A television advert for the payday loans company Wonga has been banned for implying the 5853% interest rate was "irrelevant".
The Advertising Standards Authority (ASA) agreed with 31 complainants who claimed the ad confused viewers about the applicable interest rate on a Wonga loan, implied that the representative APR was irrelevant to a short-term loan and was irresponsible because it encouraged consumers to disregard the representative APR and thereby trivialised the decision to take out a short-term loan.
The advert featured a conversation between two puppets, who said: "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."
Wonga said its objective had been to transparently explain the total "true" cost of a short-term Wonga loan. The company argued that it was not 'fair' or 'reasonable' to view the advert as confusing.
The company noted that it was required to include both the annual interest rate and the representative APR in the ad and said it "regretted that this may have confused or misled some viewers".
Upholding the complaints, the ASA said it understood that the ad had been intended to clarify the costs of a Wonga loan.
It said: "Whilst we acknowledged that viewers taking out and repaying the loan within the stated time period would not repay 5853% of the loan, we were nevertheless concerned that viewers would be left without a clear understanding of how the information in the on-screen text could be applied to a Wonga loan, given the ad's assertion that the representative APR was not indicative of the cost of the loan."
"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."
The ASA also found that the representative example, including the representative APR, was not sufficiently prominent in the ad and that the ad irresponsibly encouraged viewers to disregard the representative APR.
It ruled that the ad must not appear again in its current form.
Citizens Advice chief executive Gillian Guy said: "Payday lenders should not be pulling the wool over customers' eyes with misleading adverts.
"People need to know the cost of a loan so they can make an informed decision on whether they can actually afford to pay it back. All too often what appears to be a quick fix with a payday loan turns into a long-term debt nightmare.
"Glamorous and comical adverts mask the harsh reality of life in debt and it's important that when ads fall short of standards that the ASA takes appropriate action, as it has done today.
"Citizens Advice has been urging people to report irresponsible and misleading payday loan advertising. As a result one advert has already been removed and another seven complaints are with the ASA at the moment."
Additional reporting by the Press Association.