The U.K.'s leading payday lender, Wonga, must pay over £2.6 million ($4.4 million) to its customers after it sent out bogus legal letters to pressure lenders into making debt repayments.
The online loan company will pay compensation to around 45,000 customers affected by the "unfair and misleading debt collection practices", according to the U.K. watchdog the Financial Conduct Authority.
Wonga specializes in short-term loans of up to £1,000, sometimes to people who have been refused credit elsewhere. The average length of a Wonga loan is about 17 days, according to the company's website which also shows its representative annual rate at 5,853 percent.
Sending out letters from fictitious outfits "Chainey, D'Amato & Shannon" and "Barker and Lowe Legal Recoveries", Wonga told customers that their debts had been passed onto law firms or another third party.
The fake legal letters threatened further action if the debt was not repaid.
"Wonga's misconduct was very serious because it had the effect of exacerbating an already difficult situation for customers in arrears", Clive Adamson, direction of supervision at the FCA, said in a statement.
Some customer accounts were charged administration fees associated for the letter sending. This pressured individuals into making loan repayments that they could not afford, the FCA said.
Wonga issued an apology Wednesday on its website.
"We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distressed caused a result" said Tim Weller, interim CEO at Wonga.
"The practice was unacceptable and we voluntarily ceased it nearly four years ago".
Compensation payments will start in July and will include a mix of cash and reductions to outstanding balances.
The failings took place between October 2008 and November 2010. It was uncovered by the Office of Fair Trading in 2011 and the investigation was taken over by the FCA in April 2014. Because the bogus letters were sent out before the FCA was founded, the watchdog said in a tweet Wednesday it decided not to fine the company.
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