Guidance on Credit Advertising This guide is issued on the explicit understanding that it should not be regarded as legal advice or taken to be an authoritative view of the law. The guide includes extracts from the BIS Consumer Credit Directive Guidelines. As an authorised entity each retailer has responsibility to ensure all financial promotions are compliant with the law. V12 Retail Finance Ltd does not accept any responsibility for the legal accuracy of any information included in this guide.
Contents Where can I obtain official information on Credit Advertising and the CCA? 03 General Requirements 04 In Practice 06 What is the standard information? 07 What is a Trigger? 08 What is an Incentive? 08 When do I need to display the representative example? 08 Do I need to display a representative example on a 0% advert? 09 When do you need to display the representative APR alone? 09 What does Prominence mean? 10 What does Equal Prominence mean? 10 Which representative APR can I display? 11 How should I display the representative APR? 11 What are the consequences of failing to comply with the Regulations? 11 Examples of Credit Advertising Introduction 13 How to Market Finance in Print Advertising Triggering APR Only 14 Advert Without Trigger 15 Multi Product Catalogue Pages 16 How to Market Finance on ecommerce Stores Product Category Page 17 Product Info Page 18 Product Page 20 Product Category Page 22 Product Info Page 1 24 Product Info Page 2 25 How can I use Low Rate and Fixed Classic Credit to increase sales and reduce average subsidies? 26 Online Credit Marketing Checklist 26 How can I maximise acceptance rates? 27 02
Guidance on Credit Advertising Control over consumer credit advertising is now within the Financial Services and Markets Act 2000 ( FSMA ). Under FSMA the Financial Conduct Authority (the FCA ) is now responsible for consumer credit regulation. The FCA has created a new rulebook called the Consumer Credit sourcebook (known as the Sourcebook or CONC ) that details requirements that must be complied with by providers and introducers of credit. Chapter 3 of the Sourcebook, which is entitled Financial promotions and communications with customers, lays down advertising rules for the advertising of all credit products regulated by the Consumer Credit Act 1974 (the CCA ). This easy reference guide aims to help retailers formulate their marketing activities both online and in print, in order to comply with the rules detailed in chapter 3 of the Sourcebook. The Sourcebook applies to adverts across all types of media, and typically refers to adverts as financial promotions. Where can I obtain official information on Credit Advertising and the CCA? Financial promotions of retail finance are subject to a variety of laws and other rules in addition to the Sourcebook (such as under the CAP Code and the Consumer Protection From Unfair Trading Regulations 2008 ( CPRs )). The FCA s Sourcebook can currently be found in the FCA s Policy Statement PS14/13 using the link below: http://www.fca.org.uk/static/documents/policy-statements/ps14-03.pdf From 1 April 2014 the Sourcebook will be part of the FCA s overall Handbook which can be accessed using the following link: http://fshandbook.info/fs/html/fca The Consumer Credit Act 1974 can be found using the following link, but be aware that many sections have now been revoked following the FCA assuming responsibility for the regulation of consumer credit activities: http://www.legislation.gov.uk/ukpga/1974/39 03
Guidance on Credit Advertising General Requirements Advertisers must ensure that the advert uses easy to understand language and is not misleading. The CPRs and CAP Code require all claims made in adverts to be capable of being objectively substantiated and any customer testimonials must be genuine. If the advert contains any triggers (as set out on page 8), other information about the finance offer must also be displayed - referred to as the representative example and should include all of the relevant information, required under Chapter 3 of the Sourcebook, known as the standard information. This information is set out in full in the What is the standard information? section of this guidance. All of the standard information must be given equal prominence relative to each other, displayed together and given greater prominence relative to: a) any other information relating to the cost of credit; b) any incentive, which can include, but is not limited to, either a. gifts, special offers, discounts and rewards; or b. a statement about the speed or ease of i. processing; ii. considering or granting an application; or iii. making funds available (eg. within 24 hours of the application); c) any comparative indicator, ie. where the terms on which credit is available, or the way in which the credit is offered, is more favourable than either: a. other offers from that provider; or b. offers from other lenders. In other words, you can t hide details of the finance offer in the small text. In addition, you should not repeat any items of standard information (such as the monthly payment) outside of the representative example and afford them greater prominence than the remainder of the information. This is known as cherry picking of information and is prohibited under the Sourcebook as it would mean that one or more items have been given greater prominence, rather than the equal prominence required. 04
Guidance on Credit Advertising General Requirements (continued) All adverts offering credit must include the name of the advertiser, as shown on the FCA s Financial Services Register. Under the Sourcebook, the advertiser is the person who is identified in the advert as the person who is willing to enter into the transactions advertised. This may be the retailer, the lender or both. The full postal address of the advertiser must also be shown on all material which displays a rate of interest or an amount relating to the cost of credit (except in relation to television or radio adverts or any point of sale material which remains on the premises of the retailer). In addition, the Sourcebook requires that the extent of a retailer s independence and in particular whether it works exclusively with one or more lenders or works independently, be shown on its advertising material. Therefore, one of the following alternative forms of wording must be included in all adverts (it can form part of the small print as there are no specific prominence requirements): o (Retailer Name) acts as a credit broker and only offers credit products for Secure Trust Bank PLC trading as V12 Retail Finance Ltd, or Credit is provided by external finance companies as determined by (Retailer Name). All adverts must include an appropriate statutory status disclosure as required by the FCA s General Provisions sourcebook. Such disclosure should state the nature of the authorisation and regulation of the company concerned, eg. Company X is authorised and regulated by the Financial Conduct Authority. It is also important to include some standard small print explaining that finance will only be given subject to status. We suggest Credit provided subject to age and status. 05
Guidance on Credit Advertising In Practice Our advice is to always include the following information in all of your credit advertising and web pages: Your full business name and full postal address The required statutory status disclosure Text explaining that finance is subject to status Text (which can be in the small print) which explains the extent of your independence and whether or not you are tied to one or more providers, such as V12 Retail Finance Here s an example: Tri Electric is registered in England and Wales 12345678. Registered office: 1 The Street, Anytown, Wessex WED 5LT. Tri Electric acts as a credit broker and only offers credit products from Secure Trust Bank PLC trading as V12 Retail Finance. Tri Electric is authorised and regulated by the Financial Conduct Authority. Our registration number is 123456. Credit provided subject to age and status. 06
Guidance on Credit Advertising What is the standard information? The standard information in a representative finance example, as detailed in chapter 3 of the Sourcebook, must include the following: (a) the rate of interest, and whether it is fixed or variable or both, expressed as a fixed or variable percentage applied on an annual basis to the amount of credit drawn down; (b) the nature and amount of any other charge included in the total charge for credit; (c) the total amount of credit; (d) the representative APR; (e) in the case of credit in the form of a deferred payment for specific goods, services, land or other things, the cash price and the amount of any advance payment; (f) the duration of the agreement; (g) the total amount payable; and (h) the amount of each repayment of credit. This information can be displayed in a table or in sentence form, providing it is easy to understand and all items are given equal prominence relative to each other. The representative example as a whole should be given greater prominence than any incentives to take credit, any comparative indicators that credit is available on better terms than elsewhere, any reference to poor credit history and any other information relating to the cost of credit. The purpose of the standard information is to ensure that important information concerning the cost of the credit can be viewed together as a whole, meaning that the borrower can assess the suitability and affordability of the offer. Below is an example of the standard information presented in a table: Representative Example Purchase Price 1,399.00 Total Repayable 1596.36 Deposit 399.00 Duration of Agreement 24 months Amount of Credit 1,000.00 Rate of Interest (Fixed) 9.8% pa 24 Monthly Payments 49.89 19.5% APR Representative Tri Electric is registered in England and Wales 12345678. Registered office: 1 The Street, Anytown, Wessex WED 5LT. Tri Electric acts as a credit broker and only offers credit products from Secure Trust Bank PLC trading as V12 Retail Finance. Tri Electric is authorised and regulated by the Financial Conduct Authority. Our registration number is 123456. Credit provided subject to age and status. 07
Guidance on Credit Advertising What is a Trigger? In this guidance, when we refer to a trigger we mean a piece of information which, when included in the advert, means that either the representative example or the representative APR must also be included. We set out on this page what the triggers for both the representative example and the representative APR are. For example you can t show a monthly repayment without displaying the standard information which illustrates all items of the finance offer and you cannot afford the monthly repayment greater prominence than the standard information. What is an Incentive? An incentive can include statements such as: 5% cashback No fee loans No deposit required Low interest rates Get a free gift Quick decision Decision in minutes Fast application Fast payment Money in 24 hours Please note that this is not a comprehensive list and the FCA may handle issues with interpretation of an incentive on a case by case basis. When do I need to display the representative example? Where the advert includes an interest rate or any amount relating to the cost of the credit, then a representative example of the credit (standard information) on offer must also be included on the advert as must the postal address. 08
Guidance on Credit Advertising When do I need to display the representative example? (Continued) BIS also have a Quick Start guide which can be downloaded here: Retailers can also refer to the guidance issued by the Department of Business, Innovation and Skills (the BIS Guidance ). While the regulatory landscape has changed significantly since this guidance was issued it still contains useful guidance in relation to consumer credit advertising. Please refer to section 6.7 (Advertising) of the guidance using the link below: http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/c/10-1053-consumer-creditdirective-guidance.pdf https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31904/10-1072-consumer-credit-directive-quick-guide.pdf Do I need to display a representative example on a 0% advert? Chapter 3 of the Sourcebook provides that any reference to an interest rate in an advert, including 0% credit, will act as a trigger which means that the standard information must also be shown. When do you need to display the representative APR alone? Whenever the representative example is displayed, the representative APR must be included as part of the standard information. However, even where the representative example is not triggered, the representative APR will itself be triggered by the inclusion of any incentive, comparative indicator or reference to poor credit history. In such circumstances, the representative APR should be afforded greater prominence in the advert than any such incentive, comparative indicator or reference to poor credit history. 09
Guidance on Credit Advertising When do you need to display the representative APR alone? (Continued) The representative APR is itself a rate of interest which would, on the face of it, appear to trigger the requirement to include a representative example. However, where a representative APR is included in an advert only because it has itself been triggered by the inclusion of an incentive, comparative indicator or reference to poor credit history, the representative APR will not trigger the displaying of a representative example. See page 14 of this guide for an example. What does Prominence mean? The prominence of the representative example needs be assessed in the context of the advert as a whole. The Regulations do not state that this needs to be of a particular font size or position. But the representative example must be more prominent (by way of larger font size, distinguishable colour or some other method) from the trigger information. What does Equal Prominence mean? The standard information can be displayed in a table or in sentence form, providing it is easy to understand and all items are given equal prominence to each other. 10
Guidance on Credit Advertising Which representative APR can I display? A retailer may offer various finance deals at various different interest rates. It is permissible to display specific products at different individual APRs, but each advert must have only one representative APR. The representative APR is the APR rate at or below which the advertiser reasonably expects to write at least 51% of the deals he will enter into as a result of the advert. How should I display the representative APR? Examples: 15.9% APR representative or representative 15.9% APR. The prominence rules apply to the 15.9% APR and this part of the representative APR citation cannot be displayed in any other way, such as APR 15.9%. What are the consequences of failing to comply with the Regulations? Under FSMA it is a criminal offence for anyone to carry out a regulated activity, including consumer credit activities, unless they are either an authorised person or an exempt person. This is known as the general prohibition. Furthermore, a person cannot carry out financial promotions unless: (i) they are an authorised person or (ii) the content of the financial promotion is approved by an authorised person. Only an authorised person can approve the content of a financial promotion. It is also an offence under the CPRs for any such marketing material to convey information which is false or misleading. The FCA may take such failures into account when considering whether to issue, renew, vary, suspend or revoke a firm s permission to carry out consumer credit activities. 11
Guidance on Credit Advertising What are the consequences of failing to comply with the Regulations? (Continued) In addition to the criminal sanctions set out above, there is also a clear risk of reputational damage occurring if the regulatory bodies take action for breaching the advertising rules and the financial cost of having to replace or cease advertising campaigns can be huge. Also, unless a firm takes reasonable steps to ensure that a communication or financial promotion is clear, fair and not misleading, a consumer could have a right of action under Section 138D of FSMA. The firm could also be subject to regulatory sanction for breach of the Sourcebook which explicitly requires firms to be clear, fair and not misleading. 12
Examples of Credit Advertising This section gives practical examples of: Non Compliant Non Compliant Finance Marketing Examples of non-compliant advertising and web pages Compliant Compliant Finance Marketing Examples of compliant advertising and web pages The examples in this section assume that you will not add in additional text that includes any further information about credit. If you were to do so, you could be inadvertently cherry picking parts of the offer by making them more prominent. 13
Examples of Credit Advertising How to Market Finance in Print Advertising Example: Triggering APR Only Compliant This incentive to purchase the product on finance triggers the APR representative rate but NOT the full standard information. The Representative APR should be given greater prominence than the incentive. Advertiser s name and address and the statutory status disclosure must be shown but no need to include the Standard Information. 14
Examples of Credit Advertising How to Market Finance in Print Advertising Example: Advert Without Trigger Compliant Finance available and regular payments are examples of statements which can be used without triggering the standard information. If you advertise that finance is available, then you must disclose your independence to the lender. Advertiser s name and address and the statutory status disclosure must be shown but no need to include the Standard Information. 15
Examples of Credit Advertising How to Market Finance in Print Advertising Example: Multi Product Catalogue Pages Compliant Large call-out box for the finance offer. The Bicycle Co. is registered in England and Wales 12345678. Registered office: 1 The Street, Anytown, Wessex WS15 415. The Bicycle Co. acts as a credit broker and only offers credit products from Secure Trust Bank PLC trading as V12 Retail Finance. The Bicycle Co. is authorised and regulated by the Financial Conduct Authority. Our registration number is 123456. Credit provided subject to age and status. Representative Example Purchase Price 1,975.00 Deposit 395.00 Amount of Credit 1,580.00 24 Monthly Payments 78.84 Total Repayable 2287.16 Agreement Duration 24 months Rate of Interest (Fixed) 9.8% pa 19.5% APR Representative Where there are multiple products on a page, it may be impractical to show a finance illustration next to each product. If this is the case a single Representative Example of the standard information may be shown. It is possible to show different APRs for products, but one representative example must be shown and more prominently. A single representative example showing all aspects of the finance offer is shown which covers all the products on the page. The goods chosen as the basis for the representative example should themselves be representative of the goods the retailer sells. 16
Examples of Credit Advertising How to Market Finance on ecommerce Stores Example: Product Category Page Compliant This example uses a click and reveal technique which can be achieved using Javascript. When the customer clicks for more info a representative example is shown. Strong call to action highlighting that finance is available. Highlights the finance is available on product. User clicks to reveal...a representative example. Advertiser s name and address and the statutory status disclosure must be shown somewhere on the main page. 17
Examples of Credit Advertising How to Market Finance on ecommerce Stores Example: Product Info Page Compliant If you want to show an interest rate or monthly payment, this acts as trigger which means that A representative example with ALL of the standard information must be shown. All finance details must be of equal prominence and the representative example must also be more prominent than any other credit cost Information or APR trigger. 18
Examples of Credit Advertising How to Market Finance on ecommerce Stores Example: Product Page Non Compliant You can t Cherry Pick parts of the standard information. You can t display weekly repayments. And you can t give them more prominence on the page. Standard Information incomplete and not given enough prominence. We have identified several key reasons why this is non compliant, there may be more! Advertiser s address not shown and statutory status disclosure. Small print missing. If you advertise that finance is available, then you must disclose your independence to the lender 19
Examples of Credit Advertising How to Market Finance on ecommerce Stores Example: Product Page Non Compliant Weekly repayments cannot be shown as V12 Retail Finance only collect monthly, plus you can t cherry pick parts of the finance offer and make them more prominent. Representative Example hidden away in the small text. - Not given enough prominence 20
Examples of Credit Advertising How to Market Finance on ecommerce Stores Example: Product Page Non Compliant Advert does not include the advertiser s address, its statutory status disclosure, a statement about its independence or a comment that credit is available subject to status. 21
Examples of Credit Advertising How to Market Finance on ecommerce Stores Example: Product Category Page Non Compliant Advert does not include the advertisers address, its statutory status disclosure, a statement about its independence or a comment that credit is available subject to status. You can t Cherry Pick parts of the finance offer and make them more prominent. A representative example showing the standard information should be shown. Interest rate not shown in correct format and cannot be given more prominence than other parts of the standard information. 22
Examples of Credit Advertising Common Practices on ecommerce Stores Some retailers are choosing to interpret the law in a way which may not be compliant. We have shown an example of a technique they are using, but please note, V12 Retail Finance does NOT condone this technique. Non Compliant Example: Category Page On this Interest Free example, the monthly payment is shown. User clicks the link to reveal......the standard information 23
Common Practices on ecommerce Stores Some retailers are choosing to interpret the law in a way which may not be compliant. We have shown an example of a technique they are using, but please note, V12 Retail Finance does NOT condone this technique. Non Compliant Example: Product Info Page 1 Monthly payment shown with term. User clicks the link to reveal......the standard information 24
Common Practices on ecommerce Stores Some retailers are choosing to interpret the law in a way which may not be compliant. We have shown an example of a technique they are using, but please note, V12 Retail Finance does NOT condone this technique. Non Compliant Example: Product Info Page 2 Enlarged section 25
Guidance on Credit Advertising How can I use Low Rate and Fixed Classic Credit to increase sales and reduce average subsidies? Low Rate credit products (9.9% APR) are designed to bridge the gap between Interest Free and Fixed Classic Credit. We recommend that in addition to your lead finance offer (for example 0% Interest Free) you also offer customers a mix of Low Rate Classic Credit options over longer terms. Customers are attracted by the reduced monthly payments and your average retailer subsidy reduces significantly.* *Please remember your lead finance offer must be the one that over 51% of your customers will apply for. Online Credit Marketing Checklist Make your finance offer highly visible throughout your site (home page, landing and product pages, shopping cart, checkout and so forth) so that consumers instantly know that you offer credit before they start searching for the products they want. Introducing credit from the outset changes consumer behaviour and is the key to attracting new customers, increasing sales, profit, conversions and average order values. Here are the key points to remember: Don t wait until checkout - Promote finance from the moment the consumer arrives on your site and all the way through the purchase process Give the consumer all the facts - Provide the representative example in the correct manner. Tell them who can apply, how to apply and provide an FAQ answering common questions Sell the benefits of finance - Low monthly cost, deferred payments, increased spending power, ability to spread the cost, convenience of an additional credit line. If such incentives are used, ensure the advert includes the representative APR 26
Guidance on Credit Advertising Online Credit Marketing Checklist (continued) Don t forget the shopping cart! - When a consumer views their shopping cart, reinforce that finance is available for the items they have chosen. As well as displaying the total price, include the available finance options. If the value of the cart contents is less than the minimum amount to qualify for credit (for example the consumers total spend is 270 and the minimum spend you ve set is 300) include a message such as: Spend an extra 30 to qualify for 12 months interest free credit Create a finance information page - Detail all the information your customers need to know about your finance offers on a dedicated web page Credit worthiness - Inform your customers that checks will be conducted in order to confirm (i) the affordability (of the credit sought) to the customer; and (ii) the credit worthiness of the customer How can I maximise acceptance rates? Carefully consider the credit offers you are promoting to your customers. For example, the type of customer drawn to 12 month 0% interest free credit on a premium brand 1,500 bicycle is more likely to be more credit worthy than the one drawn to a 36 month classic credit 15.9% APR offer on a 400 value brand television. Secondly, you should make clear the eligibility criteria at the same time as promoting the benefits. For example, the line Applications from students and unemployed will not be considered will go a long way to boosting acceptance rates. Acceptance rates are an important consideration for retailers as they directly influence subsidy rates and impact customer satisfaction and loyalty. 27
V12 Retail Finance is a trading name of Secure Trust Bank Plc. Secure Trust Bank Plc. Registered in England and Wales 541132. Registered Office: One Arleston Way, Solihull, B90 4LH. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registration number: 204550.