Help Consumers? Ignore the Law

This is a curious case about the credit regulations that even the Regulator appears to dislike. (MSE) is one of the most trusted and influential consumer finance websites in part because they explain things simply. In the interests of clarity MSE pretty much ignores the consumer credit advertising regulations and the regulator doesn’t seem to mind. At least, they don’t seem to act. Leading one to wonder: does the regulator agree that the regulation’s not very helpful?

The Representative Example: it’s anything but

All money comparison sites are in the business of helping consumers choose between credit products. The easier it is to choose the better. But the regulation that’s supposed to make it easier for consumers to compare doesn’t always help. We’re obliged to display something called a “representative example” more prominently than any other pricing information. It works fine most places, but for credit cards it’s confusing, to say the least: the representative example wraps up any annual or other fees then imagines a borrowing amount of £1,200 (or a lesser amount where the credit limit’s likely to be lower) and calculates an effective APR. It’s only accurate for someone borrowing exactly £1,200, (which is not incidentally an average borrowing amount). It’s a sort of blend of fixed fees and potential borrowing costs. Confused? So are consumers. It’s just much simpler to understand a £20 annual fee and a 20% interest rate.

Still, most of us comparison sites at least tip our hat to the legislation. We publish the representative example, we bold it. But most of us try to put it, well, sort of out of the way. Because I think we’re all aware of the potential for it to confuse rather than clarify. Even the government’s own money advice service, The Money Advice Service is a great example. I don’t think anyone could say that the representative example below (I’ve put the red box around it) is the most prominent bit of pricing information as the law requires.

But at least it’s there. Here’s how MoneySavingExpert displays the representative example:

You’re right, it’s not there. You may spot a little link saying “Official APR Example” – you can get to it there. That’s certainly not “more prominent”. That’s not even tipping your hat to the legislation, that’s tapping the side of your nose and winking. And it’s not that the OFT can be unaware – MoneySavingExpert’s the most visited finance site in the UK after all.

Now please don’t think I’m being critical of MSE here. I’m a huge fan of the site and applaud its impact. I think their presentation of the information is clear, precise, exactly what’s required to make a decision. In fact, I think it’s clearer than anyone else’s because it doesn’t include the representative example and doesn’t follow the legislation.

How MoneySavingExpert conducts itself is none of my business. But I’d certainly like to be as clear as possible. Can we make things clearer by ignoring the law too? All of us comparison sites want clear and consistent application of the regulations, and just like the regulator, we want regulation that helps consumers choose between products and decreases the likelihood they’ll misunderstand pricing.

The OFT’s not totally culpable here, their hands are effectively bound through legislation originating in Brussels. And comparison sites are a newly dominant force in consumer financial services, so legislation that was aimed at making adverts balanced hasn’t caught up yet and doesn’t translate well. In addition, of course, regulation of consumer credit is now passing to the new FCA. That transition alone will help simplify things.

But whether it’s FCA or OFT they should act soon to clarify whether they want prominent representative examples, or whether they just want pricing information to be as clear as possible. As an industry we’re undoubtedly encouraging consumers to switch products and helping them to be informed when they do. That’s a worthy goal of the regulator too. What we don’t want to have to do is choose between being clear and being legal.

By making things clearer, the OFT can help comparison sites drive the kind of change in the credit industry that we’ve already seen in the insurance industry. That would be a highly desirable outcome for pretty much everyone.


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