By Angelique Ruzicka, editor, Justmoney
Wonga in the United Kingdom has been slapped on the wrist by the Financial Conduct Authority (FCA) and ordered to pay compensation of £2.6m (over R46 million) to 45,000 customers for sending fake lawyers letters that demanded payment for outstanding loans.
Yesterday Kevin Hurwitz, CEO of Wonga’s South African business, was quick to make assurances and distanced the local business: “The issues announced today around these historical practices and system errors are limited to Wonga UK. The South African business operates as a separate business within the Wonga Group with dedicated systems, technology and teams. However, as a precautionary measure the South African team is carrying out a thorough and ongoing review of its local business.”
The probe into the UK business was initially conducted by the Office of Fair Trading (OFT) and then taken on by the FCA. The FCA found that Wonga had sent letters to customers that were in arrears from non-existent law firms, threatening legal action. The payday lender had also added charges to customers’ accounts to cover the administration fees associated with sending the letters.
“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 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.”
The FCA said these failings occurred between October 2008 and November 2010. Other companies within the Wonga group also made use of unfair debt collection practices, which put customers under pressure to make loan repayments they couldn’t afford.
The lender sent out letters to customers in arrears from “Chainey, D’Amato & Shannon” and “Barker and Lowe Legal Recoveries”, but these firms didn’t in fact exist.
The UK lender has come under fire from many commentators including the Church of England, particularly for charging high interest rates. Its fraudulent letters have generated much scorn from those in the personal finance industry.
Martin Lewis, founder of MoneySavingExpert.com said: “It just shows that while Wonga hires expensive marketing, PR and public affairs consultants to try to position itself as ‘the good guys in a bad industry’, it’s all a sham. Using lawyers as fake as its puppets, then having the stomach to charge people for it is a thuggish tactic, aimed at scaring and intimidating people who are already struggling.”
Richard Lloyd of product review website Which? said the payday lender ‘deserved to have the book thrown at it.’
A loophole in the system meant that Wonga didn’t receive a fine for its conduct.