pamphlets, despite consumers having to be aged 18 or over to apply for loans. Other companies claimed their product would repair credit ratings, which is untrue, and another said it would clear consumers’ debt while in reality consumers were just switching one debt for another.
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.’
Of the 108 firms whose adverts were classed as misleading, 75 have responded to the regulator and amended or withdrawn the rule-breaking adverts.
Citizens Advice Bureau (CAB) said it has already reported seven payday loan adverts to the Advertising Standard Authority this year over irresponsible practices.
CAB chief executive Gillian Guy said: ‘False claims in loan adverts can set people up for financial disaster. It is utterly irresponsible to say that a product will help someone’s credit rating or clear their debts.
‘The consequences of signing up to a loan that is not as it appears can be devastating and leave people in deep debt. People need all the details to hand so they can make an informed decision about the products they are signing up to and whether it is right for them.’
CAB is running a campaign to encourage consumers to get ‘mad about the ad’ said Guy, and encouraged consumers to report misleading adverts for payday lending.
The FCA took over the regulation of consumer credit from the Office of Fair Trading in April and has vowed to clamp down on poor practice and companies which mis-lead consumers into over-indebtedness.
It has already enforced stricter rules on the payday loan industry, which has been widely criticised for rogue practices and sucking vulnerable individuals into a spiral of debt. Under the FCA roll-over loans – where a payday loan is taken out to repay a former payday loan – will be limited to two and all payday lenders will be required to inform borrowers about how to get free debt advice.