Wonga to pay £2.6 million compensation for fake legal letters

The Financial Conduct Authority ('FCA') has ordered the UK’s biggest payday lending company, Wonga, to pay £2.6 million in compensation to consumers over misleading debt practices. Between October 2008 and November 2010, Wonga sent out letters to 44,556 customers claiming to be from law firms ‘Barker & Lowe’ and ‘Chainey, D’Amato & Shannon’. All the letters had in fact been sent by Wonga and the law firms named on the letterheads did not exist. The letters misled customers into thinking that their outstanding debts had been passed on to a law firm or other third party. In a statement from Wonga released yesterday, the company admits that the letters contained the ‘threat of adverse consequences if the debts were not repaid quickly. Charges were added to some customer accounts as a result of this practice’. The poor practice was initially uncovered by the former consumer credit regulator, the Office of Fair Trading and was picked up by the FCA in April this year after it become responsible for regulating the consumer credit industry.

The FCA’s director of supervision, Clive Adamson, said today, ‘Wonga’s misconduct was very serious because it had the effect of exacerbating an already difficult situation for circumstances 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’.

Consumer group Which? has also responded to yesterday’s announcements. Richard Lloyd, Which? executive director stated, ‘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’.

Tim Weller, Wonga’s interim boss, 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 due to start compensating customers from the end of July, including a flat rate £50 settlement to all who received the letters for the distress and inconvenience caused and a refund of charges associated with sending the letters.

Financial Conduct Authority to crack down on ‘logbook lenders’

 

The Financial Conduct Authority (‘FCA’) has called for ‘logbook lenders’ to ‘dramatically raise their standards’ if they want to continue trading. Logbook lenders supply loans that are secured against a borrower’s vehicle.

Stemming from research conducted between November and December 2013, the FCA has found evidence of ‘poor firm behaviour, including little or no affordability checks’, with some applicants even being encouraged to manipulate details of their income on application forms. The FCA also came across evidence indicating that consumers were being pressurised and put on the spot to take out a loan without being informed about the existence of the statutory cooling off period. In other cases, borrowers had not been made aware of the total costs involved and that missed repayments could lead to their vehicles eventually being repossessed.

 

The FCA also found that many consumers had little knowledge of the concept of a logbook loan and what it meant in terms of, for example, the ownership status of their vehicle. Being desperate for the loan, many consumers also failed to shop around and were found to focus more on weekly payment amounts than the total sum of what they had agreed to repay.

 

According to the FCA, logbook loans range in size from approximately £500 to £50,000 and are often used by vulnerable consumers in difficult circumstances who have exhausted other means of potential credit. The loans usually last for about six to 18 months, with a typical APR of 400% or higher.

 

Christopher Woolard, director of policy, risk and research at the FCA said, ‘People who use logbook loans are often in difficult circumstances with few other borrowing options. The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found’. Woolard continued, ‘Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action’.

 

Responding to the FCA’s statement and accompanying report, shadow minister for Competition and Consumer Affairs, Stella Creasy, said, ‘Time and again this government has been too slow in recognising and reacting to dangerous practices in the consumer credit market…This research makes a damning case to show that there’s more than one toxic type of company out there causing serious damage to the finances of families’.

The FCA took control of consumer credit matters from the Office of Fair Trading on 1 April 2014 and this week’s statement on logbook lenders forms part of a swathe of new rules and standards for the consumer credit industry to adhere to and signifies a new, firmer approach to regulating the sector.

Is the new London Rental Standard a ‘meaningless gimmick’?

Last month, Boris Johnson launched the London Rental Standard (‘LRS’) in a bid to improve the conditions faced by tenants in London’s sprawling private rental sector. The LRS is a voluntary set of minimum standards expected of landlords, managing agents and letting agents operating in London’s private rental market.

 

The scheme brings together seven landlord accreditation schemes under a single framework and has been drawn up following extensive consultations, including a three month public consultation between December 2012 and February 2013.

 

Certificates of accreditation will be awarded to landlords and letting organisations that meet a number of core requirements, attend a one-day course, sign a code of practice and agree to a declaration stating that they are fit and proper. Many of the common problems experienced by tenants (and already covered by legislation) are touched on in the scheme, including written rental agreements, the need for clarity regarding agency fees, protected deposits and repairs. According to the LRS, urgent repairs should ‘wherever possible…be dealt with within three working days of a landlord being notified’. Additionally, landlords ‘should always be contactable and must respond within a reasonable period of time’.

 

Extortionate agency fees and disproportionately high rental costs are not the only problems London’s tenants are faced with. High costs often bear no relation to the cramped, dingy homes left in poor condition many Londoners have to put up with. Kings Cross based letting agency ‘Relocate Me’ faced a media backlash this month after posting an advert featuring a single bed crammed into a kitchenette, along with a wardrobe (which blocked access to the front door) and a dining room. Described as a ‘modern studio apartment’ in Islington by the letting agent, the flat was on offer for £737 a month and has reportedly been snapped up by one, presumably desperate, tenant.

 

Announcing the new standards scheme, the Mayor of London, Boris Johnson, said, ‘With more of London’s workforce and young families living in rented homes, this growing sector is vital to meeting the capital’s housing needs and must not be overlooked. The standard aims to improve the experience of everyone involved, from landlord to tenant, with a clear set of good practice rules’.

 

However, Labour London Assembly member, Tom Copley, has criticised Boris Johnson for introducing a ‘meaningless gimmick’ and ‘wasting two years consulting on a voluntary standard that is not worth the paper it’s written on’. Mr Copley believes that the Mayor ‘should have been lobbying for government legislation to create longer tenancies as standard, caps on annual rent rises and a ban on letting agents’ fees for tenants’. Grainia Long, chief executive of the Chartered Institute of Housing, shares similar reservations. Ms Long hopes ‘that the voluntary nature of the scheme will not undermine its impact. Much work will need to be done to ensure it is not simply ignored by the worst offenders’.  

 A key shortcoming of the scheme is indeed the fact that it is voluntary. ‘Good’ landlords and agencies keen to enjoy the potential business benefits of being part of the scheme will be the ones applying for accreditation, while the ‘rogues’ in the sector are likely to steer well clear of it and continue to exploit prospective tenants desperate for a home in the capital.  Although a small step in the right direction, the LRS is not a failsafe solution for fixing the private rental market both in London and across the UK.