Anyone with responsibility for lead generation within an intermediary firm should take a close look at chapter three of the Financial Services Authority’s (FSA) proposed rule-book on financial promotions. After Mortgage Day these rules will replace the current advertising regulations as required under the Consumer Credit Act. In fact this is one area of the rules we are not waiting to be finalised as they have been in ‘near final’ state since the end of May.
Financial promotions can take many forms, they can constitute a newspaper advert, a website, an email, sponsorship of a local sports club or even a face-to-face or telephone conversation.
The best starting place, when getting to grips with the rules, is to look at the promotions that are exempt.
A promotion that only contains the following information is exempt from the rules: the name of the firm, a logo, a contact point such as a telephone number or email address, or a brief factual statement of the firm’s main occupation, for example ‘mortgage advisory services’.
So a promotion that only includes “John Smith, mortgage broker, call 0800 888 888” would be exempt and outside of the rules.
The FSA differentiate within the rules by either classing the promotions as ‘real time’ or ‘non-real time’. For example, a real time promotion is made in the course of a personal visit or telephone conversation, while a non-real time promotion is made by letter, email, website, or contained in a newspaper.
If we take the example of an advertisement placed in the back of a local newspaper, this is a non-real time promotion and as such must contain the name of the firm and either an address or a contact point from which an address is available. Intermediaries must also ensure that the promotion meets a number of rules, including:
• Not omitting anything that would prevent it from being clear, fair and not misleading.
• When describing a feature, giving equal prominence to the possible disadvantages associated with that feature – for example low rates must also show any repayment charges.
• Using plain and intelligible language.
• Ensuring that any statements of fact are accurate and can be substantiated.
• Not disguising or misrepresenting the real intention of the promotion.
• When comparing and contrasting facts, presenting them in a fair and balanced way and ensuring that they are not misleading.
• Not containing any false indications – such as the availability of a particular mortgage.
• Not including any reference to being approved by the FSA.
Firms must also be careful with the terminology and phrases used in the promotion. First, redemption penalties or fees can only be described as ‘early repayment charges’, and MIG insurance can only be described as ‘higher lending charge’. Second, expressions such as ‘mortgage guaranteed’, ‘pre-cleared’ or similar cannot be used unless the contract is free of any credit checks. Equally the use of the expression ‘gift’, ‘present’ or similar cannot be used unless there are no conditions, which require the return of the money or items.
When including details of products within the promotions, it will still be a requirement to include an APR. This will have to be calculated in accordance with the FSA rules and secondly the APR must be expressed as ‘The overall cost for comparison is ‘x’% APR.’
The new standard risk warning to be included on all non-real time promotions is: ‘Your home may be repossessed if you do not keep up repayments on your mortgage’. Where the promotion refers to consolidating unsecured debt, such as paying off credit cards and loans, firms must use: ‘Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.’
The choice of whether the FSA is named as the regulator within the promotions is entirely down to the firm. However if it is and the promotion also includes details of non-regulated products, such as second charge loans, it must be made clear that they are not regulated by the FSA.
Cold comfort
‘Real time’ promotions can take two forms. They can either be ‘solicited’ or ‘unsolicited’. A solicited real time promotion is a promotion made in the course of a personal visit or telephone call, which was initiated on the request of the customer. An unsolicited real time promotion is where it has not been initiated on the request of the customer. An example of this is the use of ‘cold calling’.
Firms must not make unsolicited real time promotions unless the customer has an established relationship already and the relationship is such that the customer expects to be contacted by the firm from time to time. Many firms are addressing this issue by ensuring that their database of customers know what to expect by telling them now that they will be periodically contacted.
There are a number of rules concerning solicited real time promotions. For example, firms must ensure that an individual who makes such a promotion on their behalf:
• Does so in a way that is clear, fair, not misleading and does not make untrue claims.
• Makes clear the purpose of the promotion at the initial point of communication and identifies himself and the firm he represents.
• Makes sure the client is happy to proceed and respects the client’s wishes to end the communication at any time.
• Gives the customer a contact point – such as a business card.
• Does not communicate at an unsocial hour.
• Explains that there is no free right of withdrawal once the contract is concluded.
Before a firm can communicate a promotion, it must check that it meets all the rules of the FSA by following some form of sign-off procedure. The compliance officer or an individual with the equivalent expertise must carry out those checks.
Records should be kept of ‘sign-offs’ as well as all the evidence supporting the statements made in the promotion.
