As we move into the festive season, personal finance such as credit cards and loans become increasingly attractive to consumers so they can spread the Christmas cheer. Offering finance options are a great way to get customers through the door, however, businesses should be aware of requirements that apply to advertising consumer credit under the National Credit Code (NCC), which is contained in Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth).
The NCC is regulated by Australian Securities and Investments Commission (ASIC) and applies to ‘credit contracts’. These are agreements that have the following features:
- the borrower is a natural person or strata corporation;
- the credit is provided for:
- personal, domestic or household purposes;
- purchase, renovation, or improvement of residential property for investment (or to refinance credit provided for this purpose); or
- refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
- the lender is in the business of providing credit and charges a fee for providing the credit i.e. interest.
This definition is fairly broad and captures most financing arrangements offered by major retailers, including:
- interest free products i.e. 12 months interest free; and
- hire-purchase products i.e. renting a product for a fixed term with an option to purchase the products at the end of the term.
Advertising Consumer Credit
Again, broadly, the NCC defines a ‘credit advertisement’ as an advertisement in any form or medium that states or implies that credit is available. Accordingly, businesses advertising credit contracts subject to the NCC should be aware of the below requirements.
Interest Rate Disclosures
Advertisements may only include an interest rate if it:
- is expressed as a nominal percentage rate per annum; or
- uses the relevant comparison rate (i.e. the rate calculated based on designated amounts and terms in NCC regulation that most closely represents the typical amount of credit and term initially provided by the credit provider for the consumer credit product being advertised) and is accompanied by relevant warnings, such as that the comparison rate is only accurate for the example given.
Advertisements must include a comparison rate if an annual interest rate is advertised (except in relation to continuing credit contracts), and:
- clearly state the name of the consumer credit product, the amount of credit, and the term to which each comparison rate applies; and
- give equal prominence (i.e. in the same size font) to the annual percentage rate.
Misleading and Deceptive Conduct
Advertisements must not make false or misleading representations about a matter that is material to entry into a credit contract or related transaction, or in an attempt to induce another person to enter into a credit contract or related transaction. For example, stating that finance is free when it involves an application fee.
Fees and Charges Disclosures
Advertisements that contain an annual percentage rate and credit fees/charges that are payable must:
- state that fees/charges are payable;
- specify the amount of the fees/charges; and/or
- specify the amount of some of the fees/charges and state that other fees/charges are payable.
Generally, advertisements must:
- only advertise products for which the business holds an Australian Credit Licence or otherwise is an authorised agent for a third party credit provider;
- provide the name of the licensee and their Australian Credit Licence number;
- adequately display the terms and conditions for the product where possible or otherwise, provide a means for the consumer to access this information. Otherwise, businesses should exercise caution when using the phrase “terms and conditions apply” as ASIC guidance states that a consumer should not need to visit a website or other document to correct a misleading impression given by an advertisement;
- ensure that disclosure statements and warnings are prominent in the advertisement;
- (for online advertisements) not include links to external websites where the lender cannot control representations made on that website;
- only use testimonials and recommendations that are true and accurate;
- ensure that any imagery used in an advertisement is relevant and corresponds to the credit product, and does not contradict, detract from, or reduce the prominence of warnings, disclaimers or qualifications e.g. an image of a sports car in front of a mansion while warnings are being shown during a TV advertisement aimed at first-home buyers; and
- be disseminated using appropriate media e.g. an internet banner may not allow enough space to provide balanced information.
For further information, a best practice guideline on advertising consumer credit published by ASIC can be found at this link.
This post was co-authored by Alexandra de Zwart (Graduate), Valiant Warzecha, Jessie Buchan, Lucy Meadley (Consultant) and Melinda Upton.