News that Harmoney, New Zealand’s largest and best known marketplace lender, has fallen foul of the law for a misleading promotion acts as a timely reminder to platform owners and their marketing teams that we must not get carried away by over-enthusiasm.
In the case of Harmoney, it seems that around 500,000 prospects were sent a variety of emails that suggested they had been pre-approved for personal loans – they simply had to visit the Harmoney website to find out how much they could borrow. Wrong. They found they still had to go through the standard application procedure to have their loan listed on the platform.
Result: some very annoyed potential customers. Charges have been brought against Harmoney in the Auckland District Court, in answer to which the company has had no alternative but to plead guilty and issue a public apology.
There are several lessons to take from this episode.
Firstly, it is really important to consider the honesty of any offer that is being made. You simply cannot mislead a consumer with a hook that isn't what it says it is - even if it seems quite harmless.
Secondly, and perhaps most importantly, is the reputational damage that such an exercise can inflict. The world is getting smaller and everyone gets to hear about misdemeanours instantly, even on the other side of the world. And bad news sticks. Who remembers the Hoover debacle which involved the company under-estimating the response to a promotion offering free airline tickets to America if you spent £100 on one of its products? Because the tickets were dearer than the appliances, Hoover was swamped with a demand that it was unable to satisfy - and a campaign cost that it certainly hadn't budgeted for. People still refer to it today and that was nearly a quarter of a century ago - 1992 in fact! (Granted that wasn't a mispromotion, but you get the point. Communication is swift, but memories are long).
Here in the UK, it is the Advertising Standards Authority that holds us all to account. The rules are comprehensive and wordy, but the main purpose is clear – to ensure that the consumer is not misled, either deliberately or by omission of the salient facts. If, for example, a promotion includes the price of a product, the figure shown must include non-optional taxes, duties, fees and, where relevant, delivery charges.
In the case of a financial product or service, marketers are forbidden from taking advantage of consumers’ inexperience or credulity. Rates of interest, and how they are stated, must be clearly and easily understood. Past performance must not be used to forecast the future and thus give rise to false expectations.
Above all, consumers must be provided with all the relevant facts to make an informed decision. This is consistent with the requirements of the FCA also.
And if you get it wrong? Sanctions normally start with the ASA requiring a written assurance that the advertiser will act to improve its compliance record. Sometimes a meeting will be requested to discuss possible remedies to specific problems or to offer advice about future ads. In extreme circumstances, the ASA will require sight of all adverts for a prescribed period before they are published. And this is just the ASA. We can imagine the FCA taking a pretty dim view of a regulated advertiser receiving these sort of sanctions.
If in doubt about the rules, it is worth taking a look at the following links:
For financial promotions:
If you are still in doubt, it is always worth a consulting a lawyer. In larger financial services organisations, all communications have to go through the legal team before release. Maybe Altfi and FinTech businesses need to adopt the same approach.
We have been warned.