News In Focus
Payday lender Wonga to compensate for fake lawyers' letters
The UK’s biggest payday lender is to pay out compensation of over £2.6m to around 45,000 customers for unfair and misleading debt collection practices, following a settlement with the Financial Conduct Authority (FCA).
In an investigation begun by the Office of Fair Trading (OFT) and taken forward by the FCA, Wonga was found to have sent letters to customers in arrears from non-existent law firms, threatening legal action. In some instances, it also added charges to customers’ accounts to cover the administration fees associated with sending the letters.
The failings took place between October 2008 and November 2010. Wonga, and other companies within its group, used unfair debt collection practices which put customers under great pressure to make loan repayments that many could not afford.
During this time, Wonga sent communications to customers in arrears under the fictitious 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.
Who gets what
The FCA is unable to impose a fine because the conduct took place before it took over the regulation of payday lenders. However, under the agreement with Wonga:
- 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 FCA has appointed a skilled person to oversee the process and ensure that 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.
Customers do not need to take any action: Wonga will be contacting those that have been affected by these issues shortly.
Compensation will comprise:
- a refund of charges on referral to Barker and Lowe/Chainey D’Amato which has been estimated at £400,000 and will be provided to customers who paid these fees;
- a flat rate £50 settlement offer to all 45,000 customers sent letters for distress and inconvenience;
- in some cases, an additional compensation payment dependent on individual circumstances.
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.”
In April 2014, Wonga also reported to the FCA that it had discovered system errors relating 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.
A Law Society of Scotland spokesperson said the case highlighted the importance of taking commonsense precautions. He added: “Anyone concerned about the identity of a Scottish legal firm or individual solicitor should check if they are listed in the Society’s Find a Solicitor directory at www.lawscot.org.uk....
“The Society is responsible for regulating Scottish solicitors and has an important duty towards the public interest. We are also committed to protecting solicitors’ reputation for excellence and working to the highest professional standards.”