Wonga to pay £2.6 million compensation to customers sent fake legal letters

Wonga admitted it sent 45,000 customers letters from fake law firms. Credit: Wonga

ITV News Business Editor Joel Hills reports:

Wonga, Britain's biggest payday lender, is facing a £2.6 million compensation bill for sending out fake legal letters to try and pressurise 45,000 customers who were struggling to pay back their loans.

The firm sent out letters from 'Barker & Lowe' and 'Chainey, D'Amato and Shannon' - fictitious law firms named after staff at its office who were apparently unaware of the practice.

With slogans like "no hidden charges" and "no nasty surprises" in adverts featuring clay models of elderly characters, Wonga has always claimed to be more transparent and responsible than its competitors.

It was forced to admit that this was "not its proudest day" as it issued a humbling apology to its customers.

The firm stressed that the practices exposed today, which took place between October 2008 and November 2010 were "firmly in the past" and "have no place" in its business today.

It said that it since the letters were sent it has undergone the transition from a small start-up to a "mature, responsible, regulated lender."

Errol Damelin, who founded the firm, stepped down as its chairman last week but when asked by ITV News if he had been aware of what was going on, the lender steadfastly declined to comment on "individuals".

As well as the fake legal letters, the firm admitted 200,000 borrowers overpaid due to a "technical error."

The majority of these overpayments were by no more than £5 and these customers will also be compensated, Wonga confirmed.

The firm also admitted 200,000 borrowers overpaid due to a "technical error." Credit: Wonga

City watchdog the Financial Conduct Authority, which can impose fines and revoke licences, is limited in its powers as far as Wonga's actions are concerned because the fake letters were sent by the firm before it was regulated by the body, and penalties cannot be applied retrospectively.

However, the FCA confirmed to ITV News that it has referred the lender to the police to assess whether a criminal offence had been committed, as it is a crime to impersonate a solicitor

The City of London Police said that they have decided not to proceed with a case, because while the letters clearly implied they were from law firms, they made no such direct claim.

Labour MP Stella Creasy, a fierce campaigner against payday lenders, said that Wonga's apology over its misleading practices "isn't good enough."

More: CoE: Wonga ruling shows need for lending alternatives

"Local debt collectors who behaved in this way wouldn't get off so easily, so we urgently need to know why Wonga isn't being held to account when they admit to flouting the laws on harassing debtors," the Shadow Minister for Competition and Consumer Affairs added.

The FCA said that it continues to monitor debt collection agencies closely and have already taken action to limit the number of times that a company can "roll over loans" that end up in arrears.