Over the last month, the FSA has taken public action against coldcalling and misselling singlepremium payment protection insurance by fining two companies.
However, two years after the start of statutory regulation, action on mainstream non-compliant financial promotions has been very low-key. This is clearly the right approach for small technical breaches and where there is genuine misunderstanding of the rules.
But the lack of any public admonishment in this area seems to be encouraging some firms to take a cavalier approach to the requirements of MCOB3.
In particular, recent press ads by Egg make me wonder whether they still have a compliance department.
Their ads in a number of papers this month for their 3.99 per cent discounted rate are bad enough but a whole-page “Advertisement Promotion” on page five of The Independent’s Save & Spend section last weekend takes the art of non-compliance to a new level.
Strap lines that the company have used in press ads and on their website this month are, “Learn to love your mortgage with our discounted rate of 3.99% variable for two years” and “Mortgages aren’t all big and scary.”
It is obvious that all mortgages are not big but anyone who reads the Egg ad carefully and as a result decides to buy the advertised mortgage may well be scared after two years when they find out they are locked in to a high rate by early repayment charges for another three years and what poor value they offer over that period, with an average rate over the ERC period of bank rate plus 0.9 per cent.
In all their ads, Egg has failed to note the hugely important fact that this two-year discount has ERCs for five years.
It was not clear in most of their ads whether the initial discounted rate is a discount off bank rate or off their SVR and so I phoned their call centre, who told me it was a discount off SVR.
However, Saturday’s whole-page advert states that it is a discount off bank rate and so who knows?
Egg even appears to be confused by the level of bank rate. Whatever the truth about the initial discount, the adverts clearly state that the mortgage reverts to 2% above bank rate, which they claim = 6.75%, with a 6.6% APR.
Egg will no doubt try to justify themselves on the level of bank rate by referring to the disclaimer in the small print that “All rates and product terms are correct as at 1/11/06.”
However, the FSA will not allow small print to be used to justify claims/statements in the main body of the financial promotion and all ads are required to carry as up to date information as possible.
Furthermore, Saturday’s Independent ad included the statement that “The Bank of England recently increased its base rate to 5%”, making the claim about all rates being correct as of November 1 a nonsense.
Ray Boulger is senior technical manager at John Charcol