Scott Robert, a UK compliance consultant, helps firms avoid the same mistakes as payday lender Wonga, whose television advertisement was banned by the Advertising Standards Authority (ASA). The ASA found Wonga's advert misleading by suggesting the Representative Annual Percentage Rate (RAPR) of 5,853% on a £150 loan was irrelevant. Wonga claimed it was transparently showing costs, but the ASA ruled it irresponsibly encouraged disregarding the RAPR and did not prominently display it. Scott Robert advises firms to carefully state the APR on all promotional materials and not suggest it is unimportant.

1. 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.

2. Avoiding Misleading Advertisements
Learning from Mistakes
Appreciating the Relevance of APR

3. 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.’

4. 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.

5. 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.

6. 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.

7. 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.

8. 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/