'Misleading' Wonga advert banned
A television advert for payday loan company Wonga has been banned because it implied that an interest rate of 5,853% was "irrelevant”.
The Advertising Standards Authority (ASA) received 31 complaints about the advert, which features a conversation between two puppets discussing how much it would cost a potential customer to borrow money from the firm.
The two puppets said: "Right, we're going to explain the costs of a Wonga short-term loan.
"Some people think they will pay thousands of per cent of interest. They won't of course - that's just the way annual rates are calculated.”
The ASA upheld the complaints, saying that the ad was confusing and misleading for viewers. It also said it was irresponsible, because it encouraged viewers to disregard the annual percentage rate and thus "trivialized” the decision to take out a short-term loan.
In a statement, the ASA said: "Whilst we acknowledged that viewers taking out and repaying the loan within the stated time period would not repay 5,853% of the loan, we were nevertheless concerned that viewers would be left without a clear understanding of how the information in the on-screen text could be applied to a Wonga loan, given the ad's assertion that the representative APR was not indicative of the cost of the loan."
A spokesman for Wonga said it was not fair to describe the advert as misleading and that its intention was to clarify the costs of a loan.
From 1 April the Financial Conduct Authority (FCA) took over the running of the consumer credit market and introduced a number of new rules, including forcing lenders to carry out affordability checks on potential customers, in an attempt to stop people falling into further debt.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.