You may remember the fuss last year surrounding the fifteenth birthday of the world wide web. Few would argue against this being a point worth celebrating, particularly given the web’s obvious impact on working lives. However, in common with all teenagers, it is probably fair to say that during its short life, the web has also been the cause of a fair amount of stress, leading many down the path to trouble.
Internet advertising, particularly in the financial services sector, is one domain where compliance takes a leading role. In its principle of business that outlines relationships between companies and their clients, the FSA demands communication that is ‘clear, fair and not misleading’. Website advertising follows similar guidelines to promotions through other media, meaning that companies have little excuse for not including the required caveats in their literature.
However, when looking at internet search engines, particularly Google, the line between compliance and non-compliance is not as clear, leading some in the mortgage industry to question whether lenders, brokers and their clients are all operating on a level playing field.
Confusion over the use of paid Google links was an issue raised last week (Mortgage Solutions, 05/03/07, p1). Here, so called ‘sponsored links’ for Moneysupermarket and Beat That Quote were put under the spotlight by some compliance experts, which question whether use of such web media could be leading firms to contravene treating customers fairly (TCF) principles. For example, when the words ‘mortgage advice’ are used in a search, sponsored links for both companies state initial rates, but fail to mention the overall cost for comparison.
Both companies have responded to this issue. Louise Cuming, head of mortgage services at Moneysupermarket, says: “In respect of the issue that has been raised, there are space restrictions on the ‘sponsored links’ that limit the number of words that can be used. In the rare case that we do use a rate, we feel it is simply to attract visitors to our main site. Once on the Moneysupermarket site, the mortgage channel is compliant with the Financial Promotions requirements of Mortgage Conduct of Business rules, and therefore if visitors are attracted to our site, all information is clear and not misleading. As this has been questioned in your publication, we will certainly review our approach.”
Elsewhere, John Paleomylites, founder and managing director of Beat That Quote, said his customers received full disclosure, though also called for the FSA to clarify its position.
The regulator has since responded, with Abi Jones, spokesperson from the FSA, commenting: “We require all financial promotions to be clear, fair and not misleading. We would expect all information when you click through from the advert to be compliant. When this is not the case, we can take action against a firm, and in some occasions, we have already done so. But the FSA does not have any specific guidance when it comes to search engines.”
The ultimate responsibility for any company’s financial promotions and communications with clients falls, in most cases, with its compliance officers. For Brian Marsh, head of compliance at Bradford & Bingley, clients looking for mortgage information through the web will find key information in like-for-like comparisons. “In general, with mortgage regulation, we are required to give customers like-for-like information,” he says. “If a customer is looking at different lenders, mortgage searches will differ because of the charges and fees involved. Consumers should look for the overall cost comparison APR, because the formula used to calculate this is standard across the industry.”
For Ray Boulger, senior technical manager at John Charcol, the inclusion of the APR information is, in many cases, misleading. He explains: “The displayed APR assumes the mortgage is taken out for a longer term of 25 years. This is fine if the client takes out a lifetime tracker or lifetime fixed rate, but many will be on a two-year deal and then negotiate another deal with the lender.”
However, Boulger stresses the removal of this APR information from promotions is currently not an option for the FSA, given current EU regulations. Looking ahead, Boulger believes there is a vast array of non-compliant material on the web, which he says the FSA should be doing more to police, perhaps by entrusting a specific employee to search the web for offending sites. As an example, he picks out a number of broker firms that claim to offer independent advice, yet do not offer clients the option to pay on a fee basis – a requirement they have to fulfil in order to avoid commission bias.
Alan Cleary, managing director at Edeus, raises an additional point that the lack of regulation of search engines could be of disservice to mortgage lenders. In particular, he points out that a number of major lenders, including Edeus, have seen their names used in sponsored links by unassociated firms. For example, entering the words ‘Edeus mortgages’ into Google yields a result list headed by another comparison website, which links to quotes on Edeus’ mortgages, alongside a whole host of other lenders.
Cleary comments: “As long as the companies they link to are fully compliant, then these links may be of no obvious detriment to the consumer, but they are detrimental to our brand.” He added that Edeus would not hesitate to take legal action against any firms which might mislead clients through such links, stressing that this issue has the potential to become a wider concern throughout the industry. n