Wonga forced to pull "misleading and irresponsible" TV ad
Wonga has been reprimanded for an advert that suggested borrowers disregard the representative APR.
The Advertising Standards Authority (ASA) has stopped payday lender Wonga from airing an advert that it has decided was both misleading and irresponsible.
31 complaints were made to ASA regarding the advert, which depicted two puppet characters stating that they would “explain the costs of a Wonga short-term loan”.
“Some people think they will pay thousands of percent of interest,” the puppets continue. “They won’t of course – that’s just the way annual rates are calculated. Say if you borrowed £150 for 18 days, it would cost you £33.49.” Large on-screen text displayed throughout the advertisement stated:
“AMOUNT OF CREDIT: £150 FOR 18 DAYS. INTEREST: £27.99. INTEREST RATE: 365%PA (FIXED). TRANSMISSION FEE: £5.50. ONE TOTAL REPAYMENT OF: £183.49. REPRESENTATIVE 5853% APR.”
As one of the puppets referred to the cost of the example loan, a third puppet pointed towards text stating "£33.49" that had appeared towards the top of the screen.
Why were complaints made?
Complainants made the points that the ad was misleading because it confused the interest rate applied to the loan. Some also said that it implied that the representative APR was irrelevant to a short-term loan.
Along the same lines, it was suggested that the ad was ‘irresponsible’ because it encouraged people to disregard the representative APR and this ‘trivialised the decision to take out a short-term loan’. Finally, a few people challenged that the ad breached the ASA Code because the representative APR was not sufficiently prominent.
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The ‘true’ cost of a short-term loan
Wonga argued that the objective had been to explain the ‘true’ cost of a short-term Wonga loan, adding that it “regretted” that viewers may have been confused or misled. However, Wonga argued that the advert did enough to draw attention to the relevant interest rate of “365%PA (FIXED)” and that they had given enough prominence to both the annual rate and the representative APR, which are required under ASA regulations.
Wonga emphasised that the point of the ad was to explain that taking out the advertised loan would not result in a customer paying the interest listed as the representative APR, even though the representative APR was present on-screen as per the regulations. Furthermore, it said that it did not believe that the ad encouraged people to disregard the representative APR or that the ad trivialised the decision to take out a short-term loan.
However, Wonga did concede that the on-screen information did not include the words “representative example,” which are required by ASA regulations and promised to “ensure that that issue did not arise again in future.”
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Representative APR and short-term loans
Wonga and other payday lenders suggest that the representative APR figure isn’t helpful to borrowers looking at taking out short-term loans because it reflects the annual rate of interest to be paid, when the loans being offered are supposed to be paid back over a much shorter time period.
A previous ASA adjudication actually referred to the representative APR as “not necessarily being a helpful indication of the cost of short-term credit products”.
The ruling
All four issues were upheld against Wonga. ASA ruled that the ad “created confusion as to the rates that would apply” to a loan, and that it did “irresponsibly encourage” viewers to disregard the representative APR. The ASA also ruled that not enough prominence was given to the representative example, including the representative APR.
The advert was found to have breached the UK Code of Broadcast Advertising (BCAP Code) specifically the sections that refer to misleading, responsible, and lending and credit advertising rules.
Wonga has been told the ad must not appear again in its current form.
Does this seem like a light punishment for a company whose advertising was found to be misleading and irresponsible? Is APR irrelevant when it comes to short-term loans? Let us know your views in the comments below.
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Comments
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Isn't it about time to bring back the laws on usury? Canadian law makes it a criminal offence to charge more than 60% "effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles".
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Wonga know the rules. They probably also employ very clever people who know how to bypass the rules without drawing attention to themselves. The very simple fact is that this advert breached the code of conduct required for advertising this type of product, and that Wonga deliberately set out to breach the code of conduct that they are very well aware of. I suppose it is similar to doing 60 mph in a built up area (30 mph restriction), and trying to argue that since you were only travelling for 30 minutes, if you leave your car standing still for the other 30 minutes, it will equal an effective 30 miles per hour. Still, Wonga has the resources to find other ways around the code of conduct. After all, the poor get poorer while the richest get richer, and those in between teeter either way.
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Thanks Nosbort. Pretty misleading to call it a rate at all in my opinion because I have never heard of any interest rate that wasn't quoted annually. I'm sure many Wonga customers are led to believe that the APR is 365% if this figure is in larger or brighter font than the 5853%
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15 April 2014