The advertisements, which claimed ‘one of the best rates in the market,’ were promoting products which were subject to risk-based pricing.
Risk-based pricing is where the interest rate offered to the consumer is dependent on the consumer’s credit risk profile, as assessed by the credit provider. Under this pricing model, the consumer applies for the product without knowing what interest rate they will be offered (should their application be successful).
Information provided online by GE Money further described the interest rate as ‘One of the best rates in the market, from 12.99% (comparison rate 14.20%) for loans over $10,000 for new customers.’
In fact, a consumer applying for the product would be offered an interest rate between 12.99% p.a. and 34.95% p.a. ASIC was concerned that the advertising was misleading as only some consumers qualified for the lowest rate.
The overall impression given by the advertisement was that all customers would receive an interest rate that was ‘one of the best rates in the market’, when this was not correct. ASIC was also concerned that:
- the use of the qualifying term ‘from,’ in the context of risk-based pricing with a significant variation between lowest and highest cost, was insufficient to prevent consumers being potentially misled
- the headline statement ‘One of the best rates on the market’ where it appeared on a standalone basis was, in this case, too strong a claim to be effectively qualified
- in some cases, advertising failed to provide any disclaimer or clarification
- the disclaimer on the website failed to disclose the interest rates for risk pricing of loans and how high interest rates could actually go.
ASIC Deputy Chairman Peter Kell said, ‘Price-based marketing fosters competition and can be beneficial to consumers. However, promoters need to ensure that consumers are not misled about an advertised interest rate when their risk profile may affect the actual interest rate offered.’
‘With the increasing practice of risk-based pricing of credit products, ASIC will continue to monitor advertisements in this space and will take action in response to misleading advertisements,’ Mr Kell said.