KNOWING RIGHT FROM WONGA

Warning: Late repayment can cause you serious money problems

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We all know taking out any sort of loan can be a risk. Borrowing money is a risky venture at the best of times. Whether you’re borrowing it from your partner, parents, friends or the bank, being in debt never seems to sit easily on people’s conscience. If you have borrowed money through a pay day loan from Wonga, then that’s only half the story.

In a perfect world, we’d have all the money we need, but life’s not perfect. In these difficult economic times money is a scarce commodity. The cost of living only seems to go one way and our pay packets seem incapable of keeping up. There are times when we need a little extra. Sometimes it’s an essential need to keep food on the table, the car on the road or a home repair that we can’t live without. As more and more people started to feel the pinch, there was a rising star ready to help out; wonga.com. It feels like it’s been with us forever, but Wonga was only founded in 2006. They aren’t the only pay day loan lender out there, but they have become synonymous with this new ‘short-term, high-cost’ credit arrangement. Their adverts are pretty funny and they seem pretty straight-up about the service they provide, so what’s the problem? Where do I start!

As much as we might dislike getting into debt, occasionally we have no choice. Sometimes there just isn’t enough money to last until our next pay day and there is nowhere else to turn. For many thousands of people over the years, that choice has led them straight to Wonga. For most customers, Wonga has provided a light at the end of a dark, barren tunnel. For many of those, they will have paid back their loan on time and in full. Job done. Sadly, that isn’t the case for everyone. Despite their best intentions and for any number of reasons, some of them struggled to pay back the loan they agreed with Wonga. Between October 2008 and November 2010 many of those customers received a letter from legal firm Chainey, D’Amato and Shanner or debt recovery firm Barker & Lowe. As you can imagine receiving these types of letters is no laughing matter. They were very stern, strongly-worded and certainly pulled no punches. They appeared to show that Wonga had passed the debt to third-party companies to reclaim the money they were owed. Now no-one is suggesting that failing to pay back a legally binding loan is a trivial matter, but there was more to this than meets the eye. The companies that the letters claimed to be from didn’t actually exist. Wonga had used the surnames of some of their own employees to create fake, albeit realistic-sounding, companies.

Creating fake companies is one thing, but the customers were also charged additional fees to cover the administration costs accrued by the fake companies. Wonga might be many things, but they aren’t daft. They know that it’s a criminal offence to call themselves a solicitor, or act as one, when they aren’t. The letters were very carefully worded so as not to use the word ‘solicitor’, but the inferences were there. These letters weren’t just sent to a handful of people either, they were sent to just under 45,000 customers.

The letters only came to light when the now-defunct Office of Fair Trading (OFT) had asked Wonga to disclose information about their debt collection practices in 2011. Ironically a forum on moneysavingexpert.com in February 2010 had mentioned that someone had received a letter from one of the fake companies, Barker and Lowe, and questioned whether it was even real. They had Google’d the name and came up with nothing. Shame no-one paid more attention.

As a result of this, Wonga have been ordered to pay £2.6 million in compensation, with details of the case also being passed to the police for a potential criminal investigation. That figure may rise once compensation packages had been finalised. The Financial Conduct Authority, said they were guilty of “unfair and misleading debt collection practices”. They escaped a fine because the FCA only started to monitor pay day lenders in April 2014 and this breach took place prior to that when the OFT was in charge. Wonga do have to identify and pay redress to all those affected by the letters. Some received cash, others had the balance of their accounts reduced. Those that received the threatening letters got a flat-rate of £50 per customer for the ‘distress and inconvenience caused’. Some also received a refund of the extra fees they were charged by companies that didn’t exist! In a separate incident that came to light, it was also noted that they had overcharged some customers by around £5. That might not sound like much, but when you consider there were almost 200,000 of them, it’s no wonder their profits have slumped.

Let’s not forget that the customers affected by the letters sent out by Wonga were already in a difficult situation. Not least because they had needed to take out an initial loan in less than perfect circumstances, which was exacerbated by falling behind in their payments. To then threaten them using companies that didn’t even exist and to even charge them for the privilege really is something else.

 wasn’t even the first (or second) time Wonga had been in trouble with regulators. In 2012 they had written to other customers accusing them of fraud. In those letters, customers who were already struggling with repayments, were told that they may be guilty of fraud if they had made a payment but then asked their bank to retract it. Wonga said it was considering contacting the police if they failed to act on the notice. How’s that for customer service.

 the interest of balance, it’s important to note that Wonga aren’t the only pay day company out there, but their size and stature in the market means that they are the most popular. This doesn’t mean that they should have carte blanche to act the way they have. We all want a robust, transparent industry but that is put at risk when instances like these come to light. Straight talking money? Let’s just settle for straight talking!

EDITOR: To ensure a fair balance is maintained while this article is about Wonga, it should be noted that several other Payday Lenders have had to agree redress schemes with the Financial Conduct Authority for actions that had previously taken.