A lot has changed in the four months since the Financial Conduct Authority took on the responsibility of regulating the UK’s consumer credit industry. Firstly, new regulations were introduced to limit the number of times a payday loan could be rolled over and restrict the use of continuous payment authorities to reclaim money from borrowers’ accounts. Then there were the proposed cost caps, currently in the consultation phase, which, when introduced on 2nd January 2015, will vastly reduce the cost of a payday loan. Now, further steps are being taken to crackdown on the number of non-compliant adverts produced by the consumer credit industry.
Since the Financial Conduct Authority (FCA) began its regulatory reign on 1st April this year, taking over from the Office of Fair Trading (OFT), it has reviewed 1,500 promotions for consumer credit products. The well known brand Wonga has already voluntarily culled its geriatric puppets that were synonymous with the lender, despite the fact that they had not drawn the attention of the UK Advertising Standards Authority (ASA). However, there have been plenty of other advertisements that have been referred to the ASA by dissatisfied customers.
Of the 1,500 that have been brought to the attention of the ASA, 227 are being investigated for non-compliance with the advertising code. Of these, 25 percent have been produced by the short-term lending sector. There were also significant numbers to come from the debt management, peer-to-peer lending, credit card, hire purchase and pawnbroking sectors.
The focus of the investigation
The biggest issue the FCA found with the advertisements from payday lenders was the failure to display the annual percentage rates (APRs) that apply to the loans, or an adequate risk warning.
There has been much discussion of the relevance of APRs on a product that is only designed to provide a short-term source of credit. Instead, it has been argued that the actual charges that apply to loans would be a better guide to the costs of a loan for consumers. Once the payday loan cost caps come into force in January, the interest and charges applied to a loan will be limited to just 0.8 percent per day. This means a £100 loan over a 30-day period would cost a maximum of £124 to repay.
A spokesperson for the FCA, said: “The Financial Conduct Authority has been engaging with various firms regarding the financial promotions they issue and has made it clear it will not hesitate to take swift action against those who do not heed its comments. Only time will tell if the high standards set by the FCA will continue to be met by all firms.”
Keeping a close eye on digital media
One element of the investigation which has been singled out for special attention is digital advertising, and the use social media, websites, email and text messages to advertise consumer finance products. Currently 80 percent of the advertisements under investigation are displayed on digital media, with the debt management sector the most prolific offender.
Digital media can be particularly difficult to regulate given the ease and regularity with which advertisements can be created. Last week, the FCA issued proposed rules on the use of social media to guide the consumer finance industry’s advertising efforts. One of the biggest issues facing advertisers is just how quickly and easily social media advertising can spread beyond its target market. The limits on content, such as the 140-character Twitter message, can also lead to compliance issues when it comes to including a risk warning.
Have you encountered any payday loan advertisements you think are unsuitable? Do you think the payday lenders are really committed to cleaning up their act? We’d love to hear from you on this issue, so please leave your thoughts in the comments section below.