(Corrects story label to read WONGA instead of WONGA-FINE, no
change to text)
LONDON, June 25 Britain's biggest payday lender
Wonga will pay 2.6 million pounds ($4.41 million) in
compensation to 45,000 customers after sending them bogus
letters from non-existent law firms that threatened legal
Britain's financial watchdog said the "unfair and
misleading" debt collection practices took place between October
2008 and November 2010 and put customers under great pressure to
make loan repayments that many could not afford.
Wonga is the biggest short-term lender in Britain and has
come under fire, along with the industry as a whole, for the
high level of interest rates it charges.
In some instances Wonga added charges to customers' accounts
to cover the administration fees of sending the bogus letters,
according to the findings of the investigation begun by
Britain's Office of Fair Trading and taken on by the Financial
Conduct Authority (FCA).
The FCA ordered Wonga to offer all 45,000 customers a flat
rate of 50 pounds for distress and inconvenience as well as to
refund those who had paid legal charges, estimated at 400,000
The payday loan industry is under increasing scrutiny from
politicians and regulators. The FCA, which took over
responsibility for consumer credit in April, has been cracking
down on the industry to tackle the way cash-strapped consumers
are treated when they struggle to repay loans.
One in three high-cost, short-term loans goes unpaid or is
repaid late in Britain and the FCA wants lenders to help people
regain control over their debt and treat debtors with more
sympathy as part of a drive to change the culture in financial
services to focus on customers, rather than profit.
Wonga's interest rates can equate to as much as 5,853
percent a year, though its loans are only supposed to be held
for a short period of time, often to provide funds for someone
until they are paid. In 2012 it made nearly 4 million loans to
over one million customers.
Wonga apologised to customers for the debt collection
practices and also unrelated systems errors that resulted in a
miscalculation of some customers' balances.
($1 = 0.5892 British Pounds)
(Reporting by Steve Slater and Kirstin Ridley. Editing by Jane