[The Viewpoint] Advertising of banking and financial offerings: Limitations and requirements under Indian law

The Reserve Bank of India (RBI) has powers to regulate and supervise banks offering their financial/ banking services to consumers in India. While there are specific laws regulating banking activity by banks in the country, there is no specific law that governs advertising in the country, let alone in respect of financial or banking products or services.

Misleading or deceptive advertisements relating to financial and banking offerings have the tendency to hurt consumers’ and investors’ interests, both literally and figuratively! Naturally, then, there is a need to protect consumer/investor interests. Since India lacks any specific law for governing advertisement of financial services, advertising by banks in India would be governed by general laws, such as the Code for Self-Regulation of Advertising Content in India (ASCI Code), the Consumer Protection Act, 2019 (CPA) and the Reserve Bank of India Act, 1934 (RBI Act).

The ASCI Code and guidelines

Advertisements in the country are governed by the Advertising Standards Council of India (ASCI), a voluntary, self-regulatory organization of the advertising industry with a mission to maintain and enhance the public's confidence in advertising. ASCI seeks to ensure that advertisements conform to the ASCI Code, which requires advertisements to be (a) truthful & honest; (b) non-offensive to public; (c) against harmful products/unsafe situations; and (d) fair in competition.

The ASCI Code applies to advertisements read, heard or viewed in India, even if they originate or are published abroad, as long as they are directed to consumers in India or are exposed to a significant number of consumers in India. Even though compliance with the ASCI Code is voluntary under the law, the Code has been accepted by individuals, corporate bodies and associations engaged in, or otherwise concerned with, advertising. Pertinently, many regulatory organizations in India that cater to different sectors, such as pharmaceuticals, food and beverage, consumer affairs, transport, etc have incorporated the Code in their governing laws to regulate the contents of advertisement pertaining to their sectors.

As per the ASCI Code, the responsibility for the observance of the Code lies with all those who commission, create, place or publish any advertisement, or assist in the creation or publishing of any advertisement. All advertisers, advertising agencies and media are expected to self-impose discipline not to commission, create, place or publish any advertisement which is in contravention of the Code.

Pertinently, with specific reference to advertisements of financial products and services, the ASCI Code states: advertisements inviting the public to invest money shall not contain statements which may mislead the consumer in respect of the security offered, rates of return or terms of amortisation; where any of the foregoing elements are contingent upon the continuance of or change in existing conditions, or any other assumptions, such conditions or assumptions must be clearly indicated in the advertisement.

In order to help advertisers mitigate any potential risk that a proposed advertisement may encounter on ground of violation of the ASCI Code, ASCI has put in place the ASCI Advertising Advice Service (AAAS). AAAS helps advertisers identify any potential issues relating to violation of the ASCI Code and provides pre-publication advice on a piece of communication, or campaigns, at any stage of campaign development process. ASCI’s AAAS panel comprises advertising experts, as well as technical experts who are well qualified and experienced specialists from several disciplines, including financial services.

Additional ASCI guidelines

While ASCI has framed some guidelines for specific categories of advertisements, such as those depicting automotive vehicles, food and beverages, educational institutions and programs etc, there are no such guidelines for advertisements relating to financial and banking services.

Pertinently, amid the rising popularity of virtual digital assets (VDAs), including cryptocurrencies and non-fungible assets (NFTs), and the risks arising from these relatively new and evolving forms of investments, on February 23, 2022, ASCI released guidelines for the promotion and advertisement of visual digital assets, effective April 1, 2022. The guidelines focus on the manner in which these advertisements must appear in various formats, namely, print/static, video, audio, social media posts and disappearing stories/posts unaccompanied by text.

According to the guidelines, all advertisements for VDA products, VDA exchanges, or advertisements that feature VDAs must be accompanied by an “unmissable and prominent disclaimer” that “Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.” This disclaimer should be made in a “dominant language” and may not include the words, ‘currency’, ‘securities’, ‘custodian’ and ‘depositories’.

Moreover, information regarding returns for periods of less than twelve (12) months shall not be included in the advertisements. These advertisements shall also not contain statements that promise or guarantee future increases in profits and must clearly include the name and contact details of the advertiser. The guidelines also state that, given the risks involved with VDAs, celebrities and known personalities who appear in such advertisements must do their due diligence about the statements and claims made in the advertisements so as to not mislead consumers.

ASCI released these guidelines noting that several advertisements pertaining to VDAs do not adequately disclose the risks associated with the investments and transactions related to VDAs. It has clarified that the guidelines are not to be treated as a legal recognition or endorsement of the VDA sector and that ASCI is only providing self-regulation for contents of advertisements that are permitted by law. Although these guidelines only bind ASCI’s member organizations, given that ASCI is well-recognized within the country, most organizations tend to comply with the guidelines released by ASCI, irrespective of their affiliation with ASCI, and turn to its guidelines for guidance on advertisements in India.

ASCI also has additional guidelines that are relevant for advertisements by banking institutions in India. These include (a) Guidelines for Disclaimers Supporting, Limiting or Explaining Claims Made in Advertisements, (b) Guidelines for Celebrities in Advertising, (c) Guidelines for Usage of Awards/Rankings in Advertisements, and (d) Guidelines for Validity & Duration of Claiming “New/Improved”.

Penal provisions under the RBI Act and the CPA

The RBI Act provides for fine and an imprisonment for a term which may extend to three years against any person/entity who, in any prospectus or advertisement issued for or in connection with the invitation by any person of deposits of money from the public, wilfully makes a statement which is false in any material particular, knowing it to be false, or wilfully omits to make a material statement.

Further, as per a Master Circular on Interest Rates on Advances issued by the RBI in 2003, banks should refrain from promoting low/zero percent interest rates on consumer durable advances to borrowers through adjustment of discount available from manufacturers/dealers of consumer goods. They should also refrain from linking their names in any form/manner with any incentive-based advertisement where clarity regarding interest rate is absent.

The CPA is another legislation which endeavours to protect the interests of consumers and covers banking services within its ambit. The CPA has a specific provision prohibiting false and misleading advertisements. As per the CPA, a "misleading advertisement" means an advertisement, which:

(i) falsely describes the product or service in question; or

(ii) gives a false guarantee to, or is likely to mislead the consumers as to the nature, substance, quantity or quality of such product or service; or

(iii) conveys an express or implied representation which, if made by the manufacturer or seller or service provider thereof, would constitute an unfair trade practice; or

(iv) deliberately conceals important information.

Under the CPA, any service provider who causes a false or misleading advertisement to be made which is prejudicial to the interest of consumers shall be punished with imprisonment for a term which may extend to two years and with fine which may extend to ten lakh rupees. For every subsequent offence, the punishment is imprisonment for a term which may extend to five years and with fine which may extend to fifty lakh rupees.

Individual advertising policies of platforms

Besides the above-mentioned legislation and guidelines, digital media platforms such as Google and Facebook have their own policies relating to advertising of financial products and services on their platforms. For instance, Google’s policy pertaining to promotion of financial offerings emphasizes on increasing transparency and providing consumers with valuable information to make informed decisions through disclosures. Likewise, Facebook restricts promotion of financial products and services that are frequently associated with misleading or deceptive promotional practices. Facebook’s advertising policy requires an advertiser to provide sufficient disclosure of material facts relating to financial products and services, such as associated fees and interest rates. It also states that advertisements shall not directly request the input of a person's financial information, including bank account numbers, bank routing numbers, credit or debit card numbers, etc, without Facebook’s prior written permission.

Conclusion

Despite the general laws and guidelines formulated for curtailing malpractices in advertising, there is a need to formulate specific guidelines for advertising of financial products and services. It is vital that checks and balances are imposed to curtail advertisements with false or insufficient information that may mislead consumers into availing financial products or services without being fully aware of the conditions attached to them.

The Ministry of Consumer Affairs, Food and Public Distribution (Department of Consumer Affairs) has released draft guidelines, namely, the Central Consumer Protection Authority (Prevention of Misleading Advertisements and Necessary Due Diligence for Endorsement of Advertisements) Guidelines, 2020, for comments/suggestions by the stakeholders. These have, however, not yet been notified in the official gazette, or become law. In the meantime, advertisements should, to the extent possible, be in compliance with the self-regulatory ASCI Code and guidelines and the laws discussed above.

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