News that Wonga must pay compensation of £2.6m to customers that were sent letters threatening legal action from fake law firms is to be welcomed. This insidious practice – which the payday loan firm admits took place between 2008-2010 – was clearly a deliberate approach and authorised company policy and it is absolutely right that customers are compensated.
According to the Financial Conduct Authority 45,000 Wonga customers who had fallen behind with their repayments were sent letters telling them that they faced legal action if they did not pay. Never mind that anyone who has to use Wonga must be desperate already – why else would you agree to repay a loan at rates often in excess of 5,000% (at a time when Bank of England base rates were at historically low levels)?
Even for a company with a business model that relies on a predatory approach and thrives on people’s financial hardship, this is remarkably unethical practice.
The £2.6m compensation is not, it’s important to note, a fine for acting illegally. It is compensation for customers who have been affected. Each affected person is likely to receive a desultory £50 for the anguish and stress caused by Wonga.
Surely the FCA should also be imposing a stiff fine on Wonga for their actions too?
When high street banks were found guilty of mis-selling payment protection insurance compensation was paid out, but fines were also imposed. Indeed the major banks have reportedly set aside more than £18bn of cash to cover their costs of righting the mess. The FCA must act firmly and swiftly to impose a fine on Wonga to show they mean business and that this type of practice cannot be allowed to happen.
But they must go further…
Attracted though I am to Corby MP, Andy Sawford’s suggestion that Wonga be required to pay their compensation with an interest rate of their own – 5,835% would mean £2.3 trillion compensation – I suspect that’s not going to happen. What I hope will happen is that the FCA take steps to remove Wonga’s licence with immediate effect.
It is clear that this was not an isolated incident, or something that happened by accident or without the knowledge of senior executives. It was planned, deliberate and coordinated by the company and targeted the most vulnerable and desperate of customers. Wonga should be forced to take responsibility for this disgusting practice by losing their licence to lend.
This would also send a strong and clear message to the home credit market that their deliberate attempts to heap misery onto vulnerable households would not be tolerated. You only need to look at the profits that Wonga have generated in recent years – £1m a week last year! – to see how small the compensation figure is. Having to pay out two weeks’ profits are hardly going to break the bank (excuse the pun). It’s peanuts.
Maybe Wonga have changed their practice now – but what’s to stop another would-be-predator from adopting similar practices and simply paying the compensation out of the petty cash from their far larger profits?
Even the removal of Wonga’s licence is not enough. There must be criminal proceedings brought against Wonga’s senior executives too – including those who have sloped off as they’ve no doubt seen the writing on the wall.
This happened, it is said, when the company was just a small start up – not the professional and mature (ahem) business it is now. It’s unfathomable that something like this could take place on this sort of scale in a small start up without everyone knowing. Senior executives must be held to account through criminal investigation.
I welcome that the FCA have investigated and taken action, but if they want to demonstrate serious commitment to eliminating illegal and exploitative behaviour then they need to go far further.