Wonga ordered to pay £2.6m compensation after using fake law firms to chase debts
The payday lender sent letters threatening legal action pretending to be from law practices that did not exist
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Wednesday 25 June 2014
The payday lender Wonga is facing the prospect of a criminal investigation after City watchdogs handed police a file detailing how the company lied to hard-up borrowers.
Wonga, famed for its 5,853 per cent APR and criticisms from the Church of England, was found by the Financial Conduct Authority to have sent threatening letters from two fictional law firms to customers in arrears. It even made some clients pay for sending them the fake letters.
The Labour MP Stella Creasy, who has been campaigning against payday loan companies for years, demanded a full police inquiry after the regulator merely ordered Wonga to pay compensation of £2.6m to the 45,000 people who received the letters. A loophole meant it did not even receive a fine.
The customers received letters claiming to be from “Chainey, D’Amato and Shannon” and “Barker and Lowe Legal Recoveries”, with the intention of making them believe their debts had been passed on to law firms which could sue for the money. Impersonating a solicitor is a criminal offence.
Tonight, FCA sources confirmed it had handed over its documentation on the case to police investigators to assess if any offence may have been committed. Ms Creasy said: “Wonga has got off very lightly. There are at least four potential criminal acts that should be investigated for this unbelievable behaviour.”
The police should investigate whether Wonga has breached laws banning impersonating a solicitor, harassing those whom you have lent money, making false claims or falsely representing themselves to be authorised in an official capacity, Ms Creasy said.
Labour will be seeking to table a question in Parliament today demanding to know how much ministers knew of Wonga’s behaviour during previous parliamentary investigations into the payday loans industry. The fake letter scandal was originally uncovered – although not publicised – in an investigation by the now-defunct Office of Fair Trading back in 2011. The absorption of the OFT into the City watchdog, the Financial Conduct Authority, was the reason why there could be no fine or full publication of the investigation’s findings, the FCA and Treasury said.
Questions will inevitably now be asked about how much the Conservative Party adviser Adrian Beecroft knew about the scandal. As well as being a major donor to the Conservatives, he is a big financial backer of Wonga through his Dawn Capital private equity fund.
Wonga’s former chief executive Niall Wass quit recently after just six months in the job. The firm’s founder and chairman, the charismatic Errol Damelin, also announced he was planning to step down earlier this month.
Labour is also expected to demand publication of the full findings of the OFT/FCA investigations amid widespread dissatisfaction that the regulator only issued a brief press release and one-page supporting document. Despite its own APR of 5,853 per cent, Wonga has only been forced to repay hard-up borrowers it misled and overcharged, at a rate of 8 per cent.
Adrian Beecroft, a Tory donor, is a backer of Wonga (Rex)
Consumer groups and charities called for further punishment for Wonga. Richard Lloyd of Which? said: “It’s a shocking new low for the payday industry that is already dogged by bad practice and Wonga deserves to have the book thrown at it.”
Mike O’Connor, chief executive of StepChange Debt Charity, added: “It’s time the payday loan industry entered the 21st century in terms of treating customers fairly. If they cannot, they should leave the market.”
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.”
The legal letters – which were sent between October 2008 and November 2010 – were uncovered by investigators at the Office of Fair Trading after it examined Wonga’s debt collection practices in 2011. But the former watchdog was not able to complete its case by the time it was disbanded earlier this year and rolled into the FCA.
The casebook was passed on in April but the new City watchdog said it could not fine companies retrospectively using legislation that was not in place. “We simply can’t fine someone we didn’t regulate,” a spokesman said.
Ms Creasy added: “Ministers were telling campaigners like me the industry was working well when all along this kind of stuff was happening.”
The FCA pointed out that, as part of a voluntary agreement with the regulator, Wonga must offer a £50 distress and inconvenience payment to the 45,000 customers who received the fake letters. Around £400,000 of fees will be repaid to them, the lender said. Tim Weller, interim Wonga chief executive, said: “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.”
Wonga also admitted that it has miscalculated charges, meaning almost 200,000 borrowers overpaid the company, although the majority by less than £5, it said. Mr Weller also said sorry for the overcharging. “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.”
Clive Zietman, a partner of Stewarts Law, said: “There could be a case to answer under the Fraud Act which prohibits fraud by false representation.”
What Wonga will do next: Redress for borrowers
The company has promised that it will be attempting to contact all the 45,000 customers targeted by the fake legal letters.
It also promised to try to track down the 200,000 customers who had been overcharged more recently by the lender. Given that the first offences took place between 2008 and 2010, it’s possible that the victims may have moved since then.
Borrowers misled were sent a letter headed “Chainey, D’Amato & Shannon” or “Barker and Lowe Legal Recoveries”, mentioning legal action. But both lawyers’ names were made up. Wonga is urging anyone who thinks they may have been a victim to update their contact details with the company by going to wonga.com/apology.
Alternatively you can call the company’s helpline on 0800 8400836.
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