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        • Case work examples

This case work example describes a case we have acted upon. It is designed to help firms understand our analysis, the issues that may lead us to contact firms and the action that may result. It does not set any kind of precedent or guide about the action we may take on similar cases in the future.

Issue

The promotion prominently stated that this was the firm's lowest ever fixed rate mortgage deal. However, although the initial fixed rate was indeed their lowest ever, in order to obtain the benefit of this deal, borrowers had to tie themselves in to a fixed rate after the conclusion of the initial low rate, until 2012. Early repayment charges were also applicable beyond the initial term.

Our concern was that, although the initial starting rate was low, it was potentially misleading to suggest that the deal was the "lowest ever fixed rate" as the tie-in of the two fixed rates meant that, when taken as a whole, the deal equated to a significantly less attractive APR.

Action taken

Following our intervention, the firm agreed to make a number of amendments to the promotion, including:

• Changing the wording in the headline to make it clear that the lowest fixed rate mortgage applied only to the initial rate, and not to the whole deal.
• Prominently identifying the end date of the initial rate.
• Adding commentary on the benefits of a long-term fixed rate deal, and linking the existence of early repayment charges to this.

Lessons learnt

When considering whether a financial promotion complies with the rules, firms should consider not only the letter of the rules, but also the spirit.

The first promotion contained references to the % of annual income in a font, which was 5 times the size of the main body of text that contained the description of risk. The promotion also contained statements regarding the % return, which were presented as statements of fact, however the return was not guaranteed.

A second promotion produced by the firm in relation to the same product raised concerns that the firm had failed to meet the overarching principle that communications with customers should be clear, fair and not misleading, in that:

• The promotion failed to fairly and accurately describe the nature of the risks of the product; and
• The promotion claimed that the underlying asset was not correlated with the stock market, but did not differentiate clearly from other non-stock market based products which would have significantly different risk profiles to the product concerned.

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