Wonga to pay £2.6m compensation for fake debt firm letters

FCA orders payday lender to compensate 45,000 customers after it sent threatening letters from non-existent companies



Britain's best-known payday lender, Wonga, has been ordered to pay more than £2.6m compensation after it was found to have sent threatening letters to customers from non-existent law firms.

The Financial Conduct Authority (FCA) said Wonga had been guilty of "unfair and misleading debt collection practices". It said the firm would be compensating around 45,000 customers.

However, the firm escaped a potential financial penalty or worse because the FCA only started policing payday lenders in April 2014, and these practices occurred while the now-defunct Office of Fair Trading (OFT) was in charge.

Between October 2008 and November 2010, Wonga sent letters 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 another third party. Further legal action was threatened if the debt was not repaid.

In fact, said the regulator, neither Chainey D'Amato & Shannon nor Barker & Lowe existed, Wonga was using this tactic "to maximise collections by piling the pressure on customers".

In some instances, Wonga also added charges to customers' accounts to cover the administration fees associated with sending the letters.

Wonga is the UK's biggest payday lender; in 2012 it made nearly 4m loans to more than 1 million customers.

The poor practice was uncovered by the former consumer credit regulator, the OFT.

This is not the first time the firm has been in trouble for its debt collection practices. In 2012 the OFT told it to clean up its act after it sent letters to customers accusing them of fraud.

The agreement with the FCA states that the lender must identify and pay redress to all affected customers. Some customers will receive cash, while others will likely have their outstanding balance reduced. The regulator has appointed a "skilled person" to oversee the process and ensure affected customers get what they are owed.

The process will start by mid-July, with compensation likely to be paid from the end of July. It is thought that up to 45,000 customers could between them receive a total of more than £2.6m.

The compensation will include a flat-rate £50 settlement offer to all 45,000 customers sent letters, to reflect the distress and inconvenience they have suffered. They will also receive a refund of the charges incurred for being referred to Barker & Lowe or Chainey D'Amato, which has been estimated at £400,000, and will be provided to customers who paid these fees. In some cases there may be extra compensation payments dependent on individual circumstances.

To compound its woes, in April 2014 the firm also reported to the FCA that it had discovered "system errors". These related to the calculation of the amount owing on customer accounts where fees, balance adjustments or the timing used to calculate interest were not consistently applied.

Wonga has apologised and said it was taking action to ensure customers are appropriately compensated.

Tim Weller, interim Wonga chief executive, 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."

http://www.theguardian.com/money/2014/jun/25/wonga-compensation-bill-unfair-misleading-practices

Voluntarily ceased it? They voluntarily started it!