A representative example is a term used in UK financial advertising

regulations Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...

that aim to show consumers the typical costs associated with a product being advertised. The representative example must be provided when any financial services provider advertising a product, whether it is a credit card,

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners t ...

. The term was introduced when six sets of regulations come into force from 1 February 2011 as a result of the UK government's implementation of the 2008 European Union Consumer Credit Directive which replaces the previous Consumer Credit Directive.

History

Until 2010, any financial services provider advertising a product in the UK, whether it is a credit card,

, have had to comply with the Consumer Credit (Advertisement) Regulations 2004 (2004 Regulations).Department for Business, Innovation and Skills
Regulations Implementing The Consumer Credit Directive: Quick Start Guide"
Aug 2010, p3 However, from 1 February 2011, important changes come into effect when six sets of regulations which come into force based on the European Union Consumer Credit Directive. While there were several subtle but important changes to the way financial products were advertised, one of the most important developments was the need for companies to include a ''representative example''.CompareAndSave.com
Emma Skinner (Ed.):
What is a 'Representative Example'?"
Published 2010-11-17, Retrieved 2011-11-24

When it must be provided

The Department for Business, Innovation and Skills (BIS) has published guidelines which explain when a ''representative example'' must be included when advertising: “Where the advertisement includes an

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

or any amount relating to the cost of the

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

, then a ''representative example'' of the credit on offer must also be included in the advertisement.”Department for Business, Innovation and Skills,
Guidance on the regulations implementing the Consumer Credit Directive"
Aug 2010, p21

Information required

A representative example must comprise ‘standard information’ and must be accompanied by the words "representative example". It must be representative of agreements to which the representative APR applies and which are expected to result from the advertisement”Department for Business, Innovation and Skills,
Guidance on the regulations implementing the Consumer Credit Directive"
Aug 2010, p22 The ‘standard information’ which will be included in a ''representative example'' includes: *The rate of interest – a fixed or variable percentage, applied on an annual basis *Any Total Cost of Credit (TCC) charges - details of any fees or charges included *Total amount of credit *

Representative APR A Representative APR is a financial service concept in the United Kingdom and the European Union in which credit or loan interest rates quoted through advertising media are required to take into account all charges associated with a product, in addi ...

CompareAndSave.com
Emma Skinner (Ed.)
What is a 'Representative APR'?"
Published 2010-11-17, Retrieved 2010-11-24 Previously, when a company stated an APR figure in an advertisement, this figure was defined as “not be less than the APR paid by at least 66% of consumers on the list”.Financial Services Authority,
Mortgages and Home Finance Advertising"
- Retrieved 2010-11-24 However, from 1 February 2011, this calculation will change slightly. The BSI reports that: “The representative APR must reflect at least 51% of business expected to result from the advertisement. The standard information must be representative of agreements to which the representative APR applies.”Department for Business, Innovation and Skills,
Regulations Implementing The Consumer Credit Directive: Quick Start Guide"
Aug 2010, p5 It is also worth bearing in mind that if there is more than one interest rate applicable – for example for credit cards where there may be a different purchase rate and balance transfer rate – the rate applicable to the most common drawdown mechanism must be shown. Similarly, if a rate applies only for a short period (a 0%

balance transfer A balance transfer is the transfer of (part of) the balance (either of money or credit) in an account to another account, often held at another institution. It is most commonly used when describing a credit card balance transfer. How it work ...

rate for six months), the duration of the period and the go-to rate, if known should also be shown. If the advertisement is for running-account credit, the advertiser should assume a credit limit of £1,200 unless it is known that the credit limit will be less than £1,200.

How it should appear

According to the BIS, the ''representative example'' “must be clear and concise and presented together”.Department for Business, Innovation and Skills,
Guidance on the regulations implementing the Consumer Credit Directive"
Aug 2010 p24 In addition, the representative example must be the most prominent component of the information. In simple terms, the ''representative example'': *Must contain certain standard information including a representative APR *Must be clear and concise *Must be more prominent than the information that triggered the inclusion As the BIS says in its guidelines: “The purpose is to ensure that important information concerning the cost of the credit can be viewed together as a whole, so that the borrower can assess suitability and affordability in the round.”Department for Business, Innovation and Skills,
Guidance on the regulations implementing the Consumer Credit Directive"
Aug 2010, p25

References

{{reflist Credit Financial services in the United Kingdom