FCA reviews APR communication for consumer clarity

The Financial Conduct Authority (FCA) is reviewing the effectiveness of Annual Percentage Rates (APRs) in communicating borrowing costs.

APRs, which include interest and fees, are currently mandated in most credit advertising.

New research indicates that while APRs are useful for product comparison, additional information like total repayment figures can also enhance understanding.

However, varying information across products can hinder comparison and cause confusion.

A key finding showed 80% of consumers correctly identified the cheapest product when a lower APR meant lower repayments.

Crucially, fewer than 1 in 5 did so when a lower APR did not correspond to cheaper borrowing.

This highlights a significant gap in consumer comprehension, suggesting current methods may not always enable informed choices.

The FCA has published proposals to simplify parts of the Consumer Credit rule book on credit advertising.

These aim to remove duplication and outdated requirements, especially where the Consumer Duty already sets clear expectations for firms to support consumer understanding.

This initiative responds to a commitment in the Feedback Statement on the Consumer Duty rule review.

Many of the financial promotions rules in the Consumer Credit rule book pre-date the FCA's regulatory oversight, with some provisions dating back to 2004.

The simplification efforts seek to modernize these rules, aligning them with contemporary regulatory principles.