Marketing in the Financial Services Industry: Harvey Norman and ASIC
In an environment where consumer protections rely so heavily on disclosure, understanding how the marketing and advertising of financial products and services are regulated is critical.
Why is the marketing strategy in financial services important?
Marketing in financial services – it’s all about having a disclaimer, right? In fact, you could argue that there is already so much disclosure documentation involved in taking out a financial product that there’s no need for a financial services organisation to worry about the specifics of their advertising campaign.
Turns out, there are many reasons why it’s worth taking a second look at the rules surrounding marketing in financial services. Just ask the executives at Harvey Norman and Latitude Financial.
What happened between ASIC and Latitude?
Earlier this month, ASIC launched legal action against Harvey Norman and its financial services partner Latitude Financial over a series of advertisements the retailer ran between January 2020 and August 2021.
The advertisements spruiked an offer whereby consumers could purchase a wide variety of electrical goods on a 60 month instalment plan with no deposit and no interest payable. In some cases, a bonus gift card was offered with the deal. In small print (on television, online and in print) was a line which said ‘fees and charges apply’. In some cases, this line also stated the offer was for ‘approved applicants only’ and that the minimum financed amount was $1,000.
So, Harvey Norman was covered, right? They disclosed that there were other conditions in relation to the offer, that fees applied and you needed to qualify for the offer. In some cases they even mentioned (in fine print) that the credit was provided by Latitude Financial. If customers wanted to know more, they could view the full terms and conditions on the retailer’s website.
All above board.
Harvey, we have a problem!
This was not, however, the view of ASIC, who argued that not only did Harvey Norman fail to adequately disclose the fees and charges payable as part of the deal, they made a much greater error in omitting the fact a consumer could only take up the deal if they purchased the goods with a new Latitude GO Mastercard.
In other words, the dominant message conveyed by the advertisements was misleading because an essential precondition for acquiring the goods was that a consumer must agree to apply for and receive a Latitude GO Mastercard (or make the purchase with an existing eligible Latitude credit card).
ASIC’s Regulatory Guide 234: Advertising financial products and services
The fine print on fine print
In an environment where consumer protections rely so heavily on disclosure, understanding how the marketing and advertising of financial products and services are regulated is critical.
ASIC’s Regulatory Guide 234: Advertising financial products and services (including credit) may be labelled a ‘good practice guide’ but it serves as an excellent reference point for the types of misconduct the regulator will pursue. It also provides numerous examples of situations in which ASIC has stepped in to prevent consumer harm.
What stood out about the Harvey Norman case study?
Reviewing RG 234 with the Harvey Norman case in mind, there are a few red flags which should have been identified before the advertisements were published.
One-sided view
RG 234.35 notes that advertisements should not present a one-sided view of a product’s key features to overstate the benefits. The features promoted in the Harvey Norman advertisements are all positive, presented in large font designed to draw the viewer’s attention. The ad is arguably so one-sided that it doesn’t even mention the actual product that is being taken out.
Unbalanced claim
RG 234.47 tells businesses that the more a headline claim needs to be balanced with the inclusion of a qualification, the more prominently placed that qualification should be. In all versions of the Harvey Norman ad, the disclosures relating to qualifying criteria (approved applicants only, minimum purchase value, etc) are far more difficult to read/hear than the 60 months interest free headline.
Unrealistic impression of fees and costs
RG 234.54 relates to the disclosure of fees, and states that the advertisement should give a realistic impression of the overall level of fees and costs a consumer is likely to pay. The Latitude GO Mastercard initially had a $25 establishment fee and a monthly account service fee of $5.95 (which were replaced with an $8.95 monthly service fee after 16 March 2021). ASIC calculated that if a consumer took up the deal and made their 60 payments on time, they would have to pay a minimum of $537.00 in fees.
Undisclosed fees
RG 234.56 says that where an advertisement promotes attractive product features, it should also disclose any fees that are payable to receive those features. Because the Harvey Norman ads did not refer to the fact the product was a credit card, it was not clear that if a consumer took up the offer, was approved, and then subsequently used the GO Mastercard to purchase other goods or services, or for a cash advance, then they could be liable to pay interest, and additional fees and charges, to Latitude.
Inadequate information presented
And finally, RG 234.105 recommends that promoters consider the characteristics of the actual audience likely to see and be influenced by the advertisement and whether it provides adequate information for their level of financial literacy. Harvey Norman’s campaign ran throughout the height of the Covid-19 outbreak, when a significant proportion of the population were unable to work. A no deposit, no interest payment plan is likely to have been very appealing to people with limited income or savings. However, without secure work these same people may not have been acceptable credit risks for Latitude to issue them with a Go Mastercard – the only way to secure the deal. Or, if they were approved, some customers may have struggled to meet the repayments over the 60 month term and would therefore be subject to further fees and interest charges.
How would you and your employees respond if a similar advertising campaign was presented for your approval?
Would you have recognised the risks? Do you think the campaign was deliberately misleading?
Perhaps its time to revisit the fine print on fine print.
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