A television advertisement from embattled payday lender Wonga has been branded as “misleading” and banned by the UK’s advertising watchdog.
The banned ad featured puppets conversing about the cost of a payday loan from Wonga. During the conversation, one of the puppets implied that the loan’s 5,853 percent representative interest rate was not relevant.
“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. Say you borrowed £150 for 18 days, it would cost you £33.49,” said one of the ad’s puppets.
According to the Advertising Standards Authority, or ASA, the agency received 31 complaints from UK consumers stating that the ad was confusing in regards to the interest rate of a Wonga loan, implying that the representative APR was not relevant for a short-term loan.
The ASA deemed the ad irresponsible due to its encouragement of consumers to overlook the APR of a payday loan, thereby underscoring the trivial nature of deciding on a short-term loan.
The ASA, however, felt differently, stating, “We considered that, though it attempted to clarify the costs associated with a Wonga loan, the ad created confusion as to the rates that would apply. On that basis, we concluded that the ad was misleading.”
In its defense, Wonga made the argument that the television advertisement “contained only factual, accurate statements.” According to Wonga, if viewers concluded that the representative APR was not an ideal way to determine the cost of a payday loan, then this fact “reflected poorly on the APR as a comparative tool for those circumstances.”
However, the watchdog dismissed Wonga’s arguments and the payday loan firm has been banned from running the ad.
The ban is only the latest in a long line of troubles for the payday lender and the payday lending sector as a whole. Only a month ago, the Financial Conduct Authority announced it will begin a thorough review of the debt collection methods employed by high-cost payday lenders and how they deal with customers who have fallen behind on payments.
Approximately 3.5 million loans each year, which is more than one-third of all payday loans made throughout the UK, are either repaid late or not repaid at all. Moreover, 60 percent of all complaints made against payday lenders are in reference to their debt collection methods.
Reportedly growing weary of constantly defending the company against political and public attacks, Wonga Chairman Errol Damelin is expected to announce his resignation in the coming months.