Thousands of Wonga customers are due compensation after the payday lender pressured 45,000 customers into repaying loans by sending letters from non-existent law firms chasing debt, and overcharged thousands more following "technical errors".
The UK's biggest payday lender is to pay £2.6 million after it sent letters to around 45,000 customers in arrears under the names "Chainey, D'Amato & Shannon" and "Barker and Lowe Legal Recoveries", between October 2008 and November 2010. The letters implied debts had been passed to a law firm or other third party.
But neither Chainey, D'Amato & Shannon nor Barker & Lowe existed. Wonga used the threat of legal action to pressure customers into making payments that many couldn't afford (see our Payday Loans guide for alternatives if you're struggling).
Wonga even charged some customers "administration fees" for sending the letters. In total, customers were charged £400,000 in fees for the letters.
Customers of Wonga's predecessor SameDayCash.co.uk, which stopped lending in July 2008, were also sent letters from the fake lawyers.
Wonga says it's also discovered technical errors with its systems in 2014, which have resulted in just under 200,000 customers overpaying the company. It won't disclose when these overpayments occurred or how much was overpaid, but it says the majority overpaid less than £5.
The two issues have come to light following an investigation started by the Office of Fair Trading and concluded by the Financial Conduct Authority (FCA). The City of London Police is now assessing whether a criminal investigation is appropriate.
But is it just Wonga? We've heard rumours energy firms, banks and more doing the same. Please send us your fake lawyers letters. See our Fake lawyers campaign MSE News story for more.
'Using lawyers as fake as its puppets'
MoneySavingExpert.com and its creator Martin Lewis have long campaigned for tougher regulation of the payday loans industry and called for curbs on advertising payday loans on kids' TV (see the Payday loan ads should be banned from kids' TV MSE News story).
Martin Lewis says of today's news: "This 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.
"I'm glad to see the FCA taking action. I hope this is just the first move against a dirty, dangerous industry. Wonga may have used 'Chainey, D'Amato & Shannon' as the name of its false lawyers, but 'Shyster, Shyster & Shyster' would've been more appropriate.
"We need action to stop these companies destroying part of our society. I hope this news is enough to make the PM change his mind about banning payday lenders' puppet adverts from children's TV."
Martin adds that Wonga should be paying £34,334,929,158 to everyone it sent fake letters to. Read his What Wonga should pay back blog for more info.
What did the fake letters say?
One of our forum members tracked down an email, which they say was sent to them by Wonga. Here's what it says (we've removed any personal information):
I was sent a letter. How much am I due?
If you received a letter claiming to be from "Chainey D'Amato & Shannon" or "Barker & Lowe", you'll receive the following:
- All 45,000 customers affected will be paid a flat £50 for distress and inconvenience.
- In some cases, an additional compensation payment may also be made, dependent on individual circumstances.
- If you paid any administration charges for receiving one of these letters, you'll be refunded any fees incurred, plus interest at 8%/year.
You can have the money paid as a direct transfer into your bank account, a cheque or a reduction of an outstanding balance, or a combination of these methods.
For more information, see Wonga's FAQs page.
I overpaid my loan. How much am I due?
If you're one of the 200,000 customers who overpaid your loan, you'll be refunded the amount you overpaid, plus interest of 8%/year.
As above, you can have the money paid as a direct transfer into your bank account, a cheque or a reduction of an outstanding balance, or a combination of these methods.
For more information, see Wonga's FAQs page.
Do I need to do anything to get this money?
Wonga says you don't need to do anything to get compensation or a refund for either of the two issues. The payday lender says it has identified all former and present customers sent letters from the fake lawyers and it is in the process of identifying customers who've overpaid.
It says it aims to email all affected customers within the next eight weeks.
If you think you're affected but don't get an email from Wonga, the firm says it may not hold up-to-date contact details for you. To make sure Wonga has your correct contact information, visit its specific Wonga Apology web page or ring it on 0800 840 0836 or 0333 005 0836.
Did anyone underpay their loan?
Wonga says over 200,000 customers underpaid their loans as a result of the errors, but it will not ask for repayment from these customers.
What does the FCA say?
Clive Adamson, director of supervision at the FCA, says: "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."
What does Wonga say?
Wonga's interim chief executive, Tim Weller, says: "We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result. The practice was unacceptable and we voluntarily ceased it nearly four years ago.
"I would also like to apologise to customers affected by our system errors. We fully accept the impact on customers was negative in many cases and our priority is to ensure we deal quickly and fairly with customers who've been impacted, again in conjunction with the FCA.
"We will learn from these mistakes and continue working with the FCA to build a better Wonga for the benefit of our customers. We're strengthening our internal controls and systems and now have almost 1,000 people around the world, who are working hard to serve the demand for short-term credit in the most responsible way possible."