In its Strategy Document published in April 2022, the Financial Conduct Authority (FCA) made express reference to the rising costs of living driving greater demand for credit products. The FCA has said that it will keep the high-cost consumer credit sector under close review. As part of its strategy, the FCA has now written to 28,000 credit brokers and high-cost lenders to remind them that promotions should be clear, fair and not misleading. Firms have been warned not exploit the cost of living crisis to promote their services.
The FCA regulates financial promotions of regulated services including credit broking and consumer credit lending. As well as being clear, fair and not misleading, promotions must comply with detailed rules set out in the FCA's Consumer Credit sourcebook (CONC).
In its letter the FCA highlighted a number of practices which it does not regard as being compliant with its rules. These include:
- Firms promising "no credit check loans" or "pre-approved" leading customers to wrongly believe that a lender will make no check on credit status, whether with a credit reference agency or by other means.
- Firms failing to include specified risk warnings, particularly in relation to high-cost short term credit which require the following: "Warning: Late repayment can cause you serious money problems. For help go to moneyhelper.org.uk".
- Failure to include representative APR where the rules require it.
- Firms failing to make clear whether they act as broker or lender, as required by CONC 3.7.7R.
The FCA has also reminded firms that FCA promotion rules are media neutral, and compliance is mandatory notwithstanding any character limitations on social media. Any form of communication, including social media is capable of being a financial promotion if it includes an invitation or inducement to engage in financial activity.
The FCA has also warned firms that advertising should comply with the UK Code of Non-broadcasting and the Direct & Promotional Marketing (CAP Code) administered by the Advertising Standards Authority (ASA).
The Dame Elizabeth Gloster report into the FCA's handling of London Capital and Finance (LCF) criticised the FCA's weak approach to the supervision of financial promotions. Since then the FCA has implemented new policies, processes and procedures to tackle repeat breaches by firms of the financial promotion rules. The FCA claims to be faster at finding potential breaches and shutting down misleading promotions.
Firms need to ensure that their promotions are and remain compliant with the FCA's detailed rules. As well as keeping on top of changes to FCA rules or guidance, this requires that firms undertake ongoing monitoring of firm promotions to ensure any changes in wording are signed off by Compliance. Failures by firms to comply with financial promotion rules, especially where there are multiple or egregious breaches, are likely to result in supervisory or enforcement action. This is particularly the case where the breaches involve promotions to customers of high-cost short term credit who are often in vulnerable circumstances. In the first instance action taken by the FCA may include directions to withdraw adverts and bans on advertising. Such decisions may be published. In more serious cases, the FCA can and does fine firms for failures to comply with financial promotion rules.