FCA consults on overhaul of consumer credit financial promotion rules

The FCA proposes to remove provisions in CONC 3 that are unnecessarily prescriptive or duplicative of the Consumer Duty's consumer understanding outcome, which already requires firms to ensure their communications meet consumers' information needs and are likely to be understood.

The FCA proposes to retain CONC 3.3.1R, the clear, fair and not misleading rule, so that consumers retain a private right of action under s138D of FSMA (in the event of a breach), a protection not available for breaches of the Consumer Duty alone. Guidance in CONC 3.3.10G (1) – (5) (practices which contravene the clear, fair and not misleading rule) will be removed.

The FCA proposes to remove CONC 3.5.12R, which lists expressions firms must not use in promotions unless specific conditions are met, on the basis that these restrictions are unnecessarily prescriptive in an outcomes-focused regime.

CONC 3.6, which governs financial promotions about credit agreements secured on land, will be removed entirely, with the FCA noting this type of lending is extremely rare and that high-level principles and the Duty are sufficient.

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The FCA proposes that products which always require a security, or guarantor must include reference to this, but where this is dependent on consumer circumstances it will no longer be a mandatory requirement.

The FCA has identified several further provisions where reliance on the Duty may be sufficient and proposes to remove them, including provisions on the meaning of "prominent," plain language requirements, and certain guidance on misleading communications.

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Despite being the dominant comparison tool in promotions, consumer research found very few participants could explain what APR stands for or how it works, with many unaware the representative rate advertised may differ from the rate they receive. The FCA is seeking views from firms (including whether to retain APR and whether there are APR alternatives) rather than making firm proposals at this stage.

• Total repayment figures outperform APR alone in consumer testing. The FCA's own behavioural economics research found that presenting total repayment (“pounds and pence disclosures”) alongside APR improved correct identification of the lower-cost product by between 4 and 53 percentage points compared with presenting APR alone. The FCA is seeking a balance between aiding comprehension but also allowing easy comparison.
• Representative APR triggers: The FCA is also requesting views on whether the triggers remain appropriate.
• Short-term lenders say APR distorts rather than informs. Industry has argued that for short-term higher-cost loans, the short duration distorts the annualised APR to a level that is not meaningful, potentially deterring consumers from affordable products and mainstream lenders from offering them.
• Representative examples may be doing more harm than good. Industry feedback suggests that representative examples add cognitive load without improving understanding, particularly in restricted formats such as social media, banner advertising, TV and radio.
• The 51% threshold for representative APR is under review. The current threshold, requiring that at least 51% of customers receive the advertised rate, was lowered from 66% in 2010 to meet EU requirements and its appropriateness is now being actively reconsidered. Firms are being asked whether industry should revert back to the 66% threshold, whether the word ‘representative’ should continue to be used (or replaced with something like typical or illustrative) and whether firms who only offer one rate need to refer to the rate at ‘representative’ at all.

Firms will have a short time to familiarise themselves with and implement the final framework before it comes into force.

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