Payday Lending: Wonga Compensates Debtors For Fake Solicitor Letters

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wonga
Wonga Advert
Wonga, the leading payday loan lender in the UK, has been recently asked by the Financial Conduct Authority (FCA) to pay £2.6 as compensation for sending fake solicitor letters to debtors.  The letters which were sent from non-existent law firms threatened defaulting customers with legal action unless they repay their loans immediately.  It is estimated that about 45,000 of Wonga customers were affected by this scam and would benefit from this compensation.  Opinion however is divided over whether the FCA has done the right thing for consumers by imposing this heavy fine on Wonga.

Some people have wholeheartedly welcomed the position taken by the FCA against Wonga.  For them, threatening debtors with fake legal action as Wonga has done can have unintended consequences on the debtors.  The threat of legal action against debtors, for example, can lead many of them to be over worried about their debt and have sleepless nights.  It can also lead debtors to get into more debts as some debtors who cannot handle the pressure of possible legal action may go and borrow money somewhere else to settle older debts. 

payday lender
Besides the negative consequences arising from it action, Wonga has committed a criminal offence by sending threatening letters from non-existent law firms to debtors.  The Solicitors Act 1974 makes it a criminal offence for any person or organisation who is not a solicitor to claim to be so.  Wonga would have suffered more punishment for this offence had the FCA been in existent for the past few years when the payday loan lender started the malpractice.

People who disagree with the FCA financial penalty on Wonga however may have good reasons for taking that position.  First, many borrowers may not be willing to pay back what they owe to payday loan lenders unless the borrowers are somewhat pressured to do so.  In the absence of such pressure, payday loan lenders cannot recover the money they lent to customers and may cease trading.
logo of short term lender

Second, the demise of payday loan lenders as a result of the inability to recover money from debtors may spell doom for many payday loan customers.  Many customers of payday loan lenders are from poor financial backgrounds.  Due to this problem they cannot access financial credits from high street banks and other major financial institutions who tend to lend only to credit worthy customers.  Payday loan lenders therefore are the last resort for poor customers during financial difficulties.

These suggest that the question about whether the financial penalty imposed on Wonga by the FCA is good news or bad news cannot be answered very easily.  This question can be answered only after the following questions have been answered:   How can payday loan lenders such as Wonga recover money from debtors who are not willing to pay back their loan?  What alternatives are in place to help consumers should payday loan lenders run out of money and cease trading due to over-regulations? 


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