OFT finds loan adverts breach code

Around two-thirds of adverts for loans found in local papers and car magazines fail to comply with new advertising regulations, the competition watchdog said today.

The regulations are designed to make it easier for consumers to tell how much they will be charged for credit.

In a nationwide review, over 2,500 adverts mentioning finance deals were scrutinised by the Office of Fair Trading (OFT) and trading standards officers.

Over 60% of local newspaper adverts and 68% of adverts carried in popular car magazines were found to be in breach of consumer credit (advertisement) regulations which came into effect last year.

The rules stress that adverts including details of the cost of a loan must show a typical annual percentage rate (APR), which is available to at least 66% of consumers who respond to the advert.

This enables customers to compare the likely cost of loans from different providers and means that when they apply for a deal they have seen advertised, they have a reasonable chance of being offered the same rate.

In the adverts that breached the new regulations, a missing APR was the prime problem, while in other adverts it was not given proper prominence or more than one typical APR was featured. In one advert as many as six "typical" APRs were quoted.

"The findings of our sweep are most unsatisfactory for consumers, who must have clear information on the costs of loans," said OFT chairman, Sir John Vickers.

"The OFT and trading standards services are working with business to drive up compliance, and will take enforcement action where necessary."

The review was carried out between November 2004 and February 2005 and the OFT has since achieved compliance in 28 cases with advice or warning letters to the companies involved.

It will continue to monitor adverts and give advice to finance companies, and where a company refuses to comply with the rules it can take legal action against it.

Savings adverts also came under the spotlight today, following an announcement by the trade body representing banks that it would review the guidance it gave its members on quoting interest rates.

Earlier this year financial information provider Moneyfacts noticed some savings providers were advertising different annual equivalent rates (AERs) even though the gross interest rates they offered savers were identical.

The British Bankers' Association (BBA) announced today that it would be reviewing the guidance it gave its members on how AERs should be calculated.

The BBA's retail director, Stewart Dickey, said: "The calculation of AERs can be complex and sometimes confusing.

"It seems that it is not the actual formula or calculation that has caused the problems but the interpretation of the guidance we give to our members.

"It is our intention, therefore, to review the guidance notes in the near future to clarify the points that Moneyfacts have raised."