Outrage after regulators reveal Wonga pretended to be lawyers to scare 45,000 customers into paying up
- Charged customers an admin fee for sending out the letters from imaginary law firms
- Compensation will be paid to 45,000 customers
- Made up law firms were Chainey, D’Amato & Shannon and Lowe Legal Recoveries
Wonga sent letters to thousands of its customers from non-existent law firms threatening them with legal action, the financial watchdog revealed today.
The UK’s biggest lender is to pay £2.6million in compensation to customers for making up the law firms to pressure debtors into paying up.
It sent bogus letters from made up law firms ‘Chainey, D’Amato & Shannon’ and Lowe Legal Recoveries’ to mislead customers into believing their outstanding debt had been passed to lawyers.
Putting it right: Wonga will be giving out around £2.6million to customers in compensation
Further legal action was threatened if the debt was not repaid. To add insult to injury, Wonga then added charges to customers’ accounts to cover the administration fees associated with sending the letters.
The move will have meant hard-pressed customers spiralling even further into debt.
Wonga will pay the compensation to around 45,000 customers for ‘unfair and misleading debt collection practices’, following an investigation begun by the Office of Fair Trading and taken forward by the Financial Conduct Authority.
Clive Adamson, director of supervision at the FCA, said: ‘Wonga’s misconduct was very serious because it had the effect of exacerbating an already difficult situation for customers in arrears. We are pleased that Wonga has been working with us to put matters right for its customers and to ensure that these historical practices are truly a thing of the past.
‘The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.’
The failings, which took place between October 2008 and November 2010, saw Wonga, and other companies within its group, use unfair debt collection practices which put customers under great pressure to make loan repayments that many could not afford.
The agreement with the FCA says: ‘Wonga must identify and pay redress to all affected customers. While some customers will receive cash, others will likely have their outstanding balance reduced.’
The FCA has appointed a skilled person to oversee the process and ensure that affected customers get what they are owed.
Tim Weller, interim Wonga CEO, said: ‘We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result.
‘The practice was unacceptable and we voluntarily ceased it nearly four years ago.’
Wonga is the UK’s biggest payday loan company. It made nearly four million loans to over one million customers in 2012.
Straight talking money? The regulator revealed Wonga invented law firms
In April 2014, Wonga also reported to the FCA that it had discovered system errors relating to the calculation of the amount owing on customer accounts where fees, balance adjustments or the timing used to calculate interest were not consistently applied.
As a result, just under 200,000 customers overpaid the company, the majority by less than £5, while a greater number underpaid.
Wonga will now contact any customers who overpaid as a result of these system errors to offer appropriate compensation. The company will not be seeking repayment from anyone who underpaid.
Mike O’Connor, chief executive of StepChange Debt Charity, said: ‘For too long payday lenders have subjected consumers to unfair, misleading and distressing practices and today’s announcement represents a victory for a small number of those consumers.
‘It’s time the payday loan industry entered the 21st Century in terms of treating customers fairly. If they cannot, they should leave the market, or be pushed out of it.
‘I hope this will be the first of many similar actions as the FCA continues its efforts to clean up the payday lending industry and create a short term credit market that meets consumers’ needs, but crucially treats those in financial difficulty fairly.’
Richard Lloyd, Which? executive director added: ‘It’s right the Financial Conduct Authority is taking a tougher line on irresponsible lending and it doesn’t get much more irresponsible than this. It’s a shocking new low for the payday industry that is already dogged by bad practice and Wonga deserves to have the book thrown at it.
‘The FCA must now also clamp down on excessive fees and charges, starting with default fees charged by some payday lenders, to show it is serious about getting a fairer deal for borrowers.’