Ad description
An internet banner ad that appeared in early March for a business credit service stated "Earn 8.3% On Your Savings. With Easy Access. Join Today. www.fundingcircle.com".
Issue
1. YouAngel and a member of the public challenged whether the claim "Earn 8.3% On Your Savings was misleading and could be substantiated.
2. A member of the public challenged whether the ad and the claim "easy access" was misleading because it did not make clear access fees could be payable.
Response
1. Funding Circle said that it was an online marketplace where people lent directly to small businesses in the UK. They explained that people bid for an interest rate and an amount to become part of the loan, and businesses accepted the lowest interest rate offers. They explained that each loan could have hundreds of lenders lending as little as £20. They said that they screened loan requests from borrowers, managed repayments from borrowers back to lenders and chased borrowers if payments were missed.
Funding Circle did not believe that their claim “Earn 8.3% on your savings” was misleading. They explained that over half of their lenders earned an average gross yield of 8.3% and that that was a weighted average gross yield on all outstanding loans. They explained that the figure did not account for the fees a lender may pay nor did it account for any actual or expected bad debt that some lenders may experience. They said that that figure also did not account for any cashback or promotional money that may be paid to lenders. They provided evidence which showed that their lenders had a gross yield of 8.3% or more. They considered that the ad complained about was in keeping with advertising for financial products like corporate bonds, shares, permanent interest bearing shares and subordinated bonds.
Funding Circle said that where the same claim appeared on their website, the claim was qualified and it made clear that the advertised yield was before fees and bad debts. They said that they had since amended all of their advertising to reflect that qualification. They said that they estimated an expected bad debt level but to date, there had not been any defaulted or missed payments and that the fees charged varied for different loans and therefore, different lenders.
Funding Circle explained that lenders were charged a 1% annualised fee on most loan parts they made through Funding Circle. However, they said that the first 50 loans originated had no lender fees associated with them. They explained that lenders who had loan parts relating to those particular loans did not pay fees for the lifetime of the loan. They said that lenders were also charged a secondary market sale fee of 0.25% of the outstanding principal of the loan part. They explained that from time to time, they waived or reduced fees for certain loans to certain lenders for defined periods of time.
Funding Circle explained that irrecoverable bad debt would result in lowering the return for those who were lenders on the loan experiencing bad debt. They said that the exact level of bad debt a lender experienced was impossible to predict and was dependent on the performance of the exact loan parts they lent to or on the lender’s portfolio. They explained that to date there had not been any bad debt or missed payments. They considered that the advertised yield should exclude bad debt estimations.
2. Funding Circle explained that funds not lent to borrowers could be transferred out at any time, without charge, and the lender received the funds in two to three days. They explained that loan parts had a term of either 12 or 36 months but could be sold to other Funding Circle lenders before the maturity of the loan. They explained that a fee was payable to Funding Circle for every loan-part sold. They said that there were restrictions on selling loan parts but none of those criteria had been met and therefore, they had not prevented any sales. They explained the process that lenders undertook to list their loan parts for sale via their website. They did not believe that the ad or the claim was misleading.
Assessment
1. Upheld
The ASA noted that the yield figure quoted in the ad was before fees and bad debts and had not stated that it was a gross figure. Whilst we understood that fees varied and that it was difficult for Funding Circle to predict bad debts, we considered that consumers were likely to interpret the claim as meaning that 8.3% was the yield they could expect to receive. Because that was not the case, we concluded that the claim was misleading.
We noted that Funding Circle had amended their advertising to qualify the 8.3% claim and to make clear that that was the figure before fees and bad debts. We considered, however, that they should also state clearly that 8.3% was the “gross” figure.
The ad breached CAP Code (Edition 12) rules
3.1
3.1
Marketing communications must not materially mislead or be likely to do so.
(Misleading advertising),
3.7
3.7
Before distributing or submitting a marketing communication for publication, marketers must hold documentary evidence to prove claims that consumers are likely to regard as objective and that are capable of objective substantiation. The ASA may regard claims as misleading in the absence of adequate substantiation.
(Substantiation),
3.9
3.9
Marketing communications must state significant limitations and qualifications. Qualifications may clarify but must not contradict the claims that they qualify.
and
3.10
3.10
Qualifications must be presented clearly.
CAP has published a Help Note on Claims that Require Qualification.
(Qualifications) and
3.11
3.11
Marketing communications must not mislead consumers by exaggerating the capability or performance of a product.
(Exaggeration).
2. Upheld
We noted that the process of accessing funds not lent to borrowers and listing loan parts for sale was simple and easily facilitated through the Funding Circle website. We therefore considered that the claim “Easy Access” was not misleading.
We noted that funds not lent to borrowers could be transferred out at any time, without charge, and the lender received the funds in two to three days. However, we noted that, for funds from loan-part sales, the Funding Circle charged a fee on each loan-part sale and we noted that that had not been made clear in the ad.
We considered that as some lenders were penalised when they sold their loan part this was a significant qualification that should have been made clear in the ad and, without it, the ad was misleading.
The ad breached CAP Code (Edition 12) rules 3.1 3.1 Marketing communications must not materially mislead or be likely to do so. (Misleading) and 3.9 3.9 Marketing communications must state significant limitations and qualifications. Qualifications may clarify but must not contradict the claims that they qualify. (Qualification).
Action
The ad must not appear again in its current form. We told Funding Circle to make clear that the average yield quoted in their advertising was a gross figure and to make clear that a fee was payable when selling a loan part.
