Consumer Credit Counselling Service and NUS voice concerns as payday loans company aims to attract students to its 4,214% APR lending service
Loan company Wonga has been accused of being "cynical" and "predatory" after suggesting students take out high cost short-term loans to buy plane tickets to the Canary Islands.
The company, which offers small loans designed to be taken out over short periods of time, makes the suggestion in a marketing page on its website where it suggests its loans may have advantages over official student loans. However, it does not mention that while it charges an annual interest rate of 4,214%, the current student loan rate is just 1.5%.
On the site it compares its high cost deals with the official student loans, saying: "Student loans are usually far cheaper than your standard personal loan. But there can be a downside – you potentially end up borrowing more than you need, while a nasty debt accumulates for your graduation that could take years to repay."
While it admits "with a Wonga loan the interest rate is much higher", it suggests they are more flexible, saying "you only borrow it for a month and pay the loan back on a date that suits".
It adds: "When your mates tell you about finding a deal on plane tickets to the Canary Islands, you've got some options. Maybe you don't have the money to pay for the whole thing now, but you will when you get your wages at the end of the week. Enter, Wonga!" But borrowing, for example, £300 for a month from Wonga would cost £95.89 in interest and charges.
The site goes on to say: "The problem with student loans is that they potentially encourage you to live beyond your means … Taking on a student loan throws you into the deep end of money management. While you generally don't have to start paying it back until after you earn £15,000, it's still debt you owe that can play a significant role in your credit history."
The National Union of Students (NUS) said the targeting of financially vulnerable students was "incredibly irresponsible" and called for Wonga to withdraw the information.
Pete Mercer, NUS vice-president (Welfare), said: "Students should think long and hard before choosing payday loans over any other form of borrowing, including government-backed student loans."
He added: "Wonga should immediately withdraw this predatory marketing which contains information that appears to be inaccurate, and is aimed at financially vulnerable young people."
Una Farrell of debt advice charity Consumer Credit Counselling Service said she was concerned the company was targeting young people who were maybe getting to grips with finance for the first time. "It's pretty cynical," she said.
Wonga spokesman John Moorwood said the company did not actively target students, and they represented "a tiny fraction" of its customers.
"The two web pages in question are examples of the many search engine optimisation (SEO) pages on our site, which is essentially content covering all aspects of credit designed to help our particular option appear in general internet searches for loans or credit," he said.
"As for the content of those pages, we merely highlight the risk and high cost of unauthorised overdraft charges, plus the potential trap of long-term debt versus a short-term solution."
Morewood said students would need to have a regular income to be considered for a loan. "Our decisions about any students who do choose to apply are based on the same rigorous checks we perform on all applications, but we do not believe working, adult students should be excluded from a popular credit option."
Earlier this week Wonga and other short-term high cost lenders were excluded from big sponsorship deals by Transport for London. The move follows bad publicity of Wonga's sponsorship of travel on New Year's Eve 2010 when the marketing material failed to include the lender's APR.
Graeme Craig, commercial development director at TfL, said: "TfL is currently working on a new sponsorship policy which will set out the type of companies from which TfL would, and would not, accept corporate sponsorship in the future. TfL has no plans for corporate sponsorship that involve payday loan companies."
Wonga has also attracted criticism from parents for advertising during children's programmes on Saturday mornings. Sarah Ashwin said her children were watching Milkshake on Channel 5 when an advert for Wonga was broadcast among adverts for children's toys.
Describing the attempt to get "hard-pressed parents" to take out loans with an interest rate of 4,214% as "totally cycnical", she said: "This is the kind of figure likely to propel the most disadvantaged families into the arms of the debt collectors, and perhaps even into homelessness."