UK Ministers have warned that a crackdown on ads for payday loans may be coming. This will affect many credit companies offering short-term, no credit check loans with high loans APR, including Wonga. In 2011, Wonga held the distinction of spending the most on above-the-line advertising, in which the ad agency takes a commission for ads broadcast to mass audiences through mediums like television and radio.
MPs from all parties are placing more pressure on the payday lending industry, accusing it of running advertisements targeting the most vulnerable groups in the population including individuals on benefits. Politicians also believe that some payday lenders offer money before ensuring that the borrower can repay it.
As a result, many borrowers must roll over their loans, amassing large amounts of debt. As the financial situation of many UK households worsens, more people are turning to these no credit check loans and while some find relief, others experience a new set of financial woes.
The Department for Business, Innovation, and Skills plans to study the findings of an ongoing Office of Fair Trading (OFT) investigation. It will then determine its next moves, which government sources report will likely include reigning in payday lending advertisements.
If payday lenders do not do this voluntarily, they may be forced to do so through legislation. Not all lenders will find themselves in the hot seat but some of the most recognizable names will be affected.
The OFT recently reviewed more than 50 UK payday lending websites from the perspectives of advertising and relay of information. Following this investigation, the organization wrote to seven trade bodies requesting an improvement in advertising standards.
Consumer Affairs Minister Norman Lamb said that Ministers are eagerly awaiting the review findings. This information will be used to improve industry standards and take additional enforcement action.
While ministers strive to create a transparent payday lending market and improve protection for UK consumers, payday lenders are spending substantial money on advertising. Right behind Wonga in terms of above-the-line advertising spending during 2011 was Quickquid.
These lenders and many others are building upon industry growth to capture even more customers. In 2010, the industry skyrocketed to an estimated £1.9 billion.
Labor MP Yvonne Fovargue is chair of an all-party group focusing on debt. She recently tabled a bill that would make payday lenders include free debt advice in their advertisements. The OFT has already taken action to prevent misleading payday lending ads created to look like free debt advice from charities.
Consumers following the advice in these ads might take out no credit check loans thinking they were the recommended method of handling debt, when in fact they are costly and may be ineffective.
The OFT is continuing its investigation into the payday lending industry by visiting dozens of brick-and-mortar lenders to study their practices. Reputable lenders welcome this because they have nothing to hide. It is the less scrupulous providers that may find themselves on the other end of a request to change their practices or surrender their operating license.