Online lender Wonga has been ordered to repay £2.6m to customers by the Financial Conduct Authority for “unfair and misleading debt collection practices”.
Wonga has “entered an agreement” with the FCA to pay out over £2.6m in compensation to around 45,000 customers after it was found to have “sent letters to customers in arrears from non-existent law firms, threatening legal action”.
The company was also found to have added charges to customers’ accounts to cover the administration fees associated with sending the letters.
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.”
Between October 2008 and November 2010 Wonga, and other companies within its group, sent letters to customers from “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, despite neither law firm existing.
The poor practice was uncovered by the former consumer credit regulator, the OFT, in 2011 in response to formal Notices requiring Wonga to disclose certain information about its debt collection practices.
Wonga has stated it expects to complete repayments by the end of July.
Last week, Wonga co-founder and executive chairman Errol Damelin stepped down from the board after an initial announcement at the end of March.
On 22 May, the company announced its chief executive Niall Wass had quit and would “leave the business in the next few weeks to take a position at another company”.
Wonga did not explain why Wass was quitting after only seven months as CEO, stating he had “agreed with the board that he will stay for a handover period to ensure a smooth transition of duties”.