Payday lender Wonga is under investigation by the City watchdog the Financial Conduct Authority (FCA) for posing as law firms and sending letters to customers in arrears.
Talking to the BBC, Wonga UK director Tessa Cook described the allegations as “not a proud day for Wonga, and I’d like to apologise”.
The letters threatened legal action over unpaid debts to the loan company and even added the cost of the letter to the customer’s account.
The FCA has stated that 45,000 customers have been subjected to the company’s intimidation tactics.
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.
“The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”
This incident is concentrated between 2008 and 2010, and the company voluntarily stopped its practices and co-operated with the FCA.
But as the FCA only recently took over the regulation of payday lenders from the Office of Fair Trading (OFT), it is unable to fine Wonga and pursue a criminal investigation. Those customers affected will instead receive £50 each.
The revelation has prompted outcries from campaigners and politicians. Stella Creasy, Labour MP for Walthamstow, described Wonga’s apology as “not good enough”.
She added, “[The] news that Wonga were sending fake solicitor letters to cash strapped customers who couldn’t afford their fees to frighten them – and charging them for these – is further proof of the need for Britain to rid itself of these legal loan sharks.”
Cook stated that the business was in its early start-up days when this illegal practice was underway, adding that “the company has now matured” and will look to learn from its mistakes.
In April, the FCA launched an investigation into how payday loan companies were retrieving their debt from customers. This came as research suggested Britain’s high streets have one payday loan shop for every seven banks.
The payday loan industry, which relies on high rates of interest repayments, has been under increasing criticism as emerging evidence suggests serious foul play between its biggest competitors – prompting a committee of MPs to interview leading bosses last year.
Photo source: Taber Andrew Bain via Flickr