Bill Tsouvalas (pictured below) is CEO and managing director at Savvy a national financial loan provider. In this guest post, he argues a lot of Australians financial woes can be attributed to dodgy advertising and marketing…
Australian household debt has risen steadily over the past three decades, and is now the fourth-highest in the world. This rise has shown no signs of stopping, as popular new ‘buy now, pay later’ offerings help to remove the stigma personal loans might have once held.
But as more consumers use personal loans to fund their shopping habits, advertisers (and financial brands) need to learn where their responsibilities lie. Selling loans is a tricky balancing act: on one hand, the loan provider must act in the best interest of their customers, but on the other, they know that those customers aren’t always going to be doing the most financially savvy things with their loans.
There have been some instances where brands have actively encouraged spending beyond your means, such as a controversial Afterpay ad, which read: “Broke AF but strongly support treating yourself?”
This kind of ‘throw caution to the wind and spend’ approach is clearly against consumer’s best interests, especially when the target is young people, who might be less financially savvy than their older counterparts. And it’s not just ‘buy now, pay later’ brands at fault: there have been many examples of financial services brands doing more harm than good. Often, advertising is one of the primary culprits.
So what’s being done to deal with the issue? The answer is a lot, and at the same time, not a lot. The Ad Standards Board is Australia’s largest ad watchdog, taking thousands of complaints from the Australian public each year. But take a glance at the most complained about ads in Australia, and you’ll notice that most of them continued to be shown, or are still airing in some form today. Even when the ads are taken down, the only real punishment handed down is a light ‘telling off’. Most the time, a minor modification is enough to pass the test.
Despite its faults, Ad Standards is still probably the best solution to a difficult challenge – but it’s not exactly a serious deterrent for most advertisers. Plus, many of the subtle nuances of loan advertising – such as Afterpay’s implication to spend beyond your means – would be given the green light by the watchdog.
The recent Royal Commission had a lot to say, but didn’t spend a lot of time on advertising. The report restricted criticism of the sector’s advertising to car dealers and superannuation marketing, choosing instead to focus on the industry’s culture of prioritising sales and profits over the customer.
Elsewhere, Google has announced it would be tightening up its regulations around loans. In a 2016 blog post, Google’s director of global product policy, David Graff, announced that the tech giant “will no longer allow ads for loans where repayment is due within 60 days of the date of issue.” In the US, the company also banned ads for loans with an APR of 36 per cent or higher.
The issue with the so-called ban was that the companies appeared to comply with the rules in their landing pages, but proceeded to bury more extreme due dates and APR rates within their fine print on an obscure page or in their direct communications, where Google couldn’t see it.
It appears that no matter what rules and regulations are put in place, financial lenders will always find a way to flout them. And as the Royal Commission has shown, it’s not just terms and conditions that these companies are ignoring – even laws aren’t enough to stop many companies from doing what they like.
The Financial Ombudsman Service’s 2017/18 report showed that personal loans were one of the most complained-about services in the 18-24 age bracket. In fact, credit took up the highest percentage of complaints overall, at 43 per cent. Clearly, the financial services industry has a problem, and its blatant lack of customer concern goes far deeper than advertising alone.
So if watchdogs, tech giants or ombudsmen can’t solve the problem, there’s only really one place to turn: the advertisers themselves. With consumer debt a growing problem in Australia, brands have a responsibility to regulate their own ads.
Ultimately, responsible loan advertising is possible, but brands must make sure they’re not doing anything which could encourage harmful or reckless behaviour. In the wake of the Royal Commission, it’s more important than ever before that financial brands start acting in the best interests of their customers – not pandering to their worst instincts.