Scott Robert:Helping Firms Meet Requirements ASA Requirements

Wonga, a popular payday lender in the United Kingdom, had a television

advertisement banned by advertising watchdog, the Advertising Standards

Authority (ASA).  

Scott Robert, a leading compliance consultant in the country, helps firms

understand the case of Wonga to prevent them from having the same predicament.

Avoiding Misleading Advertisements

Learning from Mistakes

Appreciating the Relevance of APR

Avoiding Misleading Advertisements 

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 puppet added, ‘They won’t of course – that’s just the way annual rates are calculated.’

Learning from Mistakes 

Wonga’s case was that it was trying to show ‘in a transparent manner, the total true cost of a short-term Wonga loan, 'while displaying the RAPR on screen throughout. According to the ASA, the advert ‘irresponsibly encouraged viewers to disregard the RAPR.’ They also concluded that the firm did not display the RAPR prominently and sufficiently. The advert had other figures quoted, including 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 firms in the payday lending industry believe that APRs are not relevant to loans, which typically last only one month. Wonga’s case, however, highlights that the authorities take a different view of the matter. Scott Robert suggests that firms must be careful in stating the APR on their promotional material and make sure they do not suggest, in any way, that the level of the APR is not important. Companies should state the APR whenever the advert contains any sort of incentive to take out credit.

Appreciating the Relevance of APR 

Critics of payday lending have pointed out that loans are frequently extended and that the more this happens, the more relevant the APR becomes.

The ASA has banned a Wonga advert on three occasions. In October 2013, the agency banned Wonga from broadcasting a radio advert, which included a song. The ASA took issue with the song’s lyrics, suggesting it was appropriate to use a payday loan to supplement monthly income. The agency also felt the advert treated the subject of borrowing money with too much levity.

In July 2012, ASA judged the lender to have omitted the APR from a television advert when it should have been included.

Charity Citizens Advice (CitA) had referred another Wonga television advert to the ASA. CitA believes that Wonga should have quoted the APR in the advert. Furthermore, CitA believes 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 judgment, the company has stopped showing the advert anyway.

Payday lenders, however, are now subject to the regulation of the Financial Conduct Authority, that has their own rules on the content of financial promotions and can issue fines to firms with promotions that fail to meet requirements.

 Resources:  http://www.scottrobert.co.uk/consumer-credit-firms-prepare-for-fca-regulation/ http://www.asa.org.uk/Rulings.aspx http://www.citizensadvice.org.uk/