26 June 2014
Payday loan firm Wonga used fake law firms to chase consumer debt, an investigation has found.
Initially led by the Office of Fair Trading (OFT) and passed onto the Financial Conduct Authority (FCA), the investigation found that Wonga sent letters to customers in arrears from non-existent law firms, threatening legal action. In some instances, Wonga also added charges to customers’ accounts to cover the administration fees associated with sending the letters.
As a result, Wonga has entered into an agreement with the FCA and will pay compensation of more than £2.6 million to around 45,000 customers for unfair and misleading debt collection practices.
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 took place between October 2008 and November 2010, during this time, Wonga sent communications to customers in arrears under the names ‘Chainey, D’Amato & Shannon’ and ‘Barker and Lowe Legal Recoveries’, leading customers to believe that their outstanding debt had been passed to a law firm, or other third party. Further legal action was threatened if the debt was not repaid.
Wonga is the UK’s biggest payday lender; in 2012 it made nearly four million loans to over one million customers. The agreement with the FCA says that 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 process will start by mid-July with compensation likely to be paid from the end of July.