Wonga, leading Payday Lender hit by the FCA

Posted in News About Loans For People With Bad Credit

Britain’s best-known pay lender Wonga has been ordered to pay more than a total of £2.6M in compensation after it was found that they sent letters threatening legal action from fake law firms. The scandal was uncovered in 2011 by the former consumer credit regulator, the Office of Fair Trading after Wonga was asked to disclose information about its debt collection practices.

The City’s watch dog, Financial Conduct Authority (FCA) said the payday lender had been guilty of “unfair and misleading debt collection practices” after an investigation found that Wonga sent letters to customers from fake law firms between October 2008 and November 10, using the names of employees who in some cases still work for the company. The law firms were called “Chainey, D’Amato & Shannon” and “Barker and Lowe Legal Recoveries”. The letters have the subject of “Urgent message” and the letters begin with “We have been instructed by Wonga to recover from you a debt of £X …”

FCA also said that 45,000 customers would benefit and compensated, on an average about £50 – those customers are the ones who received letters threatening legal action over outstanding debts.

According to the regulator, the company was using this tactic to maximize the collection by unfairly increasing the pressure on their customers. The game plan was to make the customers believe that their outstanding debts had been already passed to a law firm or another third party, legally threatening them if the debt was not paid. In fact, the regulator said that neither of the two firms mentioned exist. Wonga also added charges to customers’ accounts to cover the administration fees associated with the sending of letters. It is a criminal offense for anyone to call themselves a solicitor or act as a solicitor if they are not one, but it is thought the offending letters and emails from the fake firms did not use the word solicitor.

“Wonga’s misconduct was very serious because it had the effect of exacerbating an already difficult situation for customers in arrears,” said Clive Adamson, Director of supervision at the FCA. “The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

Earlier this month it emerged that a founder of the company, Errol Damelin, had quit as a Director, just seven months after stepping down as Chief executive.

Tim Weller, Wonga’s Interim Chief Executive said, “I would also like to apologise to customers affected by our system errors. We fully accept the impact on customers was negative in many cases and our priority is to ensure we deal quickly and fairly with customers who’ve been impacted, again in conjunction with the FCA.”

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