Saturday 5 July 2014

Saturday, July 05, 2014 Posted by Jake 2 comments Labels: , , , ,
Posted by Jake on Saturday, July 05, 2014 with 2 comments | Labels: , , , ,

Wonga sent phoney lawyer's letter to 45,000 customers between 2008 to 2010. Shocked? You shouldn't be. 

Not because it's just the sort of thing Wonga would do. But because it's just the sort of thing companies in Britain do to Ripped-Off Britons, as we shall show:

In the very same week of the Wonga phoney-letter judgement several Blue Chip British companies were caught out doing the same. The Daily Mail reported:

"High street banks are using Wonga-style bullying letters to chase customers for payments.

Barclays, Lloyds, Halifax, RBS and HSBC are among firms who have sent customers letters that look like they are from outside firms when they are not.

Energy giant Scottish Power and Anglian Water, which supplies families in the East of England, are also using the letters."

And the Guardian reported a government agency, the Student Loans Company, was upto the same naughtiness:
"The Student Loans Company is facing calls to compensate more than 300,000 graduates sent [between 2005 and 2014] misleading "Wonga-style" debt collection letters."

How seriously is this kind of deliberate intimidation by deception taken by the authorities in Britain? As a rule of thumb, the seriousness of a crime is reflected by the size of the penalty. Let's consider Wonga's penalty.

As a result of its threatening bogus letters Wonga was required to cough up £2.6 million by the Financial Conduct Authority (FCA). The FCA claimed that it could not take the matter any further, i.e. larger fine or prosecution, as the investigation had started under its equally inept and now defunct predecessor the Office of Fair Trading (OFT). For some poorly explained reason the FCA judged that this let Wonga off the hook.
Is £2.6 million by itself much of a penalty? Wonga point out with some justification that it isn't fair to use the 5,853% APR of a Wonga loan, because the APR is based on assumptions that don't apply to short term loans.
So, instead of working out how long it would take a Wonga loan to grow to £2.6 million using 5,843% interest, let's take another approach.

Question: How tough is it for Wonga to "generate" £2.6 million?

Consider the following, from the Wonga website's FAQ
  • Wonga's average loan is £180
  • Charges 1% per day (On £180, 1% is £1.80 per day)
  • plus £5.50 fee for each new loan
Say Wonga lent £180 for a 30 day month. At the end of the month Wonga would have:
  • £180 (loan) + £5.50 (fee) + £54 (30 x £1.80 interest)
  • A total of £239.50
Now, if Wonga 'rolls over' this £239.50 into another loan for another 30 days. At the end of this period Wonga would have:
  • £239.50 (loan) + £5.50 (fee) + £71.85 (30 x £2.395 interest)
  • A total of £316.85
How long would it take Wonga to generate £2.6 million by repeating "roll over" of this original £180 into new loans?

Answer: In just under 3 years, Wonga can grow £180 into the £2.6million it needs to pay its penalty.

The FCA's press release even commended Wonga!:

"We are pleased that Wonga has been working with us to put matters right for its customers and to ensure that these historical practices are truly a thing of the past."

"Truly a thing of the past"? Does that include the banks, energy and water companies? And government agencies too? We shall see.


  1. Andrew Tyrie, chair of Parliament's Treasury Committee, wrote to the high street banks asking if they used these misleading solicitors letters:

    Tyrie's letter to Lloyds Bank:

    Lloyds' response:

  2. Insurance companies and local councils also using this tactic. Car Parking companies are worse . They send out letters designed in a way that looks like it is an official letter from the Police which in itself is an offence.These are letters claiming payments for fines which are unenforceable.


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