03Dec

Only Half of Wonga Customers Received Owed Compensation

Wonga leaves customers waiting for compensation

In June 2014, payday lender Wonga announced that it would compensate around 45,000 customers for the ‘distress and inconvenience’ caused by sending them debt collection letters which purported to come from law firms, firms which in fact did not exist.

All affected customers should have received a £50 payment, with higher amounts being awarded in special circumstances. Yet in mid-November 2014, the firm admitted that only just over half of the affected customers had received their compensation.

Appearing before the House of Commons’ Treasury Select Committee (TSC), Wonga’s chief credit officer, Nick Brookes, said only 27,000 offers of compensation had so far been sent. Of the 5,000 who had already responded, 99% had accepted their offer. Mr Brookes suggested that many of these customers had changed their contact details and were proving difficult to trace.

Andrew Tyrie MP, chairman of the TSC, said:

“The 18,000 customers who received misleading letters from ‘fake’ law firms but who have yet to be contacted by Wonga are evidence that a lot more work is needed to change the industry’s culture, as with so much of banking.”

Regarding the fact that less than 20% of those who had received the letters had replied, Joanna Elson, chief executive of financial charity the Money Advice Trust, suggested that many people were scared to open letters from Wonga, fearing that the communication may instead be another attempt to recover unpaid debts.

Wonga has committed to a number of changes to its business practices since Andy Haste took over as chairman in July 2014. Measures include ceasing to use the elderly ‘puppet’ characters in the firm’s advertisements, removing their name from children’s Newcastle United replica kits, and agreeing to write off £220 million of debt from some 330,000 customers on the grounds that the loans would not have been granted under new affordability criteria.

There is no indication at present that the regulator, the Financial Conduct Authority (FCA), is prepared to act over the delays. However, it has acted in the past over compensation delays. In February 2013, the Financial Services Authority (the FCA’s predecessor) fined Lloyds Banking Group £4,315,000 for delays in paying compensation to customers for mis-sold payment protection insurance (PPI). The previous month saw a £113,300 fine for Co-operative Banking Group for placing PPI complaints on hold in the face of instructions from the regulator not to do so.

Payday lenders continue to attract close scrutiny from the FCA. Action has also been taken against Dollar Financial and The Cheque Centre, and from January 2015, payday loans will be subject to a charge cap – loans cannot be subject to interest of more than 0.8% per day and no borrower can be asked to repay more than the amount of the loan.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.