"the Fine Print: Reading Your Travel Insurance Policy In Australia" - Imagine you order a $5 burger and when the bill comes it says it costs $10. You'd be a little confused until the waiter shows you the menu again and points out that the burger's $5 price has an asterisk (*) next to it. But you still can't see the star. You also won't see an explanation for the little star at the bottom. The waiter admits that the star and explanation are actually not
When they are printed you will see that the price is only for the burger itself and that the bun and fixings are $5 extra.
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This is the experience of a client of mine recently when he was told the interest rate on a loan… and the potential lender left a star.
I won't mention the actual lender, although I will say it's a well-known company. The company offered "$500,000 one-year financing" with a 5.5% down payment. Repayment would be in equal daily automatic debits for 1 year, "...a total of $527,500". Even better: "Although these are guaranteed loans, no personal guarantee is required."
But if you use an amortization schedule - which accounts for most of the daily repayments - you'll find that the actual assumed APR is over 10%. Not exactly usury, but certainly not 5.5% interest (which would compare well with current bank LOC rates).
Also, for a private business owner, a "recourse loan" is basically synonymous with the owner providing a "personal guarantee"… many borrowers may not know that the term "recourse" means "if the business doesn't pay, the business owner is on the hook."
The lender was careful to refer to the 5.5% as the “fee” on the loan rather than the “interest”…and the parsing of the word personal responsibility is technically correct. The proposal is therefore neither incorrect nor illegal. But it is certainly misleading.
This is by no means the only example of a lender making a misleading offer… I recently ran the numbers on another “daily repayments” case where it turned out that the actual assumed APR was 67%! And we all often receive "teaser rate" credit card offers in the mail. ("Teaser" indeed!)
Of course, lenders aren't the only ones using clever phrasing to entice while technically staying on the "no lie" side of the truth. In fact, some would say that wordsmithing is just good marketing…
Most people already take marketing slogans like this with several grains of salt* (*which I suppose makes them "high sodium"). No one can (reasonably) argue that Mars tricked them because they tricked them into eating Snickers instead of lettuce. (although a class action lawsuit filed last year alleges misleading protein content in the “Snickers Protein Bar” bar…I didn’t even know there WAS a Snickers protein bar?!)
Well, a clear case is when a false claim is made on purpose. You can't sell a "gluten-free pizza" that you made with regular gluten-free dough. And you can't put "JD Yale Law School" on your resume if you didn't actually get your JD from Yale Law School. These are not lacking in stars. Those are completely false claims.
And a solid case on the other side is when the claim is clearly subjective. If I actually call my pizza made with gluten-free dough "the best gluten-free pizza in LA" - the objective claim (about the pizza being gluten-free) may be true, but the claim that it's "the best _____ in LA" is clearly subjective. I won't say by what measure it is "the best _____ in LA." In fact, this blog post you're reading is the BEST BLOG POST IN LA* (*of blog posts written in July 2019 with "Reading the Fine Print" in the title…)
But what about where the lines are more blurred? What if I put the word "Yale Law School" on my resume because I took one course there? True, I left out the “JD”…but of course I want people to mistakenly conclude that I got my JD from Yale when I didn’t say that. Or what if I call my restaurant "Gluten Free Pizza", just for that matter
Although I will discuss more about truth vs. lies in the next post, the negative impact of unclear truth in marketing depends on the degree of obfuscation and the consequences...
If I'm diabetic and a beverage company sells "low sugar iced tea*" I shouldn't take their word for it… I should look for the *actual sugar content on the side of the bottle (and the servings on the bottle… smart marketing includes 2 servings in a 12oz drink which cuts the calories/sugar in half …) Similar allergies or other health problems where misdirection can lead to serious complications. Or financing offers, where signing without understanding all the terms can be a costly mistake.
“Switching costs” refers to the situation or the difficulty (and/or price) of switching from one product to another… If a “Summer feel-good movie*” is *actually pretty boring, it only costs a few dollars and a few hours. But if you sign a one-year lease on a “luxury apartment” without first seeing a very non-luxury hygienically challenged unit… well, you’re stuck for a miserable year and maybe dysentery.
If you're told about a new drug that can lower your cholesterol, you'd be wise to give it more credence if your primary care doctor tells you, rather than being told "Actress - not a real doctor" in a TV commercial. And you're more likely to trust the terms of the loan if it's over an email exchange with a personal banker than if you receive a similar loan offer in the mail "You're pre-approved!" envelope...
Being surrounded by marketing, of course we can't spend all our time structuring language. But in those situations where the cost may be high (whether in health, time, money, reputation, etc.) and especially if the offer comes from an unverified source, take a few minutes to ask a few questions. , and take a closer look… check Is there a missing star missing small print.
And the next time you order a $5 burger, ask the waiter out loud if it comes with a bun and a salad… no one will give you any weird looks at all. But if they do, tell them you just followed the advice you read on LA'S BEST BLOG POST!*NEAR VISION - CLEAR VISIBLE NEAR DISTANCE READING, GREATER CLEAR READING IN FULL SUNLIGHT.
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