Savings advertising - a joint communication by the BCSB and the FSA
The FSA and BCSB have noted the introduction by firms of more innovative and complex savings products and the availability of enhanced returns to savers as they seek to increase the level of funds raised in the retail market. We have seen both an increase in advertising spend for savings accounts and complaints from bank and building society customers about what they see as confusing and misleading promotions.
As a result, the FSA and BCSB have reviewed firm practices around this type of advertising. The FSA has been actively monitoring savings advertising since September 2007. The BCSB, in addition to its ongoing monitoring and enforcement activity in this area, has recently commissioned a small scale survey of consumers' responses to savings adverts to assist in determining the standards that should be met by subscribers, to comply with the Banking Codes Key Commitment.
Key requirements
The FSA requires financial promotions, including those for banking products, to be fair, clear and not misleading. In particular, firms should ensure that promotions:
- are accurate and balanced - benefits should not be emphasised without also giving a fair and prominent indication of any relevant risks;
- are sufficient and presented in a way likely to be understood by the average member of the target audience; and
- do not disguise, diminish or obscure important items, statements or warnings.
The BCSB monitors compliance of certain financial promotions on the FSA's behalf.
The Banking Codes, which the BCSB enforces, contain a Key Commitment requiring subscribers to ensure that advertising and promotional literature is clear and not misleading. Section 2 of the Codes also refer subscribers to the Code of Conduct for the Advertising of Interest Bearing Accounts (CCAIBA), which sets out the information that must be included in advertisements for savings accounts, seeking to ensure that adverts are "clear, fair, reasonable and not misleading".
The reviews
Both the FSA and BCSB reviews have highlighted a number of concerns:
- Information about key conditions is often covered in small print which many consumers do not read, rather than in the main body of the advertisement. The BCSB consumer research revealed that around half of respondents, who said that they would choose specific accounts, had not noticed key conditions about the account. Of these, half said that had they seen the conditions, they would not have selected that account.
- Advertisements sometimes lack balance, with the benefits given significantly greater prominence than the equally important related conditions.
- Savers are sometimes not able to understand interest rate definitions (AER, Net, Gross) and what they mean for them. When explaining them, they should be expressed in terms that consumers are likely to understand.
To address these issues, in the FSA’s view, which the BCSB shares, firms should ensure that:
- key conditions regarding interest rates, access/withdrawal conditions and bonuses should be shown prominently (for example in the main body of the advert) and not omitted or diminished (for example by putting it into small print);
- where interest rates are tiered by the size of deposit, similar prominence to the interest rates should be given to the balances required to obtain these rates.
In addition, the BCSB would expect, as a minimum, that the maximum and minimum rate tiers be shown.
The BCSB also now requires that worked examples be shown in adverts for all regular savings accounts (eg. £ saved per month leads to £ interest at the anniversary of the first deposit).
Key considerations for firms
To produce a compliant promotion, firms should consider whether they need to include the following information in their promotion:
- Is the minimum/maximum amount, if any, required to earn the advertised rate clearly highlighted in the promotion?
- Are withdrawals permitted? How many withdrawals are permitted? How often?
- Is there a penalty for each withdrawal (interest loss, transactional charges)?
- Is there a limit of the amount that can be withdrawn?
- Is the impact of the withdrawal reflected on the advertised AER?
- Is an introductory bonus included in the advertised AER? Is it made clear in the promotion for how long the bonus is valid and what the AER that could be subsequently earned is?
- Is the advertised rate a limited offer? If so, does the promotion make this clear to consumers?
Examples:
- A promotion for a savings account with a high headline interest rate that is, however, earned only on balances from £100,000. The minimum amount is buried in small print. Due to the substantial amount needed to earn the advertised rate, the promotion appears to create unrealistic expectations for consumers and in reality it is unlikely that the average consumer can achieve this rate. Therefore, to be clear, fair and not misleading, we expect the minimum amount to be given more prominence.
- A promotion for a term savings account that leads on the high rate. It contains no withdrawal details. When checking the website however, we establish that withdrawals are not permitted. Our view is that each promotion should be stand alone compliant and consequently the press promotion needs to highlight that withdrawals are not allowed.
Future
The FSA and BCSB will proactively monitor compliance and will take direct regulatory action, in line with our Memorandum of Understanding, where we consider that promotions fail to meet our standards.
The BCSB and the FSA will also be working together to look at ways consumers can be helped to understand interest rate definitions.
This communication does not constitute FSA Industry Guidance.