Bridging Finance News

A controversial payday loan company has received 63 complaints for one of their recent television adverts, and has had the complaints upheld by the Advertising Standards Agency (ASA), who found that it was misleading and did not comply with the Consumer Credit (Advertisements).

Viewers complained that the ‘light hearted presentation’ of the ad was likely to mislead vulnerable consumers about the nature and implications of taking out a pay day loan.

Accompanied to cheerful background music, the ad showed a man who spoke as two different characters, having a conversation with himself. One half needed to borrow £70 immediately to tide him over until next Tuesday, at one point he says, “Of course, I could ask my bank…” as laughter plays in the background.

The other half plays the part of payday lender, Wonga, who says, “I can help, just visit my website.”

The man says: “Bet this is going to cost me an arm and a leg”, to which his alter-ego answers: “No, you can keep those sir. Seventy pounds for five days will cost you £9.22. Two clicks at Wonga.com will tell you all you need to know.”

Meanwhile text on screen stated: “£70 for 5 days = £9.22. Total repayable £79.22. Typical 2689% APR.”

Wonga responded to the complaints, saying that they said they took their branding and consumers perception of their service “very seriously” and had never received a complaint that a customer did not understand their pricing or terms.

The payday lender said that the average consumer was “not vulnerable” as many cash advances were done online and therefore customers would have “the mental ability to transact online” to obtain a loan from them.

Wonga also said the laughter in the ad was intended to “create a connection with those viewers who had found banks and their charges less than helpful or transparent”, and was only heard for “approximately two seconds”.

Although the payday lender said that it did not believe the ad was misleading, they said they were willing to amend it for future use.

However, the ASA found that the ad did not comply with Consumer Credit regulations as the size of the on-screen text that provided details of the APR was not large enough.

In the adjudication, the ASA stated: “The tone of the ad, which included light hearted background music, colourful imagery, laughter related to the concept of obtaining a loan from a bank, a seemingly casual conversation and a character that wore a split costume and had half a beard gave the general impression that the service offered was a trivial one that could be considered in a light hearted manner.

“We considered the ad did trivialise the nature of the service offered and gave a misleading impression to those who were likely to qualify for it, which could include vulnerable viewers who had money problems.”

The advertising watchdog ruled that the ad must not be shown again in its current form.

The ASA concluded: “We told Wonga to ensure their future marketing material was presented in such a way that it was not likely to mislead about the nature and implications of the product. We also told them to ensure their advertising complied with the relevant regulations.”

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A chartered surveyor and member of the Royal Institution of Chartered Surveyors has questioned the importance of the findings from a Nationwide report released last Friday.

The report revealed that London residents pay up to £20,000 more to live closer to a tube or train station.

The building society found that houses and flats within 500m of a train station carry a 7% premium compared to those further away, which amounts, approximately, to an extra £20,300.

The prices in the Greater London area appear to get progressively more expensive the closer they are to a station.

Average house prices were highest around the Circle line, reaching figures of nearly £500,000, and the least expensive were properties in the areas served by the Central line, only reaching a maximum price of £275,000.

David Tropp, a member of the Royal Institution of Chartered Surveyors, said he struggles to understand how reports like this can generalise on such a huge scale.

“I don’t think you can compare all of London in one report, take Clapham North for example, it is completely different to somewhere like Hampstead.

“You have to take diligence on each area as there are many factors that should be taken into account, especially for property investors, they should assess an area in terms of who you are going to target the property at.”

Although Mr Tropp criticises the report, he doesn’t think that property investors should completely dismiss the findings, and added: “The results seem a bit obvious really, but as a rule property investors should look at what an area offers, and if it is nearer to a transport link then of course it will attract people who need a convenient way to get to work.”

Around 600 million people use the Underground each year, according to Transport for London, and 34% of Londoners use either the National Rail or London Underground services to travel to work, compared to 8% of Great Britain.

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A scheme brought in at the beginning of 2009 to help homeowners facing repossession has had its funding cut under the new coalition government.

The Mortgage Rescue Scheme was devised under the previous Labour government to help tackle repossession problems worsened by the recession. It lets struggling homeowners sell their property to a council or housing association and remain living there as tenants.

Housing minister Grant Shapps confirmed that the government grant for each home bought under the scheme would be reduced, although the total kitty was unchanged.

The proportion of government funding for each home bought by a housing association will drop from 65% to 55%.

Mr Shapps defended the cuts, saying the scheme was being “refocused” and that the fall in funding for individual houses will enable more people to take part in the scheme.

He said: “The most effective thing the government can do for homeowners is to tackle the record deficit and avoid the need for rapid increases in interest rates.”

Figures show that since its launch a year and a half ago, the Mortgage Rescue Scheme has helped 629 households. Ministers originally projected that up to 6,000 homes could be helped by the scheme.

According to figures released at the end of March, a further 1,849 applications were “ongoing”.

Ben Smith, from sale and rent back firm DFB Housing Solutions, said that the difference in funding would have a “massive effect” on struggling homeowners.

He added: “With an LTV of 55%, many people won’t have the opportunity to get out of their situation. I think the reason why the scheme hasn’t been more successful is down to having the wrong LTV and not many people knowing about it.”

Government support schemes have been attributed for keeping the number of repossessions down, compared to the recession of the early 1990s.

Figures from the Council of Mortgage Lenders (CML) showed that the number of homes repossessed in the UK declined by 7.5% in the first quarter of 2010 to 9,300. 10,600 houses were repossessed in the last quarter of 2009.

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The Financial Services Authority (FSA) has secured £3.717 million in compensation for investors in an unauthorised collective investment scheme operated by Upton & Co. Accountants Limited.

A High Court ruling confirmed the immediate distribution of £3.717 million to investors on a pro rata basis. Upton has also agreed to make further monthly payments of £10,000 which will be returned to investors in due course.

The Wakefield based firm, which has never been authorised by the FSA, operated a collective investment scheme known as the “Currency Plan” promising investors high rates of return. The money was to be used to invest in foreign exchange markets. However, limited foreign exchange trading occurred and very little was ever returned in cash.

Darren Upton, a member of the Association of Chartered Certified Accountants, owned and controlled the firm.

Margaret Cole, director of Enforcement and Financial Crime, described the outcome as “fantastic”, saying: “It is so rare for victims of unauthorised businesses to get any money back because normally the money is misappropriated and victims of unauthorised firms are not protected by the Financial Services Compensation Scheme.

“But as we intervened early in the scheme’s life cycle we were able to recover a large proportion of the original amount invested. Normally the amount recovered – if any – is often just a few pence in the pound so securing this amount is a real coup.”

In February 2009 the FSA commenced an investigation into Upton and soon realised that the firm was carrying out unauthorised business. A month later, the FSA secured a High Court injunction to stop the activity and freeze the firm’s assets.

In March 2010 the FSA reached an agreement with Upton for the firm to pay compensation of £3.6 million immediately and a further £840,000 in monthly instalments.

Margaret Cole continued: “Operating a collective investment scheme is a serious business involving the management of a number of investments and requiring FSA authorisation. Upton had no business running one of these schemes and the firm risked millions of pounds of investors’ money – something you’d expect a firm of accountants to know better.”

A collective investment scheme enables a group of investors to pool their assets with a view to sharing the profits. Participants do not have day to day control over the management of the assets, something that is carried out by an FSA authorised operator. Upton was performing that function without approval.

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The Midlands Housing Association has collaborated with Martin Corbett to launch Derwent FM, a Facilities Management company. The new company plans to launch affordable housing schemes for the common man. Martin Corbett will own 25% in the new venture, while Centro Place investments and Derwent Living’s investment company will have 75%.

Martin Corbett has over 15 years of experience in this industry while Derwent Living has been managing and providing services to 11,000 homes. Derwent FM will function as a subsidiary company under the Derwent Living group of business and will be managed by Paul Wisher, Commercial Director of Derwent Living, Martin Corbett and Paul Casey, Director, Derwent Living Development.
Derwent FM will be focussing on the student accommodation market in the Midlands and the South.

Talking about this new venture, Paul Wisher said, “Our forecasts show that in six years, Derwent FM will be turning over £20 million to £25 million, which means there will be a large amount of profit to go back to support the core social housing part of the business.”

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