An advertisement for Ltd. is seen on the side of a London bus as it passes the Bank of England in London, U.K., on Friday, Sept. 28, 2012. Oversight of Libor will be handed to the U.K.'s financial regulator, and dozens of the currencies and maturities that make up the benchmark axed, under proposals designed to revive confidence in a rate tarnished by scandal. Photographer: Simon Dawson/Bloomberg

London - Britain’s biggest payday lender, Wonga, will pay £2.6 million (R47m) in compensation to 45 000 customers after sending them bogus letters from non-existent law firms that threatened legal action.

The short-term loan industry has come under increasing scrutiny from politicians, regulators and even the Church of England for high interest rates that cause hardship to many.

In some cases Wonga added charges to cover the administration fees of sending the letters, according to an investigation begun by the Office of Fair Trading and taken on by the Financial Conduct Authority (FCA).

The watchdog said the unfair practices between October 2008 and November 2010 had put customers under great pressure to make repayments that many could not afford.

“It’s a shocking new low for the payday industry that is already dogged by bad practice and Wonga deserves to have the book thrown at it,” said Richard Lloyd, the executive director at consumer advocacy group Which?.

The bogus letters were sent under the names of “Chainey, D’Amato and Shannon” and “Barker and Lowe Legal Recoveries”, neither of which existed.

The FCA ordered Wonga to offer all 45 000 customers a flat rate of £50 for distress and inconvenience and to refund those who had paid legal charges, estimated at £400 000.

The Archbishop of Canterbury, Justin Welby, has pledged to drive payday lenders out of business by supporting credit unions. Former regulator Hector Sants is leading a task force set up by the church.

Wonga’s interim chief executive, Tim Weller, apologised “unreservedly” yesterday. The company also apologised for unrelated systems errors that resulted in a miscalculation of some customers’ balances.

Wonga made a £62.5m profit in 2012. – Reuters