ASA Ruling on The Green Deal Finance Company Ltd
The Green Deal Finance Company Ltd
19 Eastbourne Terrace
21 May 2014
Internet (on own site)
Number of complaints:
Summary of Council decision:
Three issues were investigated, all of which were Upheld.
A brochure, entitled "Green Deal Payment Plans The Facts", which could be downloaded from the website www.tgdfc.org, promoted Green Deal loans. Text on the front cover stated "Green Deal payment plans are typically the cheapest on the market for medium sized loans, given reasonable expectations for increases in interest rates over the long term". On page three, under the heading "High upfront costs and poor access to finance prevents householders from investing in energy efficient products. The Green Deal was established to overcome these barriers", further text stated "We provide peace of mind by only lending if the government's Golden Rule is met. This states that the expected financial saving should be equal to or greater than the costs attached to the energy bill". On page seven, headed "Is it cheaper to take out a personal loan to fund green home improvements?" text stated "Personal loans are the most expensive sources of finance for households seeking to make their home more energy efficient. To protect themselves from rising energy prices many people would be better off with a Green Deal repayment plan. Personal loans do not offer the best value for money for homeowners seeking to invest in energy efficient measures". The page also included a number of speech bubbles with text inside, one of which stated "Guided by the Golden Rule which gives householders a way of assessing expected financial savings".
Crystal Home Improvements challenged whether the claims:
1. "Green Deal payment plans are typically the cheapest on the market for medium sized loans, given reasonable expectations for increases in interest rates over the long term" was misleading and could be substantiated; and
2. "We provide peace of mind by only lending if the government's Golden Rule is met. This states that the expected financial saving should be equal to or greater than the costs attached to the energy bill" and "Guided by the Golden Rule which gives householders a way of assessing expected financial savings" were misleading.
3. They also challenged whether the page entitled "Is it cheaper to take out a personal loan to fund green home improvements?" was misleading, because it did not set out the additional costs that applied to Green Deal payment plans such as arrangement and assessment fees, and exit penalties.
CAP Code (Edition 12)
The Green Deal Finance Company Ltd explained that they were a not for profit mutual company that was established to set up, finance and administer Green Deal Plans in the Green Deal Programme. They said Green Deal Finance Company was an industry-led consortium with over 50 members across the industry, in both the public and private sector. They said they had contracts in place with a number of Green Deal Providers to purchase the receivables from confirmed Plans. They highlighted that Green Deal Finance Company did not enter into any contractual relationship with consumers entering into a Green Deal Plan and therefore the brochure was intended as a business-to-business publication to provide a background briefing to Green Deal Providers on Green Deal Payment Plans.
1. Green Deal Finance Company said the claim was based on the findings of a robust report entitled "How competitive are Green Deal Finance Loans?", which was commissioned from Capital Economics Ltd, an independent macro-economic research company. They provided a copy of that report and explained that the claim was based on the assumption that interest rates would increase in the future. They stated that the report confirmed that although the Bank of England base rate was at a historic low of 0.5%, a result of the economic downturn, the markets expected that it would begin to rise again in 2015. They also pointed out that over the last 40 years interest rates had been significantly higher. Hence Capital Economics had made a conservative assumption of a 3% base rate over the next 25 years. Green Deal Finance Company also noted that the report compared the competitiveness of Green Deal Payment Plans against alternative sources of finance and summarised Capital Economics' research in relation to the market for medium sized loans (£1,500). They highlighted that the report confirmed that Green Deal loans were typically the cheapest form of credit by reference to APR. Green Deal Finance Company also argued that APR was the most meaningful basis on which to compare the cost of different loan products.
Green Deal Finance Company also stated that the page on their website that linked to the brochure made it clear from the outset that the claims relating to the competitiveness of Green Deal Payment Plans were based on research by Capital Economics, and that a link to the full report was provided immediately underneath the link to the brochure. Similarly, they highlighted that the brochure itself referred to the fact that the many of the claims therein were based on Capital Economics' research and clarified that a medium sized loan was one of £1,500.
They said the claim itself was caveated, stating that Green Deal Payment Plans were "typically" the cheapest, and made clear that a Plan would not necessarily be the cheapest option for every customer. In addition, they said the claim was further caveated by the wording "... given reasonable expectations for increases in interest rates over the long term", which clarified that assumptions had been made regarding interest rates increasing in the long term.
2. Green Deal Finance Company stated that the Green Deal's Golden Rule was something that Green Deal Providers were obliged to comply with by law and was set out in the Green Deal Framework Regulations 2012 (the Regulations). In summary, they said the Golden Rule stated that the estimated payments under a Green Deal Plan, in the first year, should not exceed the estimated typical first year savings made on energy bills as a result of the energy-saving measures installed. If the test was not satisfied, then finance would not be provided under a Green Deal Payment Plan.
Green Deal Finance Company acknowledged that the actual level of saving made by a customer would depend on how much energy they used and the future cost of energy. They highlighted, however, that both of the claims in question made it clear that compliance with the Golden Rule was based on "expected" financial savings and did not mean that financial savings were guaranteed when taking out a Green Deal Payment Plan.
3. Green Deal Finance Company said the only costs that weren't taken into account in the calculations by Capital Economics were assessment and exit fees. However, those fees were payable by only a small number of customers and therefore they did not think it was appropriate to include them. With regard to assessment fees, Green Deal Finance Company stated that they were usually provided for free and that the Department for Energy and Climate Change's September 2013 figures suggested that at least 80% of assessments were provided for free. In the event that a provider did charge an assessment fee, they said that would be made clear in their marketing materials. In addition, Green Deal Finance Company stated that an assessment was a self-standing product promoted by the Government and whilst it was required in order to take out a Green Deal Payment Plan, a number of consumers booked an assessment, but then chose to fund their improvements without finance, or used it to access a cash-back scheme, or in order to have an up-to-date Energy Performance Certificate.
Green Deal Finance Company said any exit fees levied by a Provider were compliant with the provisions of the Consumer Credit Act, as amended for the Green Deal. They explained that exit fees were only applied when the original loan was for over 15 years or when the amount being repaid was greater than £8,000. They also noted that their current policy was to not apply those charges in full, and therefore in their view it was not appropriate to include charges that might never be incurred. However, they highlighted that on the next page of the brochure the fact that exit fees might apply was stated. Again, they said the page was caveated to explain that "many people", and not everybody, would be better off with a Green Deal Payment Plan.
The ASA noted that Green Deal Finance Company had intended the brochure to be a business-to-business communication. We noted, however, that their website included claims directed at private individuals, such as "Improving the energy efficiency of your home can cut thousands of pounds off your annual fuel bill", provided information regarding the funding available, and listed Green Deal Providers. We therefore considered that the site was addressed to consumers, not business customers, and that consumers could easily access and read the brochure. Similarly, we noted that the brochure itself included claims such as "Green Deal Payment Plans: Accessible, Predictable, Affordable Providing you with protection against energy prices", and gave examples of the costs involved when taking out Green Deal loans, and considered it was addressed to private individuals to encourage them to contact a Green Deal Provider and find out more about taking out a Plan.
We noted that the claim stated "Green Deal payment plans are typically the cheapest on the market for medium sized loans, given reasonable expectations for increases in interest rates over the long term" and that the claim had been directly taken from the Capital Economics report. Although we noted that the cover did not include any additional explanatory text, we acknowledged that page four of the brochure explained that Green Deal Finance Company defined a medium sized loan as one for £1,500, and that footnote text on that page stated "Capital Economics 'Assumes that base rates average 3% between 2015 and 2040'". Therefore, whilst that information could have been given greater prominence, we considered that most consumers reading the brochure would understand that the claim related to loans of £1,500 and would be aware of the "reasonable expectations" informing the claim. In addition, whilst we acknowledged that the claim said Green Deal loans were "typically" the cheapest on the market, we considered most consumers would understand it to mean that in a significant majority of cases, a Green Deal loan would be the cheapest way to borrow £1,500.
We noted that the claim stated that Green Deal loans were the "cheapest on the market", and whilst there was no further qualification on the cover setting out the comparator products, text inside the brochure referred to other forms of credit, including credit cards, personal loans and mortgage backed loans. In particular, we noted the brochure included the claim "Unsecured personal loans tend not to be available for long term lending of more than five years, resulting in high monthly repayments", and a page dedicated to personal loans entitled "Is it cheaper to take out a personal loan to fund green home improvements?". Therefore, whilst we acknowledged that the brochure made it clear that Green Deal payment plans were offered over a long term, we considered that consumers reading the brochure would believe that the comparison extended to alternative sources of credit with shorter terms, and therefore that Green Deal loans, available for terms of ten years and above, would be cheaper than loans with terms of five years and less, including personal loans.
We acknowledged that APRs were a tool designed to help consumers understand the potential cost of credit, particularly when comparing different products offering the same loan amount over the same period. We accepted that the evidence provided showed that Green Deal loans had a lower APR than most of the products selected when the loan term was the same length. We had concerns, however, that the APR comparison provided a misleading impression of the costs of the different sources of credit because the products being compared did not have the same loan term. The report demonstrated that, if a consumer opted to borrow £1,500 using a credit card or a personal loan over a term of five years or less, as opposed to a Green Deal for ten years or more, whilst the APR and monthly repayments would be higher, the total cost of borrowing could be significantly lower. We considered that to be material information that consumers required to make an informed decision regarding the credit option that was right for them. Because the ad did not include information to that effect, and instead implied that Green Deal loans over a term of ten years or more were cheaper than alternative loan products with terms of five years or less, we concluded that the claim was misleading.
On that point, the ad breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.7 (Substantiation), 3.9 and 3.10 (Qualification), 3.11 (Exaggeration) and 3.38 (Other comparisons).
We understood that the Regulations ensured that Providers could only offer a Plan to consumers if the estimated savings that the home improvements were likely to achieve in the first year did not exceed the cost of the Plan in the first year. We understood, however, that calculations regarding estimated savings were based on a typical household's energy usage, and while variance in energy costs were factored into those calculations, the actual savings that a consumer was likely to achieve would depend on their energy usage and the future cost of energy. If a family decreased their energy usage or the cost of energy decreased during the lifetime of the loan, the cost of the loan could be greater than the savings achieved. Therefore, we understood that even if a Green Deal Provider followed the "Golden Rule" and offered a loan in accordance with the Regulations, there was no guarantee that a consumer would save money as a result of taking out a Plan.
We noted that both claims referred to the expected financial savings that a consumer would make as a result of taking out a Green Deal Plan, and that neither stated that those savings were guaranteed. We noted, however, that the first claim stated "We provide peace of mind by only lending if the government's Golden Rule is met" and considered that the reference to "peace of mind" would lead consumers to believe that taking out a Green Deal Plan was risk free and because the "Golden Rule" would be met, the "expected financial savings" were very likely to be realised. Therefore, in the absence of any text to explain that even if the Golden Rule was met there was no guarantee that savings would be achieved, we concluded that the claims were misleading.
On that point, the ad breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.9 and 3.10 (Qualification).
We noted that on a different page the brochure included a table headed "Example APRs of payment plans offered by the GDFC" which provided information relating to the amount consumers could borrow, over what period of time, the APR, monthly cost, total cost, and the total charge for credit, and understood that those figures included all costs with the exception of assessment and exit fees. We understood that Green Deal Finance Company did not believe that they needed to include those fees as they we would not be relevant to all consumers, but that in the last page of the brochure, entitled "Important things to consider when taking out a Green Deal payment plan", included text stating "You have a right to repay the credit agreement early, in full or in part ... If your payment plan exceeds £8,000, or if the payment plan is longer than 15 years, we have limited our maximum charge for early redemption to £6 per £1,000 per year outstanding". We therefore considered that, as most consumers would read the brochure in its entirety, and would be inclined to read the page entitled "Important things to consider...", most readers would be aware that exit fees applied in some circumstances if a consumer chose to leave their Plan early.
We understood that assessments were self-standing products and so not all consumers who sought one would intend to, or go on to, apply for a Green Deal Plan. We noted, however, that all consumers who wished to take out a Green Deal loan needed to have a Green Deal assessment prior to doing so, and that some providers charged for that service. We also noted that the overall theme of the leaflet was to explain what Green Deal Payment Plans were and to emphasise how reasonable Green Deal loans were in relation to other sources of finance for home improvements. We therefore considered that Green Deal Finance Company should have made clear in the brochure that further costs in the form of an upfront assessment fee, which would not be covered by their Plan, might apply for some consumers. Because that information was not included, we concluded that the ad was misleading.
On that point, the ad breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.9 and 3.10 (Qualification).
The ad must not appear again in the same form. We told the Green Deal Finance Company Ltd to ensure they held sufficient evidence to substantiate their claims, that they did not omit material information from their ads, and to make sure their claims were appropriately qualified in future.