Financial Promotions Guide
2.1 // Consumer Duty: Consumer Understanding
Financial Promotions Guide
2.1 // Consumer Duty: Consumer Understanding
Consumer Understanding is one of four outcomes under the Consumer Duty that represent key elements of the firm-consumer relationship, and comprise of a suite of rules and guidance that set out more detailed expectations for firms under the duty.
The Consumer Understanding outcome is broader than specific disclosure requirements and applies to all financial promotions, other advertisements and communications provided to consumers, including verbally.
While firms must continue to comply with regulatory disclosure requirements, they must also consider the purpose of their communications and the outcomes they are focused on in order to meet the FCA’s expectations under Consumer Duty.
- Support their customers’ understanding by ensuring that their communications meet the information needs of customers, are likely to be understood by customers intended to receive the communication, and equip them to make decisions that are effective, timely and properly informed.
- Tailor communications taking into account the characteristics of the customers intended to receive the communication – including any characteristics of vulnerability, the complexity of products, the communication channel used, and the role of the firm.
- When interacting directly with a customer on a one-to-one basis, where appropriate, tailor communications to meet the information needs of the customer, and ask them if they understand the information and have any further questions.
- Test, monitor and adapt communications to support understanding and good outcomes for customers.
In their finalised guidance, the FCA provide examples of good practice in the way information can be presented to consumers:
Clear, fair and not misleading
A financial promotion must:
Be clearly identifiable as a financial promotion
Be accurate
Be balanced, with the benefits and risks/exclusions given equal importance
Be likely to be understood by the target audience, or those likely to receive it
Use plain language
Be easy to read/hear
Do not be misleading, and provide all important information so that the customer can make a fully informed decision
Be clear on who is making the financial promotion
Be clear on the name of the lender (if known) if the communication or promotion relates to credit broking
Some examples of business practices that are likely to fall foul of the clear, fair and not misleading rules include:
Stating or implying that a firm is a lender where this is not the case
Misleading a customer as to the availability of a credit product
Concealing or misrepresenting the identity or name of the firm
Using false testimonials, endorsements or case studies
Using false or unsubstantiated claims as to the firm’s size or experience or pre-eminence
Restrictions
Word or expression | Restriction |
|---|---|
“Interest free” | Can only be used where there are no interest charges or fees of
any kind. |
“No deposit” | Can only be used if there is no advance payment of any kind. |
“Gift”, “present” or any similar expression | Can only be used where there are no conditions which would require
the customer to repay the credit, or return the financed item. |
“Weekly equivalent” or any similar
expression or other periodical equivalent | Can only be used if weekly payments or other periodical payments are
provided for under the agreement. |
The FCA may ask you to substantiate any claims you make in your advertising, so be prepared for this and make sure you could provide evidence if required, e.g. low rates, competitive rates, etc.
FCA - Misleading terms
In a ‘Dear CEO’ letter issued to consumer credit firms in May 2022, the FCA highlighted the use of phrases such as “no credit check loans”, “loan guaranteed”, “pre-approved” or “no credit checks” in promotions by credit brokers. The FCA stated that while a credit broker may not conduct a creditworthiness assessment itself, they are concerned that this could mislead consumers into believing that the lender will not carry out any checks on their credit status.
0% finance
There are different rules where a financial promotion is completely free from interest or charges for the term of the agreement. You can promote 0% finance without triggering the need for either a representative APR or representative example.
Promotions of interest-free products are not exempt from any other regulations however, and must remain clear, fair and not misleading for consumers.
Read more about the clear, fair, and not misleading rules and general requirements in CONC 3.3 of the FCA handbook here.