Britain’s most famous payday lender, Wonga, was ordered to pay more than Â£ 2.6million in compensation after sending threatening letters to clients of non-existent law firms.
The Financial Conduct Authority (FCA) said Wonga was guilty of “unfair and deceptive debt collection practices” after it emerged that the lender had set up bogus law firms using the names of employees who in some cases still work for the company. The regulator said the company would compensate around 45,000 customers who received the letters, which threatened legal action for the unpaid debts.
However, the company escaped a potential financial penalty or worse because the FCA didn’t start monitoring payday lenders until April 2014, and these practices took place while the former Office of Fair Trading ( OFT) was in charge.
Between October 2008 and November 2010, Wonga sent letters to delinquent clients under the names of Chainey D’Amato & Shannon and Barker & Lowe Legal Recoveries, which led clients to believe that their unpaid debt had been transferred to a law firm or other third party. Legal action was threatened if the debt was not repaid. The communications were usually titled âurgent messageâ and began: âWe have been instructed by Wonga to collect from you a debt of Â£ Xâ¦â
In fact, the regulator said, neither Chainey D’Amato & Shannon nor Barker & Lowe existed. Wonga used this tactic “to maximize [its] by unfairly increasing the pressure on customers, âhe added. In some cases, Wonga has also added fees to customer accounts to cover administrative costs associated with sending the letters. a lawyer if they are not, but it is believed that the incriminating letters and emails from bogus companies did not use the word lawyer.
Wonga, well known for its television commercials featuring elderly puppets, is the UK’s largest payday lender; in 2012, it granted nearly four million loans to over one million customers.
Earlier this month, it emerged that a founder of the company, Errol Damelin, had resigned as director, just seven months after stepping down as CEO.
To compound the company’s problems, it was also revealed that Wonga will have to pay compensation to many current and former clients after discovering that “system errors” caused some people to miscalculate balances. As a result, nearly 200,000 customers overpaid Wonga, the majority by less than Â£ 5, the company said. This happened over a period of several years, although “more” have underpaid and will not be asked to reimburse the shortfall, a spokesperson said.
The use of bogus law firms was discovered by the former consumer credit regulator, OFT, in 2011, after Wonga was asked to disclose information about its debt collection practices.
This is not the first time that the company has struggled with its debt collection activities. In 2012, the OFT told him to clean up his act after sending letters to clients accusing them of fraud.
The agreement with the FCA states that the lender must identify and pay relief to all affected customers. Some customers will receive cash, while others will likely have their outstanding balance reduced. The regulator has appointed a “qualified person” to oversee the process and ensure that customers get what they are owed.
Regarding the threatening correspondence compensation, a lump sum settlement offer of Â£ 50 will be offered to the 44,556 courier customers, to reflect the distress and inconvenience they have suffered. Some will also receive reimbursement for costs incurred in being referred to Barker & Lowe or Chainey D’Amato, which have been estimated at Â£ 400,000, and will be provided to clients who have paid these costs. In some cases, additional compensation may be paid depending on individual circumstances.
When customers overpay Wonga, it will be refunded with interest, although the 8% rate – consistent with the rate used by the Financial Ombudsman Service, the company said – contrasts sharply with the “representative” APR. of 5,853% that the lender charges, as shown on its website.
The process will start in mid-July and compensation is expected to be paid from the end of July. Wonga also revealed that some customers’ credit scores “may have been affected” by system errors.
Clive Adamson, Director of Supervision at FCA, said: âWonga’s misconduct was very serious as it made an already difficult situation worse for customers in arrears. We are delighted that Wonga has worked with us to make things right for their clients. and ensure that these historic practices are truly a thing of the past. “
Tim Weller, Interim Managing Director of Wonga, said: âThis is not the proudest day in Wonga’s historyâ¦ We would like to extend our sincere apologies to anyone affected by the historic collection activity. of debts and for any distress caused as a result. The practice has been unacceptable and we voluntarily stopped it almost four years ago. “
The company said that “everyone directly involved in these practices is no longer with the company and has not been here for some time.” He revealed that some of the names used to create the bogus law firms “were people at the time who were in the business … In some cases they are still in the business but have no responsibility whatsoever. this regard”.
Weller added, “I would also like to apologize to customers affected by our system errors. We fully accept that the impact on customers has been negative in many cases and our priority is to make sure we deal with it promptly and fairly. customers who have been affected, again in collaboration with the FCA.
Martin Lewis, founder of the consumer website MoneySavingExpert.com, said he welcomed the action taken, adding: people who are already struggling. “
It seems some keen-eyed customers may have scolded Wonga’s tactics years ago; a MoneySavingExpert article from February 2010 says, “I got an email from Wonga’s email address saying they are Barker & Lowe, but when I wentogle their number and name, nothing was found. I just wondered if anyone had heard of them or if my suspicions were valid, that it’s just Wonga’s own made-up business to try to scare people a bit. “