Wonga to pay compensation after sending fake letters to customers

June 30, 2014
By Lucy Palmer-Richeson

Britain’s biggest payday lender, Wonga, has been ordered to pay millions of pounds in compensation to 45,000 customers after sending fake letters from non-existent law firms threatening legal action.

An investigation by the Financial Conduct Authority (FCA) found that Wonga sent letters to customers in arrears from fake law firms ‘Chainey, D’Amato & Shannon’ and ‘Barker and Lowe Legal Recoveries’. In some instances, Wonga added administration fees for the letters to customers’ accounts.

The FCA determined that this tactic added unnecessary pressure on customers to pay back amounts they could not afford.

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.

“The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

These practices, which involved Wonga and other companies within its group, occurred between October 2008 and November 2010, and were uncovered by the Office of Fair Trading (OFT) back in 2011. Because it happened before the FCA took over regulation of payday lenders in April, the FCA is unable to impose a fine. However, it has demanded that Wonga start contacting customers in July to offer £2.6min compensation, which should be paid by the end of the month, either in cash or by reducing the outstanding debt owed.

Wonga’s interim CEO Tim Weller 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.

“We will learn from these mistakes and continue working with the FCA to build a better Wonga for the benefit of our customers. We’re strengthening our internal controls and systems and now have almost 1,000 people around the world, who are working hard to serve the demand for short-term credit in the most responsible way possible.”

Labour MP Stella Creasy, who has campaigned against payday loans, claimed today that Wonga should face criminal charges for their harassing tactics.

“What they have admitted to doing is not only bad practise, but may also be illegal and the police should be involved in this.