With the Financial Conduct Authority (FCA) clamping down on payday lender Wonga this month for using deceptive debt recovery practices, the spotlight is focused on fair practice in debt collection.

Where did Wonga go wrong?

Over a two-year period, Wonga pursued the debts of approximately 45,000 customers by sending them letters – a similar practice carried out by most creditors.  Where Wonga fell foul of the law however was in the way in which they went about it.  Not only did they send letters from non-existent law firms threatening court action, but they also added late fees to their customers’ debts making already bad situations for their customers much worse.

As a result, Wonga has agreed to pay a staggering £2.6m in compensation to its customers for misleading them.
Wonga isn’t alone either.  In the same month, the energy regulatory body Ofgem has also discovered several utilities companies also adopting the same misleading technique of sending credit control letters with wording that implies they are from external independent law firms or debt collection agencies.

The FCA, which took over consumer credit in 2014, has stressed the seriousness of these techniques, urging other companies to pay particular attention to fair practice in debt collection – especially to those who are genuinely struggling to pay what they owe.

As harassment complaints about debt collectors increase, and high profile compensation cases hit the news for unfair fees and charges, it raises the question as to what is legal in the debt recovery world.

“Companies need to remain fair in their credit control proceedings,“ explained professional collection firm P&J Consumer Debt Services.  “Bad debt can cause massive pressure on a company’s cash flow and so it’s tempting to employ tough tactics to recover outstanding invoices – especially from those customers who are towing the line.  It’s important however not to tar everyone with the same brush.  As we’ve seen in the media, the authorities are coming down hard on illegal debt collection practices so companies need to re-think how they go about debt management from the moment they get a new customer on board.”

To find out more about legal debt recovery measures, read P&J’s 12-point checklist for legal debt recovery or contact them for professional debt recovery advice.

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