4th July 2014 In the news: Payday giant Wonga threatens customers with fake legal action

In recent years, the rise of payday loan companies has seemed relentless. Firms such as Wonga offer "short term cash loans" to customers, claiming up to £400 can be transferred within 5 minutes. Whilst such easy access to cash might be welcomed for many, for others, reality only hits home when they come to repay the loan. Wonga has a representative APR of 5853% - although it is not often made clear. Earlier this year, an advert by Wonga was banned after the Advertising Standards Agency (ASA) received more than 30 complaints from the public. The advert insinuated that customers would not pay thousands of per cent of interest - that was just the annual rate. However, the ASA concluded that the advert would not leave customers with a "clear understanding" of the repayment terms and irresponsibly encouraged customers to disregard the representative APR.

Last week, Wonga dominated headlines as it was revealed by a Financial Conduct Authority (FCA) investigation that the company had sent letters from non-existent law firms to customers in arrears. Shortly afterwards, an apology was added to the Wonga.com site. They admit that between 2008 and 2010, 44,556 letters were sent to customers from fake legal firms such as "Barker & Lowe Legal Recoveries" and "Chainey, D'Amato & Shannon" giving the misleading impression that outstanding debts had been passed on to law firms and threatened legal action if the debts were not repaid quickly. Wonga could now pay up to a staggering £2.6m in compensation to affected customers. Information on what to do if you may have been affected can be found here.

The behaviour of Wonga in this respect is very damaging. Firstly, customers in arrears were put under extra strain as they contemplated facing a daunting legal battle. Secondly, the use of fake law firms as a debt collection tactic is worrying in a much wider sense. It seems to convey a disregard and disrespect for the real legal work that solicitors do on a daily basis. Our legal system allows access to justice for those who have been affected by a civil or criminal wrong. It should not be taken advantage of, nor used as an underhand business tactic, by impatient payday lenders.

The sheer volume of letters sent to customers over a 2 year time frame is astounding. The figures suggest that it was a widely used - and accepted - debt recovery method in the Wonga firm. In their apology, Wonga states, "this practice was unacceptable and should never have happened". But it did, and on an undeniably large scale. The question surely is: what happens now?

The Financial Conduct Authority stated that it is unable to fine Wonga as this happened before the FCA was responsible for regulating payday lenders. It also stated there would be no criminal investigation as it wanted to set up a compensation plan as quickly as it could. A criminal investigation would take too long. Although the primary concern may be compensating customers who have been victims of the practice, it seems unjust that Wonga should face no repercussions. The impersonation of law firms in this case, if not taken seriously, gives scope for others to act in a similar manner.

In the last few days, the Law Society has asked the Metropolitan Police to conduct an investigation into Wonga's conduct. The decision was made after the Society considered that Wonga's actions could have amounted to blackmail and deception, and possibly offences under the Solicitors Act 1974 and Legal Services Act 2007. A full and thorough investigation should hold Wonga accountable for any crimes committed, whilst sending out a clear message that behaviour such as this will not be ignored.

Author profile

Gemma Stanley, LL.B (Hons)

Paralegal, Industrial Disease Department

Gemma joined Woodward Solicitors in July 2013 and has enjoyed working mainly on holiday illness claims.

Sources

https://www.wonga.com/

https://www.wonga.com/Apology

http://www.bbc.co.uk/news/uk-26950172

http://www.bbc.co.uk/news/business-24826849

http://www.bbc.co.uk/news/business-28015456

http://www.bbc.co.uk/news/business-28057143

http://www.lawsociety.org.uk/news/press-releases/law-society-calls-for-criminal-investigation-of-wonga/

Photo: http://www.theguardian.com/business/2014/jun/26/wonga-fake-legal-letters-passed-police