Understanding ACL & Misleading or Deceptive Conduct for Fintech Lenders

Introduction

For fintech lenders in Australia, navigating consumer protection laws is a critical and complex task, especially in a digital-first environment where a single app screen or push notification can be considered advertising. The core principles are established by the Australian Consumer Law (ACL), which broadly prohibits businesses from engaging in conduct that is misleading or deceptive in trade or commerce.

While the ACL provides the general framework, fintechs offering financial products operate under its functional equivalent: the Australian Securities and Investments Commission Act 2001 (Cth). This guide offers a focused breakdown of the obligations surrounding misleading or deceptive conduct, explaining how these rules apply to modern fintech marketing, user experience design, and the unique compliance challenges of the digital lending landscape.

The Legal Framework for Fintech Lenders

ASIC Act Section 12DA & Financial Services

While the ACL offers broad consumer protection, fintech lenders operate under a more specific legal framework. The primary provision governing their conduct is Section 12DA of the Australian Securities and Investments Commission (ASIC) Act 2001 (Cth). This section mirrors the general prohibition on misleading or deceptive conduct found in Section 18 of the ACL, but it applies specifically to financial services.

Section 12DA states that a person must not, in trade or commerce, engage in conduct related to financial services that is misleading or deceptive, or is likely to mislead or deceive. This is a strict liability provision, meaning that a business can be in breach without any intention to mislead.

The law focuses on the effect of the conduct on the consumer, not the intention behind it. If an action is likely to lead an ordinary person into error, it can be considered a contravention.

This prohibition is comprehensive, covering all forms of communication a fintech business might use, such as:

• Advertising campaigns
• In-app messages and screen flows
• Product packaging and descriptions
• Push notifications
• Information provided by staff

The Importance of the Overall Impression Rule

When determining whether conduct is misleading or deceptive, courts and regulators apply the “overall impression” rule. This principle dictates that a communication must be judged as a whole, focusing on the dominant message it conveys to a reasonable member of the target audience.

A misleading headline or a prominent, attractive offer cannot be corrected by disclaimers hidden in fine print or buried within terms and conditions. The overall impression is created by the combination of various elements, including:

• Wording
• Visuals
• The hierarchy of information

For fintech lenders, this means the design of their app interface is critical. For instance, if an app screen features a large button that says, “Claim Your Free Cash,” but a link at the bottom of the screen reveals the product is a line of credit with a monthly fee, the dominant message is considered misleading.

Ultimately, the law assesses whether there is a real, and not remote, possibility that someone could be misled. It is not necessary to prove that anyone was actually deceived, only that the conduct was likely to mislead or deceive. Therefore, fintechs must ensure that the primary message of any communication is accurate and transparent, as the overall impression is what matters most.

Common Advertising Pitfalls for Fintech Lenders

Risks of “Interest Free” Claims & Hidden Fees

Advertising a financial product as “Interest Free” presents a significant compliance risk that could trigger an AFSL audit or investigation if there are other unavoidable costs that are not disclosed with equal prominence. This practice can be considered misleading or deceptive conduct because the overall impression created is that the product is free of charge, even if fees are mentioned in the fine print.

The key principle is that qualifications or disclaimers cannot correct a misleading main message. This issue is particularly relevant for fintech products where costs may be structured as fees rather than interest.

For example:

• Promoting a Buy Now, Pay Later (BNPL) service as having “$0 Interest” is likely to be misleading if customers must pay a “platform fee” or “membership fee” to use the service.
• To remain compliant, any such unavoidable fees must be disclosed clearly and immediately next to the “interest free” claim.

Dangers of Using “Pre-Approved” Terminology

Using terms like “Pre-approved” or “Guaranteed” in marketing communications, such as push notifications or in-app messages, can be highly misleading. These terms create the impression that a consumer is entitled to the credit product without any further substantive checks.

If the offer is actually conditional upon a final credit assessment or the submission of additional documents, it is not genuinely “pre-approved.” In such cases, the offer should be more accurately described as a “conditional offer” or an “eligibility check.” Failure to do so misrepresents the nature of the service and the consumer’s status.

For instance:

• A push notification stating, “You’re Pre-Approved for $5,000!” is considered misleading conduct if the user must still apply and pass further credit checks to secure the funds.

Headline Rates vs. Comparison Rates

For most consumer loans, there is a legal requirement to display a comparison rate to help consumers understand the true cost of credit, which includes most fees and charges. A common pitfall is giving undue prominence to a low “headline rate” while obscuring the legally mandated comparison rate.

This can create a false or misleading impression about the affordability of the loan. According to ASIC Regulatory Guide 234, the comparison rate must be presented with equal prominence to the headline rate.

This means:

• The comparison rate should not be buried in tiny, hard-to-read text at the bottom of a screen or advertisement.
• A clear breach would involve an in-app banner that displays a large, bold headline rate like “3.99% p.a.” while the much higher comparison rate is shown in a small, grey font, as this fails to provide a balanced and accurate representation of the product’s cost.

Digital Dark Patterns & Gamification Risks

Confetti Animations & the Gamification of Debt

ASIC has raised concerns about fintech apps using celebratory visual and auditory feedback, such as “confetti” animations or positive sounds, immediately after a loan is approved. This practice is viewed as a form of gamification that can downplay the serious financial obligation of taking on debt.

By framing borrowing as a rewarding achievement, these design choices can:

• Create a misleading overall impression of the product or service.
• Obscure the risks involved and encourage users to make quick decisions without fully considering the terms and conditions.

As a result, this positive reinforcement may potentially lead to a breach of the prohibition against misleading or deceptive conduct.

Pre-Ticked Boxes & Passive Consent Risks

Pre-ticked boxes for optional add-ons like insurance are considered a “dark pattern” in app design. This tactic leverages user inertia, as many people will not actively deselect the pre-filled option. Consequently, it can be considered a form of passive consent rather than a clear, informed choice.

This practice is considered deceptive because:

• It assumes consent for an additional product or service, failing to meet the standard of transparent disclosure.
• By automatically opting users into services they may not need or want, the conduct is likely to mislead or deceive consumers about the nature of their agreement.

Urgency & Scarcity Tactics in App Design

Creating a false sense of urgency through app design can constitute misleading conduct. This includes using features like countdown timers or making claims of limited availability that are not genuine.

For example, a notification stating, “Your offer expires in 10 minutes,” may be misleading if the offer does not actually expire.

These tactics pressure consumers into making rapid decisions without adequate consideration of the financial product’s terms, risks, and suitability. If the urgency is artificial, it creates a false impression and can lead to consumers entering into agreements under misleading pretences, which is a significant compliance risk.

Design & Distribution Obligations (DDO) & Marketing

Aligning Marketing with Target Market Determinations (TMDs)

The Design and Distribution Obligations (DDO) introduce a significant layer of responsibility, directly linking a fintech’s marketing conduct to the design of its financial products. Under this regime, businesses must create a Target Market Determination (TMD), which clearly defines the specific class of consumers for whom a product is likely to be appropriate, considering their objectives, financial situation, and needs.

To comply with DDO, all marketing and distribution practices must be consistent with the TMD. This means that a fintech lender must:

DDO Marketing Obligation	Description & Example
Align Strategies with TMD	Take reasonable steps to ensure advertising strategies and channels are consistent with the intended audience defined in the TMD.
Avoid Mismatched Promotions	Avoid promoting features unsuitable for the target market. For example, if a TMD specifies a loan is not for consumers looking to consolidate large debts, marketing should not promote debt consolidation.

Avoiding Distribution to Unsuitable Audiences

Marketing a financial product in a way that encourages applications from consumers outside the TMD can be considered misleading or deceptive conduct. Such conduct is likely to mislead or deceive those consumers into believing the product is suitable for them, when the lender has already determined it is not.

A breach can occur if marketing uses aggressive or universal language that appeals to a broader audience than the one defined in the TMD. This creates a significant compliance risk. For instance:

Misleading Marketing Tactic	Reason for Potential Breach
Universal Slogans	Using slogans like “Loans for everyone!” can be misleading if the TMD specifically excludes certain consumer groups, such as individuals with low credit scores or unstable income.
Inappropriate Targeting	Targeting consumer segments with push notifications (e.g., casual gig workers) may be a contravention if the TMD is designed for a different group (e.g., consumers with stable, full-time employment).

ASIC has actively used its stop order powers to halt the distribution of products where marketing practices are inconsistent with the TMD, which is why it’s crucial to understand ASIC’s cancellation powers. This includes taking action, such as launching AFSL audits and investigations, against misleading screening questionnaires that were designed to guide consumers to change their answers to fit within the target market, thereby defeating the purpose of the DDO framework.

Complying with ASIC Regulatory Guide 234 (RG 234)

Ensuring Prominence & Proximity of Disclosures

ASIC Regulatory Guide 234 provides crucial guidance on advertising financial products, emphasising that disclosures must be clear, timely, and positioned close to the claims they qualify. This principle is built on the “overall impression” rule, which dictates that qualifications or disclaimers in fine print cannot correct a misleading headline or dominant message.

For fintech lenders, the design of digital interfaces is critical to avoiding conduct that is misleading or deceptive. To remain compliant, it is important to ensure that:

Disclosure Principle	Practical Application / Example
Avoid Conflicting Fine Print	Information in fine print or hidden behind links must not conflict with the main message of an advertisement.
Ensure Equal Prominence of Costs	Any unavoidable costs or conditions must be disclosed with equal prominence to the main offer. For instance, the legally required comparison rate must be presented with the same prominence as the headline rate.
Clarify “Interest Free” Claims	If a product is advertised as “Interest Free,” any associated platform or service fees must be disclosed clearly and immediately next to that claim to avoid a misleading impression.

Avoiding Vague Claims & Absolute Statements

Businesses must ensure that any claims made in advertising are accurate, truthful, and based on reasonable grounds. Vague language should be avoided, as it can mislead consumers by failing to provide enough information to understand how a claim affects the product or service.

Furthermore, making absolute statements without solid evidence is a high-risk practice that can lead to a breach of consumer protection laws. A significant pitfall for fintech lenders is the use of absolute terms like “Pre-approved” or “Guaranteed.” Such terminology creates the impression that a consumer is entitled to a credit product without any further substantive checks.

This conduct is considered misleading if the offer is actually conditional upon a final credit assessment or the submission of additional documents. In these situations, the offer should be more accurately described as a “conditional offer” or an “eligibility check” to avoid creating a false impression.

Conclusion

For fintech lenders, avoiding misleading or deceptive conduct requires strict adherence to the Australian Securities and Investments Commission Act 2001 (Cth), focusing on the “overall impression” of all digital communications, from advertising claims to in-app design features. Compliance also demands that marketing aligns with the product’s TMD and that all disclosures are prominent and transparent, as guided by ASIC’s regulatory standards.

Navigating these complex digital compliance challenges requires specialised legal insight to prevent costly breaches. Contact our AFSL lawyers at AFSL House today to leverage our trusted expertise in financial services law and ensure your fintech operations are built on a compliant and secure foundation.

Frequently Asked Questions (FAQ)