Wonga advert banned for not revealing 5,583% interest rate
Payday loans firm Wonga has had an advert banned by the Advertising Standards Authority (ASA) because it did not reveal the lender's representative interest rate of 5,583%.
The advert featured anxious-looking man sitting in a cafe jotting down figures on a napkin. In the ad, an animated character tells him that at Wonga he can you choose exactly how much to borrow and for how long. The character adds that "you can even pay back early and save money."
The complaint received by the ASA said the advert breached advertising rules by omitting Wonga's Representative Annual Percentage Rate (RAPR) of 5,583%. The complainant said that the claim "you can even pay back early and save money" was an incentive likely to trigger the requirement to disclose the RAPR.
Wonga argued that the ability to repay a loan before it is due is a standard feature of many loan products, and that describing that feature in a way that they regarded as brief and factual did not amount to an incentive.
But the ASA disagreed. It upheld the complaint, stating: "The inclusion of the phrase 'save money' was surplus to a purely descriptive statement and offered a discount relative to the headline cost of borrowing a sum for the loan period originally requested. We considered that this was an incentive to apply for credit, and that the RAPR should therefore have been disclosed."
The ASA ruled that the advert must not appear again in its current form. It also told Wonga to ensure that future ads that included a comparison or incentive displayed the RAPR.
It's been a torrid few weeks for Wonga, which recently agreed to write off the debts of 330,000 customers who had been in arrears for more than 30 days. Another 45,000 customers who were in arrears of up to 29 days will be asked to repay their debt without interest or charges over an extended period of four months.
Wonga has also introduced new affordability checks, after the Financial Conduct Authority (FCA) found it was not taking adequate steps to assess its customers' ability to meet their monthly repayments.
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.