Background
Following the recent surge in cost of living, the FCA has indicated its concern that this could lead to an increased consumer demand for credit, particularly short term credit; and is mindful of the potential harm this may cause, particularly for vulnerable customers. On 6 May 2022 the FCA issued a 'Dear CEO' letter addressing credit brokers, firms offering high-cost lending products and other firms involved in these activities to ensure that their financial promotions are clear, fair and not misleading. The FCA is clear that the sector is under close review to ensure that the increased demand does not result in unsustainable and unaffordable lending.
Concerns
The FCA urges firms to not exploit the cost of living crisis as an opportunity to promote their services. Rather the FCA outline their expectations for firms to remain focused on customers' needs, delivering the right information, at the right time, and in line with regulatory requirements.
The FCA identified the following issues with firms, their financial promotions and potential breaches of rules set out in CONC 3 as:
- Firms using phrases such as 'no credit check loans', 'loan guaranteed', 'pre-approved' or 'no credit checks.
- The FCA is concerned that this is potentially misleading as consumers could be led to believe the lender will not conduct checks on their credit status, implying that credit is available regardless of the consumer's financial circumstances or status. This is a potential breach of requirements set out in CONC 3.3.4G(2).
- Lack of sufficient risk warnings in promotions where brokerage or direct lending services for high-cost short-term credit are offered.
- The FCA remind firms that the lack of adequate risk warning highlighting to consumers that late payments may result in money issues is a breach of requirements set out CONC 3.4.1R.
- Failure to include the representative APR (RAPR) in promotions.
- The circumstances where the RAPR is required are explained in CONC 3.5.7R and CONC 3.5.8G. An RAPR is triggered when a promotion states or implies that credit is available to individuals who might otherwise consider their access to credit restricted, includes a favourable comparison relating to the credit with another person, product or service or an incentive to apply for credit or enter into a credit agreement (for example, speed or ease of access).
- Credit Brokers not clearly indicating in advertising that they are not lenders. This is a requirement in CONC 3.7.7R. All credit brokers need to:
- The FCA state where firms who act both as a broker and lender but the promotion solely promoted credit broking services, it must be clear that the promotion relates to the firm's broking services and not its lending services.
- Firms using certain firms of advertising media whereby character limits impact the firm's ability to comply fully with CONC 3 rules.
- The FCA is aware of these challenges and state that they do consider it possible to comply with financial promotion requirements despite this by including warnings and using the MoneyHelper logo if necessary.
Action
As a result the FCA reiterate their expectation for relevant firms to:
- Ensure that any issued or approved financial promotions in are compliant with requirements set out in with CONC 3.
- Credit brokers and firms offering high-cost lending review their financial promotion processes and systems and controls.
- Firms draw their Board's attention to the concerns and actions set out in the letter.
The FCA will continue to closely monitor the market to assess firm's compliance to regulatory expectations for financial promotions.
It is therefore the responsibility of all relevant firms to ensure that their marketing and advertising are in line with regulatory expectations for financial promotions, taking care to not undult mislead customers and exploit the increased demand in credit.
The full letter is available here.
At DWF our blended team of experts in regulation, consumer lending and legal contract terms can help you assess your promotions to ensure that they are appropriate.
Next Steps
If you require our assistance, please contact us to discuss the FCA's focus on financial promotions for consumer credit firms may affect your business and how we can help you.
