Behind the promises of fast cash, the cost of borrowing from this company is huge. If you borrow $100 from Payday Advance, you’ll owe $147.29 a week later. Miss the repayment by a week and the debt could grow to $210. For someone struggling to find $100, these costs could be crippling.

Advertising loans like this as easy, problem-free money will hopefully be stopped when responsible lending legislation takes effect next year. A code fleshing out lenders’ obligations under the new regime is being drafted. Consumer wants it to send a clear message - ads promoting high-cost, short-term loans as safe, easy credit aren’t responsible.

Pay day market

Pay day loans are short-term cash loans typically sold to people who can’t borrow anywhere else. They are expensive, especially if you end up in arrears. They can trap customers, invariably among the poorest, in escalating debt.

Advertising these loans as problem-free is common. HandyCASH, a brand of First Stop Money, declares “there’s no chance of a payday loan growing and interest building up to significant levels, as long as you’re dealing with a responsible lender like handyCASH!”. The reality is a $400 loan grows to $509 in two weeks.

“Teaser” rates

The World Bank says advertising low starting ”teaser” interest rates is unfair. Yet it’s alive here. The websites of affiliated pay day lenders Just Cash and Ferratum promise zero interest and no fees on your first loan. But if you borrow again, from either company, the loan costs: $400 borrowed for 14 days becomes $510. And it’s easy to borrow again - by text.

And if you miss repayments there could be fees and interest – even if you’re a first-time borrower.

Frivolous cash

Pay day lenders promote loans for non-essential expenses, in effect suggesting their customers take unnecessary financial risks.

Cash Train, owned by First Stop Money, shows on it website how cartoon characters spent their loan. Some characters used their loan on unavoidable expenses, like getting their car fixed. Others booked a restaurant or concert tickets.

Following the money

Some tactics used to lure borrowers have been outlawed in the UK, which has responsible lending obligations.

Several pay day lenders are affiliated with UK companies. Comparing the websites shows advertising is more irresponsible here.

JustCash and Ferratum are branches of Finnish company Ferratum, which operates in the UK. Unlike New Zealand, the UK website for Ferratum doesn’t make offers of no interest, no fees.

The UK is also clamping down on ads claiming pay day loans are easy money.

In July, the Advertising Standards Authority banned an ad promoting a "worry-free" attitude to a short-term loan. The ad was included in an email sent to existing customers on their birthday.

The authority stated: "We concluded that the email was irresponsible because it encouraged taking a short-term loan for frivolous spending and promoted the process of borrowing as trivial and without responsibility.”

We say

We want the Responsible Lending Code to make clear credit advertising is irresponsible if it:

• implies high-cost short-term loans are an easy, problem-free credit option
• has teaser interest rates
• promotes high-cost, short-term loans for non-essential spending

Get involved

If you see an irresponsible ad about lending, let us know. Send us a copy and we’ll post examples on our website.

by Susan Guthrie