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.