Wonga Bungle

The FSB will take on added responsibilities once “Twin Peaks” is enacted, including regulating the banking industry. It is therefore interesting to note what happened in the UK since 1 April 2013, when the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).

The FCA recently hit a “payday lender” (which I take is what they call micro lenders there) with a hefty fine of £2.6 million for unfair and misleading debt collection practices.

Wonga sent letters from non-existent law firms to customers who were in arrears, threatening legal action. In some instances, Wonga also added charges to customers’ accounts to cover the administration fees associated with sending the letters.

Clive Adamson, director of supervision at the FCA, said:

“Wonga’s misconduct was very serious because it had the effect of exacerbating an already difficult situation for customers in arrears. The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

Between October 2008 and November 2010, Wonga sent communications to customers in arrears under the names “Chainey, D’Amato & Shannon” and “Barker and Lowe Legal Recoveries”, leading customers to believe that their outstanding debt were handed over to a law firm, or other third party. Further legal action was threatened if the debt was not repaid.

In fact, neither Chainey D’Amato & Shannon nor Barker & Lowe existed and Wonga was using this tactic to maximise collections by piling the pressure on customers.

In April 2014, Wonga also reported to the FCA that it had discovered system errors relating to the calculation of the amount owing on customer accounts where fees, balance adjustments or the timing used to calculate interest were not consistently applied.

Wonga is the UK’s biggest payday lender; in 2012 it made nearly four million loans to over one million customers. The agreement with the FCA says:

  • Wonga must identify and pay redress to all affected customers. While some customers will receive cash, others will likely have their outstanding balance reduced.
  • The FCA appointed a skilled person to oversee the process and ensure that affected customers get what they are owed.

Compensation will consist of the following:

  • A refund of charges on referral to Barker and Lowe/Chainey D’Amato which was estimated at £400,000 and will be provided to customers who paid these fees.
  • A flat rate £50 settlement to all 45,000 customers who were sent letters of demand, for distress and inconvenience.
  • In some cases, an additional compensation payment dependent on individual circumstances.

Perhaps a copy of this article should be sent to the institution regulating TV licences in South Africa. I can certainly do with some financial soothing to heal the distress and inconvenience I suffered at the hands of their debt collectors.

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