FCA sets out new rules on marketing of consumer credit products

Consumer credit providers (including payday lenders) face tighter restrictions on what they can say in adverts and marketing when the Financial Conduct Authority (FCA) takes over responsibility for consumer credit regulation from the Office of Fair Trading (OFT) on 1 April 2014.

In a further move to clamp down on the high interest charges and penalty fees of payday loans, the Chancellor George Osborne announced today (Tuesday 26 November) that the Government will introduce a cap on the cost of payday loans.

The cap will be included in the Banking Reform Bill, which is currently going through Parliament. Under the new law, the FCA will have a duty to introduce price controls on the total cost of credit payday lenders can charge borrowers.

"Now the regulator will go away and decide what is the best form of cap," said Osborne. The FCA will set the cap after it takes over in April 2014. The proposed cap will be reviewed along with other areas of the sector the FCA is currently consulting on.

The FCA is currently consulting on its proposed new rules in a consultation that is open until 3 December 2013 (see below for more details on how to get involved).

Key changes affecting consumer credit financial promotions

1. All advertisements and other promotions must be clear, fair and not misleading. The FCA has recently been given new powers to ban financial promotions that don’t comply.

2. Clear risk warnings for what the FCA calls high-cost, short term credit. This includes, but is not limited to, payday lending. These warnings are to be displayed prominently on all adverts and promotions along with more information about debt advice.

Suggested wording:

“Think! Is this loan right for you?

Over 2 million short-term loans were not paid off on time in 2011/2012. This can lead to serious money problems.

If you’re struggling, go to www.moneyadviceservice.org.uk for free and impartial help”

3. The rules for consumer credit financial promotions will be more closely aligned with existing FCA rules on financial promotions to minimise the impact on existing financial services firms that are already subject to FCA regulation. Banks, insurance companies and mortgage providers are already subject to regulation by the FCA and many of these organisations are also involved in the consumer credit market.

4. The OFT Guidance on cold calling and other unsolicited marketing activitieswill be aligned with the FCA’s existing financial promotion rules. Firms will have to identify themselves, the purpose of the communication and to make sure the communication is made at an appropriate time of day. The FCA will keep under review the possibility of a ban on cold calling. There is currently a ban on cold calling to promote mortgages.

5. Firms not authorised to provide consumer credit will not be able to get involved in personal visits, telephone marketing or other interactive dialogue, such as live web chats or instant messaging related to consumer credit products

6. Lead generation firms working for debt management firms will have to comply with the existing OFT Debt Management Guidance.

FCA rules that remain the same
The general rules for advertising (apart from the new restrictions outlined above) will be broadly equivalent to the current consumer credit advertising rules. The scope for changing the rules is limited by the fact that the advertising rules implement the European Consumer Credit Directive.

Existing OFT guidance on consumer credit will be carried across as either FCA rules or FCA guidance

When will the new FCA rules come into force?
The new rules come into force on 1 April 2014, but there will be a six-month transitional period for financial promotions. This means that the FCA will not take enforcement action based on the new consumer credit financial promotion rules against a consumer credit firm, provided it can demonstrate that it was previously compliant with the corresponding Consumer Credit Act requirement or the relevant OFT guidance.

What is the DMA doing?

The DMA is responding to the consultation, which closes on 3 December 2013. Members who have any comments should email them to james.milligan@dma.org.uk by Friday 29 November. The FCA will publish its final rules and guidance in February 2014.

James Milligan, Solicitor, DMA