ASIC released Consultation Paper 178 on 5 June 2012 about credit advertising to promote good practice and help industry comply with their legal obligations when advertising credit products and services. CP 178 relates specifically to credit facilities and builds on RG 234, which was released in February 2012 and applies to all types of financial products including credit facilities.
RG 234 sets out a detailed list of "good practice guidance" for particular aspects of financial products, to help promoters to not make false or misleading statements or engage in misleading or deceptive conduct. The guidance mirrors the general provisions and principles in the Australian Consumer Law (contained in Schedule 2 to the Competition and Consumer Act 2010) prohibiting conduct that is misleading or deceptive, or would be likely to mislead or deceive.
The release of this paper follows on from recent activity by ASIC in response to misleading advertisement by several financial institutions. We are also aware there have been calls from the industry since the release of RG 234 for ASIC to issue more specific guidance on the advertising of credit. Hence, the additional guidance proposed in CP 178 focuses on specific issues relating to advertising of credit products and services, including lending to consumers for personal, domestic or household purposes, small business lending and consumer leases.
A draft updated version of RG 234 is attached to the consultation paper for review, with comments on the consultation paper and draft regulatory guide due by 6 August 2012.
What is ASIC proposing in CP 178?
ASIC makes the following key recommendations in CP 178 and the amended RG 234:
- Advertisements for financial products and credit products should give a balanced message about the returns, features, benefits and risks associated with the product.
- Warnings, disclaimers and qualifications should not be inconsistent with other content in the advertisement, including any headline claims. Warnings, disclaimers and qualifications should have sufficient prominence to effectively convey key information to a reasonable member of the audience on first viewing of the advertisement.
- Where a fee or cost is referred to in an advertisement, it should give a realistic impression of the overall level of fees and costs a consumer is likely to pay, including any indirect fees or costs.
- Comparisons should only be made between products that have sufficiently similar features or, where an advertisement compares different products, the differences should be made clear in the advertisement.
- Past performance information should be accompanied by a warning that past performance is not indicative of future performance.
- Terms and phrases should not be used in a particular way by industry where these are not consistent with the ordinary meaning commonly recognised by consumers (eg. "free", "secure" and "guaranteed").
- Advertisements should be capable of being clearly understood by the audience that might reasonably be expected to see the advertisements.
- Where an advertisement draws attention to specific product features, the advertisement should be consistent with information contained in any disclosure documents (such as a PDS or prospectus) or contracts.
- Photographs, diagrams and images should not contradict, detract from or reduce the prominence of any warnings, disclaimers or qualifications.
- Advertisements for a financial advice service should not create unrealistic expectations about what the service can achieve. Advertisements about credit assistance should be clear about the scope of the service that will be provided to the customer.
When assessing whether an advertisement is misleading or deceptive, ASIC will consider a range of factors that contribute to the overall impression of the advertisement. False or misleading statements or conduct could contravene the Corporations Act and the ASIC Act and result in ASIC taking action against the promoter.
Powers at ASIC's disposal when confronted with suspected breaches include issuing stop orders, injunctions and public warning notices, cancelling a promoters Australian Financial Services or Australian Credit licence or varying its conditions, enforceable undertakings and seeking civil pecuniary penalties.
What is ASIC's current focus?
Advertisements by financial institutions that ASIC has focused on in its recent activities include:
home loan advertisements that did not include the annual fee in the comparison rate. According to ASIC, when promoting a package loan, any fee in connection with a loan to qualify for the advertised percentage rate must be included in the comparison rate. Not including all fees and charges results in a comparison rate not reflecting the loan's true cost, and can be incorrect and potentially misleading;
advertisements making strong, definitive claims about financial products and services, without disclosing the basis on which those claims have been made. For example, a bank claiming to have the lowest interest rates may be misleading if the bank only has the lowest rates compared with other banks, while other (non-bank) financial institutions may offer lower rates; and
advertisements promoting a home loan discount may be misleading, if the full discount is only available for loans over a certain amount and not all loan amounts. If an offer is only available in limited circumstances, this should be prominently disclosed.
What can you do now?
The clear message from CP 178 and RG 234 is that advertisements for credit products and financial products and advice services must give clear, accurate and balanced messages.
CP 178 and RG 234 seek to further entrench well established understandings of how the misleading and deceptive conduct provisions operate in practice under consumer law, but provide further guidance on the current hot topics of financial and credit products.
Therefore, while it would be expected that industry is familiar with sound advertising practices, recent action taken by ASIC in relation to certain financial institutions' advertisements is a timely reminder that ASIC will regularly be reviewing advertisements and will have little hesitation in enforcing its views on these emerging concerns.
The outcomes ASIC will aim for when confronted with suspected breaches will involve potentially stronger penalties than they have sought in the past. If ASIC does query your advertisement, it is important that you undertake an internal investigation to determine why the advertisement was published in the first place, in breach of RG 234. For example, are advertisements consistently presented for internal sign-off with tight timeframes and then rushed through the approval process, without due consideration to legal and regulatory requirements?
In light of the recent enforcement activity and the release of CP 178 and RG 234, we would encourage licensees to critically review their existing legal risk tolerance for advertising their products and services. In particular, we are encouraging clients to undertake a "health check" upon:
- their internal advertising systems and approval processes;
- their advertising checklists and assessment tools;
- specific advertising training for the marketing departments of clients and those who are undertaking advertising assessment from a quality assurance perspective; and
- their complaint-handling processes and procedures pertaining to advertising.
The purpose of these health checks should be to both refresh the current risk and compliance arrangements adopted by the credit provider pertaining to advertising matters, and to further ensure that the internal processes adequately take into account and respond to the emerging ASIC concerns.
We would be happy to assist you in conducting your health check and provide some benchmarking feedback should you require it, or generally to assist you should you wish to make any submission or comment on CP 178, due by 6 August 2012.
 See ASIC Publication 12-11MR "Bankwest amends credit card advertising following action" (4 June 2012), ASIC Publication 12-73AD, "HSBC to change home loan advertising" (18 April 2012), and ASIC Publication 12-03MS "CBA to change Wealth Package loan comparison rates" (12 January 2012). Back to article
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