Wednesday, 25 June 2014

A Question about this Wonga Story

From the BBC

Payday lender Wonga must pay £2.6m in compensation after sending letters from non-existent law firms to customers in arrears.

The letters threatened legal action, but the law firms were false. In some cases Wonga added fees for these letters to customers' accounts.

The City watchdog, the Financial Conduct Authority (FCA), said 45,000 customers would be compensated.

...

An investigation found that Wonga sent letters to customers from fake law firms called "Chainey, D'Amato & Shannon" and "Barker and Lowe Legal Recoveries".

The plan was to make customers in arrears believe that their outstanding debt had been passed to a law firm, with legal action threatened if the debt was not paid.

The company was using this tactic to maximise collections by piling the pressure on customers, the regulator said.

"Wonga's misconduct was very serious because it had the effect of exacerbating an already difficult situation for customers in arrears," said Clive Adamson, director of supervision at the FCA.

Other than the fact that they didn't notify a genuine legal firm to do the job and did it themselves using a fake name, is anyone saying there's anything of material difference to what would have happened if they'd handed them to a real firm of solicitors?

Companies with overdue debts hand things to solicitors. They threaten legal action if a debt isn't paid, and I'm pretty sure that you can add on fees for the debt collection. In which case, who lost out except for the lawyers?

13 comments:

Frank said...

Maybe it's because you're only allowed to add actual, incurred expenses to a debt. Otherwise you'd just be able to think of a number ... Oh, isn't that what they did? :-)

Mark Wadsworth said...

"In which case, who lost out except for the lawyers?"

You got it in one!

What appeals to me is the names they dreamed up.

They prey on the deeply engrained British subservience to posh French-Norman-Foreign sounding names in the first instance and the English Yeoman "I'll fucking beat your head in with this freshly hewn stave" solidness in the second.

Lola said...

You have to keep in your mind that the whole utterly corrupt UK FS regulatory structure needs, absolutely needs, to keep finding 'victims'. It's part of their marketing. It's the standard tactics of concentrating benefits and distributing costs.

The Stigler said...

Frank,
OK, so if they went to actual lawyers rather than doing it themselves, would that add more or less to the customer?

Mark,
Barker and Lowe are rather similar to a couple of handmade shoemakers in Northamptonshire (Barker and Loake). It triggers the image of the sort of dependable man in a pin-striped suit in an office with wood on the walls.

If they got fired, they should have a job in creating brands.

Frank said...

Surely "Who lost out except for the lawyers?" is the wrong question. The question should be "Who gained by this illegal activity?"

The Stigler said...

Frank,

No, "who lost out except the lawyers" is the right question.

What are we concerned about here? Is it or is it not the customers of Wonga? So, if those people are no worse off by Wonga sending them a letter and charging them instead of a solicitor, what's the problem?

All we've done is to put more money in Wonga's pockets instead of some solicitors pockets.

Frank said...

@The Stigler

Wonga's customers lost because they didn't get what they were paying for. They were paying for a solicitor's letter, they received a letter from Wonga, disguised as a solicitor's letter.

Let me recast the question: If you pay full price for a fake Rolex who loses except Rolex?

Bayard said...

Frank, if the fake Rolex is in every way identical to a genuine Rolex, then no-one loses except Rolex. In the case of Rolex, this is unlikely to be true, but with many clothing brands you are paying for the name and not precision engineering and so the knock-offs could even be superior in quality to the genuine article.

You don't have to be a firm of solicitors to threaten legal action, so the difference to the customer in receiving a letter from an organisation they think is a firm of solicitors and receiving one from a genuine firm of solicitors is precisely zero.

john b said...

The reason it's different is that, if Wonga had used a firm of lawyers, that would also have cost *Wonga* money.

The legal way of doing things deters the sending of nastygrams because it involves both parties handing over a large proportion of their folding stuff to a bloke in a suit with some letters after his name.

If you could legally send fake 'lawyer letters', you'd do that immediately rather than waiting until the cost was fully justified by the debtor's reluctance to pay up otherwise.

The Stigler said...

Frank,
"Let me recast the question: If you pay full price for a fake Rolex who loses except Rolex?"

Well, if the watch is as good as a Rolex, no-one (OK, there's the thing of reselling it, but that doesn't apply in this case).

The Stigler said...

john b,

Fair enough. They shouldn't have charged then.

But I don't understand why we need an artificial charge. If someone's in breach of contract, why shouldn't they get a nasty letter?

john b said...

Stigler -

In a society where it's generally assumed that a letter from Sue, Grabbit and Runne is, in fact, from a commissioned firm of solicitors, to send a pretend one gives the recipient a false impression of your strategic position - of how much you care about enforcing their debt.

In general, for companies to mislead consumers about their intentions is considered inappropriate under consumer law in England (unlike tort law, where unless you're balls-out lying you're golden).

Bayard said...

"In a society where it's generally assumed that a letter from Sue, Grabbit and Runne is, in fact, from a commissioned firm of solicitors, to send a pretend one gives the recipient a false impression of your strategic position - of how much you care about enforcing their debt."

What about debt collection agencies? Surely Wonga could have an in-house debt collection agency and call it anything they like?