Wonga founder Errol Damelin sold £4m stake before scandals

Damelin set up Wonga in 2006 but left late last year

Payday lenders, like Wonga, have been likened to "legal loan sharks" for preying on the poor and encouraging them to spiral into debt (Getty)

The founder of Wonga is said to have sold a £4m chunk of his stake in the controversial payday loans firm back to the company after he quit as chief executive late last year, in what could prove to be an extremely controversial “golden farewell”.

Errol Damelin, who set up the business in 2006 with fellow South African entrepreneur Jonty Hurwitz, left his post – amid talk he had been ousted – before various scandals came to light about the firm. These included the phoney lawyers’ letters affair, in which it issued threatening letters to late-paying customers from fake law firms. Also since he left, the regulator has placed new restrictions on payday lenders due to their irresponsible loans to people who could never afford to pay them back.

These issues have meant that the company – and Mr Damelin’s shares – are worth far less than they were when he sold them. He retains a 7 per cent stake in the business.

Last week, Wonga was forced to write off £220m of debts from customers it should never have lent money to. It is now expected that other payday lenders will be forced to do the same for their customers because the practice of irresponsible lending is thought to have been so widespread.

Wonga is thought to have a market share of more than 30 per cent of payday loans.

Last week, The Independent disclosed that Wonga’s head of collections and fraud at the time of the phoney lawyers’ letters affair now has a senior job at the energy company Scottish & Southern Energy chasing customers’ bills.