Wonga must pay £2.6 million for using fake law firms

Wonga must pay £2.6 million for using fake law firms

Payday lender Wonga has been ordered to pay £2.6 million compensation for chasing debt using fake law firms.

An investigation by the Office of Fair Trading (OFT) found that Wonga had sent letters to customers in arrears threatening legal action to recover the debt, but the law firms were false – they did not exist.  Some customers even had additional fees added to their accounts.

Action

The Financial Conduct Authority (FCA) took over regulation of payday lenders in April and has taken action on the findings of the OFT investigation.

FCA director of supervision, Clive Adamson, said: “Wonga’s misconduct was very serious because it had the effect of exacerbating and already difficult situation for customers in arrears.  The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

Legal action

Wonga wanted to make customers in arrears believe their outstanding debt had been transferred to a law firm with legal action to follow if they did not pay what they owed.  Two fake names were used: Chainey, D’Amato & Shannon and Barker & Lowe Legal Recoveries.

The company was using the tactic between October 2008 and November 2010 to maximise collections by piling pressure on customers said the regulators.

No power

But because the letters were sent before they became the regulator, the FCA have no power to fine Wonga.

There will also be no criminal investigation as the FCA want to set up a compensation scheme quickly and a criminal probe would take time.

Offer

Wonga is to start contacting affected customers in July to offer compensation with the money likely to be paid by the end of the month.  It will either be in the form of cash or a reduction in their outstanding debt.

“We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result,” said Tim Weller, interim chief executive of Wonga.  “The practice was unacceptable and we voluntarily ceased it four years ago.”

Campaigner

Labour MP Stella Creasey is a campaigner against payday loans and she has questioned the decision not to go for a criminal investigation.

In a query on Twitter she said: “Why, in those instances where customers of Wonga were charged debt collection fees for these letters, is that not a police matter?”

Bad practice

Richard Lloyd, executive director of Which?, added: “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.  It is right the FCA is taking a tougher line on irresponsible lending and it does not get much more irresponsible than this.”

The FCA believes 45,000 Wonga customers will receive compensation and say that anyone who may have changed address in the intervening period should contact the firm with their new details.

Biggest

Wonga is the biggest payday loan company in the UK and in 2012 made nearly four million loans to one million customers.

Together with the rest of the payday loan industry, it is currently subject to a full scale probe of what the OFT described as ‘deep-rooted problems’.  The findings of the investigation are expected later this year.