The recent decision by the Australian Securities and Investments Commission (ASIC) to fine one of Australia’s largest broker franchise groups, Mortgage Choice, for false advertising sets a strong tone for future allegations of inaccuracy in advertising.
ASIC demonstrated a willingness to challenge representations made by brokers (in this case Mortgage Choice) over what savings can be made through using their services.
Mortgage Choice was investigated by ASIC following TV and online commercials last year which claimed the company had, on average, saved customers ‘$10,000 over five years’.
ASIC’s investigation found the $10,000 saving figure was derived from projected savings based on calculations from a sample of around 300 refinancing customers over a six-month period.
The Regulator found no customer had actually saved $10,000 over five years at the time of the advertisement, and subsequently issued a penalty of $30,600 to Mortgage Choice.
This is something that all brokers need to be aware of, especially as ASIC have publicly noted they are constantly reviewing advertising throughout the industry.
The Mortgage Choice decision is the third infringement notice ASIC has issued this year in relation to false or misleading advertising. Earlier notices were:
•Ferratum Australia Pty Ltd (refer: 13-284MR) – due to what was deemed misleading advertising of a ‘free’ $100 loan; and
•Forrester Community Finance Limited (refer: 13-088MR) (trading as Fair Finance Australia) –which advertised on its website the effective annual interest rate on certain loans was 19.95%, when the interest rate under the relevant credit contracts was in fact 35%.
ASIC has also investigated and issued instructions around advertising to other significant players in the finance industry, including Credit Union Australia, GE Money, and RAMS Home Loans.
“Advertising plays a crucial role in the decisions consumers make, and any claims made about savings a consumer might make need to be accurate and supported by evidence,” Deputy Chairman of ASIC Peter Kell said in The Adviser recently.
What to watch out for
The continual evolving approach of the Regulator is that advertising needs to be clear and easy to understand; that the approach of using a disclaimer to protect the advertiser is not sufficient in itself; and that a customer needs to be able to clearly understand what they are getting on the first read of your advertising.
Are you making promises?
One of the biggest risks for brokers is promising to be able to save people money on switching their home loan or finance. If you make this type of representation and can’t carry it out, this can be a major risk, even where a client doesn’t go ahead with you. It is not enough to apologise after the event.
Have you stated “no interest* but fees apply?”
ASIC require that any conditions are easy to see, so that on first view a person can understand exactly what the offer is. Hidden or small terms, or prominent advertising, such as focusing on the interest free is an area where several firms have gone awry.
What about “we don’t charge fees”?
Again perception is the biggest risk for the advertiser, where it is considered that you are not being clear and transparent (i.e. that you receive commissions), there is an argument that you are breaching the advertising rules.
Unfortunately under the Australian Credit Laws, ignorance is no defence and the approach taken by the Regulator is that if your advertising is not clear, then generally it’s a breach.
Assessing your compliance
If you focus on the smaller end of the market there appears to be a greater emphasis on truth in advertising and making everything clear for the customer.
Certainly, with any claim made by your company- the first rule of assessing its compliance with ASIC regulations is to start with the basic question – is it the truth?
The second question following this would be – can all the significant terms within this claim be understood clearly and easily by my customer?
When advertising any product or service, it is your job as the advertiser to be true and correct with your customer, not for them to read the ‘fine print’ to gather the real meaning.
It would be pertinent to refer well to ASIC’s guidelines for advertising financial products ‘Regulatory Guide 234 Advertising financial products and services (including credit): Good practice guidance.’ which can be found on the Regulator’s website.
In complicated cases you may also wish to have your lawyer review your advertising to make sure it is compliant before proceeding.
This is a way of ensuring you can still market your strong points with confidence, whilst being further assured of not compromising your company’s integrity or risking ASIC penalty in the process.
As we’ve seen with the Mortgage Choice example, the risks of non-compliant advertising can be huge. Not only can the penalties be significant, but the remedial action can be worse. You may be required to lodge corrective advertising or even change internal systems.
You could also face an audit or review process.
So think carefully about your compliance before you advertise. Get it right first time, to make sure you’re safe.
MaryAnn Armstrong, Armstrong-Doessel-Stevenson Lawyers
MaryAnn Armstrong is Principal Solicitor and Legal Practitioner Director of Armstrong-Doessel-Stevenson Lawyers.
ADS Lawyers offer a range of legal services from litigation to conveyancing, but their primary emphasis is on helping small businesses through tailored legal consultations and packages. This includes compliance, contracts, taxation, and debt recovery help.
MaryAnn has been described as a ‘breath of fresh air’ in law, with her focus on working within the law to lift people up to be the best they can be - in their businesses and in their lives.