The Consumer Credit (Advertisements) Regulations 2010
Posted: Thursday 16 December 2010
The Consumer Credit (Advertisements) Regulations 2010 (SI 2010/1970) were laid before Parliament on 5 August 2010, and come into force on 1 February 2011. The Regulations extend to all forms of advertising, including in print, on television or radio, on the internet or by way of telephone canvassing.
The new regulations will replace the 2004 Advertisements Regulations in their entirety, other than in relation to agreements where the credit is secured on land, to which the 2004 Regulations will still apply. Certain advertisements are exempt, for example, advertisements that indicate that the credit is available only to bodies corporate or only for business purposes.
Representative examples
- Where an advertisement contains an interest rate, which will include a reference to 0% credit, or any figure relating to the cost of credit, then a “representative example” must be given within the advertisement. It will therefore no longer be possible to quote an interest rate within an advertisement without triggering the requirement to display a representative example.
- The standard information to be included in a representative example comprises:
- the total amount of credit;
- the rate of interest, and whether that rate is fixed or variable;
- the nature and amount of any charge included in the total charge for credit;
- the representative APR (except in advertisements for authorised non-business overdrafts);
- the cash price of goods and any advance payment (where appropriate); and
- unless the agreement is open ended, the length of the agreement, the total amount payable and the amount of each repayment of credit (where appropriate).
Note that other rates of interest and charges may be included in the advertisement, but these must be separate from the representative example and less prominent.
- The official guidance issued by BIS in relation to the new Regulations in August 2010 states that where the credit agreement provides for interest to be compounded, then the equivalent annual rate (“EAR”) of interest should be shown, rather than a simple rate of interest.
- The representative APR should be denoted as “%APR”, accompanied by the word “representative” and where the APR is subject to change be accompanied by the word “variable”.
- The Regulations provide that a “representative APR” is the APR at, or below, which the advertiser reasonably expects credit to be provided under at least 51% of the consumer credit agreements entered into as a result of the advertisement. This differs from the current typical APR requirement which is based on the highest APR that at least 66% of the borrowers accepting credit as a result of the advertisement are given.
- The Regulations require all the standard information to be set out in a clear and concise way and to be accompanied by the words “representative example”. All the information should be presented together and must be given equal prominence. The information must be given greater prominence than any other information which triggers the inclusion of the representative APR, for example, the cost of the credit.
- Prominence requires the standard information to stand out from any other information relating to the cost of credit. It should be easily legible. The Regulations do not require any particular font size.
- In respect of running-account credit or where the amount of credit is not known, the representative APR should be based on £1200 (or where the credit is definitely less than that amount, an amount equal to the limit).
- Other than in certain limited circumstances, such as radio or TV advertisements, or those on the premises of the creditor, the advertisement must specify a postal address at which the advertiser may be contacted.
Indicators and incentives
- There are some circumstances where a representative example is not required, other than general advertising with no interest rates or indications of cost. Where an advertisement contains either:
- indicators that credit is available to “non-status” borrowers, or
- comparative indicators that credit is available on more favourable terms than credit offered by the advertiser or other credit providers, or
- includes incentives to apply for credit
then, provided that the advertisement states the representative APR and no other interest rate or amount relating to the cost of credit, it does not need to include the standard information by way of a representative example, nor a postal address for the advertiser. The representative APR in this instance must be of greater prominence than the indicators or incentives.
Security
- Any credit advertisement that requires security to be granted must specify that security is or may be required and must state the nature of that security. Unlike the 2004 Regulations no wording is prescribed for this and there are no requirements concerning prominence. The information must however be clear and easily legible.
Restrictions on certain expressions
- The Regulations retain other features of the existing UK advertising regime, such as restrictions on the use of certain expressions, for example, “overdraft”, “interest free”, “loan guaranteed”, “gift” etc, other than where these expressions are appropriate given the nature of the credit on offer.
Commencement and transitional arrangements
- The 2010 Advertisement Regulations come into force on 1 February 2011. They apply to credit advertisements published on or after 1 February 2011, or which continue to be published after that date, subject to some limited transitional provisions.
- It is important to note that if an advertisement is published before 1 February 2011 and it continues to be published after that date, then it will be necessary to remove the original advertisement no later than 28 February 2011. Advertisements which are compliant with the new Regulations which include representative examples or representative APRs should not be published before 1 February 2011.
Breach
- Breach of the Regulations is an offence, and persistent breaches may be considered by the OFT when it considers any application to renew a consumer credit license.
The contents of this note are for information only and are not intended to be construed as legal advice and should not be treated as a substitute for specific advice.
