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The UK’s Financial Conduct Authority (FCA) has warned consumer credit firms to be clearer in advertising loans, or face regulatory action.
In a new "Dear CEO" letter, the FCA urges lenders and brokers to stop misleading credit adverts to protect consumers.
The letter, sent to almost 28,000 consumer credit firms, emphasises that they must not use terms such as “no credit check loans”, “loan guaranteed”, “pre-approved” or “no credit checks” when marketing loans.
“Firms’ adverts should not give consumers the impression that they will automatically get a loan if they apply, or that they can get a loan without the lender checking they can afford it,” the FCA says.
The warning comes at a time when most people face increasing financial hardship and the demand for credit, including short-term credit, is likely to increase, affecting consumers in vulnerable circumstances.
“The rising cost of living means many more consumers may find themselves in difficulty. When people are looking for a loan, it’s vital that they have the full picture about what this might mean and the risks involved — particularly if they are already in a difficult financial situation,” said Sheldon Mills, executive director of consumers and competition at the FCA.
“There is no excuse for adverts to make borrowing look easier or less risky than it is and firms should be seeking to help customers through the cost of living crisis — not exploiting it in their marketing,” he warned.
The letter, which details a number of financial promotions that made the FCA wary, has been addressed to credit brokers and firms providing high-cost lending products.
“We expect firms to be putting their customers’ interests at the heart of their business, and this includes when they draft, publish and review financial promotions. It is especially important that firms consider the potential harm for consumers should they be mis-sold products via misleading, unfair or unclear promotions,” the document reads.
Following the letter, the FCA said it will continue to monitor online credit advertising to check that firms are complying.
If firms fail to comply, the FCA will take action, which could include banning adverts or requiring firms to change or withdraw them, or removing a firm’s permission to engage in regulated credit activity.
The protection of consumers in taking out credit and raising the standards for financial promotions have been an important part of the FCA’s three-year strategy.
In December, the FCA set out proposals for new rules to tackle the causes of practices that could harm consumers.
As part of that, the FCA introduced a new consumer duty to establish higher and more consistent standards of consumer protection in financial services.
A key element of that will be supporting and empowering customers to make good financial decisions and avoiding foreseeable harm at every stage of the customer relationship.
When announcing the new duty, the FCA said it “will fundamentally shift the mindset of firms”.
The agency has now stressed that it is “not waiting for the duty to come in before we act to improve consumer outcomes”.
“We remind you of the importance of having a healthy culture at your firm that promotes fair outcomes for consumers.”
