FCA proposes level playing field for risk warnings

FCA proposes level playing field for risk warnings

The Financial Conduct Authority is consulting on changes to consumer credit, including creating a level playing field for financial promotions and risk warnings.

Last August the regulator published a guidance consultation on social media use, stating that financial promotions must be “media-neutral” to ensure that consumers are presented with certain minimum information, in a fair and balanced way, at the outset of firms’ interaction with them

In a consultation paper, published today (24 February), the watchdog has proposed applying this to high cost short term, where previously there was an exemption due to “space constraints”.

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The regulator has now said that the circumstances where it would be impractical to include a risk warning in a financial promotion are “extremely limited”.

The document stated: “There is no equivalent to the HCSTC risk warning exemption in other FCA sourcebooks, for example for mortgages.”

It found that firms were abusing this exemption by including so much marketing information that not enough space is not left for the risk warning.

“It defeats the consumer protection purpose of the risk warning requirement. We propose therefore to remove the exemption. This approach is consistent with our proposed Social Media and Customer Communications guidance.”

Financial promotions must also include a representative annual percentage rate of charge, the regulator said, adding that the proposed rules confirm financial promotions and communications must be balanced and must not emphasise any potential benefits of a product or service without also giving a fair and prominent indication of any relevant risks.

The FCA has also proposed changes to ‘guarantor lending’. Because most guarantors will be family or friends of borrowers, the relationship they have with the borrower may mean that emotion plays a part in their decisions to act as guarantors, potentially to the extent that emotional considerations outweigh purely rational considerations.

To address this risk, the regulator has proposed for firms to carry out creditworthiness assessments of guarantors and for firms to provide adequate explanations to guarantors.

On arrears and defaults, the regulator has amended its rules to allow firms to introduce ‘continuous payment authority’ to collect repayments where a customer is in arrears or default and the lender is exercising forbearance.

The FCA is calling for responses by 6 May.