Facebook users warned over misleading loan adverts
Credit firms using websites like Facebook to advertise cheap loans have been accused of breaking advertising rules, by debt charity Credit Action.
The charity has made a complaint to the Office of Fair Trading about the number of firms targeting young people using social networking sites. Credit Action claims adverts for cheap loans secured against cars or even payslips break advertising rules by failing to give details of interest rates.
Credit Action says adverts promising cheap loans for people with poor credit ratings are appearing on networking site - in particular Facebook - and many break advertising regulations. The biggest violation is failing to disclose the typical APR.
A spokesman for Credit Action says: "Social networking sites, Facebook in particular, have become hugely popular in recent times, and not just with users. Lots of credit companies, especially payday and logbook loans companies are using the medium to advertise their products.
"It is such a popular method because they can target young people with whom the site is so popular. In tough times, seemingly easy options on credit can seem very attractive, even when the long-term consequences can be dire."
The charity has set up a Facebook group called ‘Debt can seriously cramp your style!' to raise awareness of the issue among users.
Credit firms are subject to strict rules when advertising on the internet, in magazines or newspapers.
The Office of Fair Trading has a 150-page document that details all the rules credit firms must adhere to when advertising. But Credit Action says there are five general things to look out for on internet adverts for loans.
1. Poor credit history
A lot of credit firms try to entice borrowers by promising to consider all circumstances – including people who have a black mark by their credit history.
Typical phrases include : County Court judgements (CCJs), refused credit, arrears, default, missed payment.
If you see an advert using this technique then remember the firm is legally bound to include a typical APR in a prominent way.
If an advert claims it offers better deals than other lenders then again it must show a typical APR.
Phrases to look out for include: best buy, reduce your payments, won’t be beaten, save money, fastest loan.
Some firms offer incentives to borrowers in exchange for them applying for credit or entering into an agreement.
These might include free vouchers, gifts or cashback, reward points, nothing to pay for a year, buy now pay later.
When an advert makes these claims then it must show a typical APR.
When a firm is required to display a typical APR then it must do so “prominently”.
Credit Action says this means the APR should be more prominently displayed than any incentive, comparison or reference to poor credit. It should also be more prominent that the amount of credit available, information about payments and charges and information about the total amount payable.
5. Consumer Credit Licence
All adverts promoting loans or other credit products must include the name of the company. And that company must have a consumer credit licence.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.