Wonga’s unescapable TV advertising campaign, featuring cute ‘elderly’ puppets, carries the company slogan “straight-talking money“. But, following a ruling by UK regulator, the Financial Conduct Authority (FCA), the UK payday loans startup and great European IPO hope, has been found anything but straight-talking.
The FCA ruled today that Wonga had been guilty of “unfair and misleading debt collection practices”, relating to letters it sent to customers from non-existent law firms, presumably in a bid to pressure them to pay up sooner rather than later.
Specifically, between 2008 and 2010, Wonga sent letters from ‘Barker & Lowe’ and ‘Chainey, D’Amato and Shannon’ — two entities that don’t actually exist — to around 45,000 customers, giving the misleading impression that the customers’ outstanding debts had been passed to a law firm. To add insult to injury, Wonga says some customers also paid additional collection charges after these letters were sent out.
So much for disruption; this as about as old skool a practice as it gets in the debt collection industry. In fact, other than $145 milion in VC funding from Balderton, Accel, Greylock, Meritech, Dawn Capital and Oak Investment Partners, I’m having even more trouble seeing how Wonga is any different to many short term loans outfits, including those it claims to disrupt.
The company may well talk up its technological advantage, but its not like other financial services don’t employ a heavy dose of technology to remove friction when lending money or doing credit checks. Fintech, either built in-house or provided by a third-party, has been greasing the dirty wheels of “cheap and easy” consumer credit for a very long time.
In its defence, Wonga says the practice of sending fake legal firm letters was stopped voluntarily by the company in November 2010 and information was provided to the OFT (Office of Fair Trading), Wonga’s regulator at the time, in January 2011. It now has to pay compensation, which could be a cool 2.6 million pounds.
There will be those, of course, who think the regulator hasn’t nearly gone far enough and will question how Wonga, having admitted wrongdoing, can still hold a license to trade. The UK Member of Parliament Stella Creasy has even questioned why there isn’t a criminal investigation.
I’ve asked Wonga what its current procedures for debt collection are, as well as for some other very basic facts, but have yet to hear back aside from being pointed to a conference call for media that took place earlier today and which I was unable to connect.
Of course today’s ruling isn’t the first time the London company has been steeped in controversy. Payday loans companies in the UK have been increasingly feeling the heat, most notably with the Archbishop of Canterbury campaigning against Wonga — despite the Church of England inadvertently holding shares in the company — perhaps kicking talk of a pending billion dollar exit or IPO into the long grass for now.