The short-term lender Wonga hit the headlines recently after it was revealed that the company had invented non-existent solicitors, and then written to debtors under those pseudonyms to demand payment.
Wonga – already battling against the negative perceptions that arise from payday loans’ three- and four-figure APR interest rates – was investigated by the OFT, who then handed over to the FCA.
Upon conclusion of the inquiry, the FCA announced that an estimated 45,000 customers of Wonga could be entitled to receive a redress payment.
This is expected to cost Wonga about £2.6 million in total for misleading and unfair debt collection procedures that were used several years ago.
Wonga say they have already stopped using such practices – and the last example dates from November 2010 – but the news has of course led to negative publicity in the media.
Clive Adamson, director of supervision at the FCA, explains why Wonga’s very nature makes the offence greater.
“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.”
But he adds that lenders in particular have an obligation to act fairly towards customers who encounter problems meeting their loan repayments.
In Wonga’s case, such customers were contacted with a letter claiming to be from Barker and Lowe Legal Recoveries or Chainey, D’Amato & Shannon, and threatening legal action if prompt payment was not made.
The redress scheme should see some people receive a cash payment; however, those who are still repaying their loans to Wonga could find that they simply have a fixed sum discounted from their outstanding balance.