Perhaps the UK’s best known payday lender, Wonga, has had a television advertisement banned by advertising watchdog the Advertising Standards Authority (ASA).
The ASA thought it was misleading for the advert to suggest that the Representative Annual Percentage Rate (RAPR) on a loan was not relevant. The example given in the advert was for borrowing £150 over 18 days, where the RAPR is 5,853%. One of Wonga’s well-known puppet characters said during the advert: “Some people think they will pay thousands of per cent of interest,” at which point another of the puppets added: “They won’t of course – that’s just the way annual rates are calculated”.
Wonga’s case was that it was trying to show “in a transparent manner, the total true cost of a short-term Wonga loan,” and that the RAPR was displayed on screen throughout. But the ASA said that the advert “irresponsibly encouraged viewers to disregard the RAPR”. They also concluded that the RAPR was not sufficiently prominently displayed, given the number of other figures quoted in the advert, which included amounts for: the sum borrowed, the repayment term, the interest payable, the annual interest rate, the transmission fee, the total cost of credit and the amount to be repaid.
Many within the payday lending industry believe that APRs are not relevant to loans which typically last only one month. But this case highlights that the authorities take a different view of the matter, and that firms must take care to prominently state the APR on their promotional material, and ensure that they do not in any way suggest that the level of the APR is not important. The APR must be stated whenever the advert contains any sort of incentive to take out credit.
Critics of payday lending have pointed out that loans are frequently extended, and that the more this happens, the more relevant the APR becomes.
This is the third occasion on which the ASA has banned a Wonga advert. In October 2013, Wonga was banned from broadcasting a radio advert, which included a song. The ASA took issue with the song’s lyrics, which suggested it was appropriate to use a payday loan to supplement monthly income, and also felt the advert treated the subject of borrowing money with too much levity. In July 2012, the lender was judged to have omitted the APR from a television advert when it should have been included.
Another Wonga television advert has been referred to the ASA by charity Citizens Advice (CitA). CitA believes that the APR should have been quoted, and also that the advert suggests a payday loan is suitable for addressing general money problems.
Some commentators have pointed out that the effect of ASA bans on advertisements is somewhat limited. The watchdog can ban the advert from being shown again, but often by the time it gets round to passing judgement, the company has stopped showing that advert anyway. However, payday lenders are now subject to the regulation of the Financial Conduct Authority, who have their own rules on the content of financial promotions, and who can issue fines to firms whose promotions fail to meet requirements.