New regulations adopted by the European Union in 2008 come into effect in the UK from 1 February 2011. One of the most important changes contained in the new directive is the requirement for financial services providers to include a ‘representative example’ when advertising financial products.
‘Representative Example’ defined
The Department for Business, Skills and Innovation (BSI) guidelines say: “If an advertisement includes an interest rate or any amount relating to the cost of credit, it must also include a representative example. This must contain certain standard information including a representative APR.”
It will apply to the vast majority of advertisements for any product covered under the Consumer Credit Act for credit under £60,260 (loans, credit cards, etc).
What information will be included in a ‘representative example’?
The standard information which will be included in a ‘representative example’ will include:
- The interest rate – a fixed or variable percentage, applied on an annual basis
- Any Total Cost of Credit (TCC) charges - details of any fees or charges included
- Total amount of credit
- Representative APR
What’s the idea behind a ‘representative example’?
The aim of a ‘representative example’ is, according to the BIS: “to ensure that important information concerning the cost of the credit can be viewed together as a whole, so that the borrower can assess suitability and affordability in the round.”
It is designed to make it easy for consumers to compare the true cost of financial services products from provider to provider and from product to product. The requirement for the ‘representative example’ to be more prominent than other information on the advertisement also now makes it the most important item on a financial services advert – the APR figure will no longer take prominent position.