Payday lender accused of dragging industry to 'new low' with 'cynical' Christmas advert

Marketing for 535% APR loan depicted smiling child wearing a Christmas cracker hat with caption: 'It wouldn't be Christmas without ... the look on her face ... decorating grandad ... and visiting loved ones.'

Rachel Reeves, chair of the Commons business committee called on the City watchdog to investigate the payday lender (Shutterstock)

Provident Financial has been accused of dragging the payday lending industry to a “new low” by sending an advert for high-cost credit featuring faces of children and babies that was sent to financially vulnerable people before Christmas.

Rachel Reeves, chair of the Commons business committee called on the City watchdog to investigate the payday lender's “cynical” marketing which offered loans at an APR of 535.3 per cent.

Provident, which owns Vanquis Bank and Moneybarn, sent a mailshot depicting a smiling child wearing a Christmas cracker hat, children decorating their grandfather with tinsel, and people hugging with the words: “It wouldn't be Christmas without ... the look on her face ... decorating grandad ... and visiting loved ones.”

In a letter to Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), Ms Reeves expressed concern “about the behaviour of credit provider Provident which cynically used the intense pressure on household finances over Christmas to target vulnerable customers”.

“I believe this was a cynical tactic to exploit vulnerable people who struggle financially at the best of times, let alone over the festive season,” Ms Reeves wrote.

“Provident tried to tug on the people's heartstrings with a deliberately emotionally-loaded message to urge them to take out a loan at a tip-off rate of interest.“

The Advertsing Standards Authority (ASA) last week ruled that the advert was irresponsible and should not be used again.

Ms Reeves welcomed that decision but said it did not go far enough to tackle this “grossly irresponsible behaviour when it comes to offering loans“. The ASA, which is funded by advertisers, does not have the power to fine companies.

Last year, Provident was ordered to pay a £2m fine and £169m to 1.2 million Vanquis customers for selling an add-on product called a Repayment Option Plan (ROP) which was not fully explained.

The FCA has attempted to rein in providers of high-cost credit with rules capping payday loan interest rates charges in 2015. Last month, the regulator said providers must compensate consumers who had been missold payday loans, even in instances where no complaint has been made.

But concerns remain that cash-strapped borrowers are turning to payday loans and other expensive forms of credit in order to make ends meet.

Last week, Bank of England data showed that credit card debt had risen 7.1 per cent in the year to November and now stands at £72.5bn.

A representative from Provident said: “The ASA informed us of a complaint made about the advertisement and we subsequently removed it from circulation, prior to the ASA's final ruling.

“Provident also provided assurances to the ASA that such content will not be used in any further marketing materials."