Wonga chased debt with fake lawyers, says FCA

The UK’s largest payday lender, Wonga, must pay £2.6m in compensation after sending letters from non-existent law firms to customers in arrears between October 2008 and November 2010.

The letters threatened legal action, but the law firms were false, and in some cases, Wonga added fees for these letters to customers' accounts. The intention was to make customers in arrears believe that their outstanding debt had been passed to a law firm, with legal action threatened if the debt was not paid. A tactic used to maximise collections by piling the pressure on customers, the regulator said.

The City watchdog, the Financial Conduct Authority (FCA), said 45,000 customers would be compensated. Wonga has apologised and said the tactic ended nearly four years ago.

"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 theFCA. "The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments."

Latest figures show that the company made nearly four million loans to one million customers in 2012.

As this happened before the FCA took over the regulation of payday lenders, it is unable to fine Wonga. It also said there would be no criminal investigation as it wanted to set up a compensation scheme as quickly as possible and a criminal probe would take time. Those who overpaid will be compensated and those with underpaid debt will have it cancelled.

Further information is available here.