Wonga is to pay more than £2.6 million in compensation after it sent threatening letters from non-existent law firms to customers in arrears.
The controversial payday loans firm yesterday "apologised unreservedly" for sending the demands from the fictitious companies to try to force people to make loan repayments.
About 45,000 people are to receive compensation over the case after a ruling by the City regulator, the Financial Conduct Authority (FCA).
In some cases, Wonga added charges to customers' accounts to cover administration fees for sending the letters between late 2008 and 2010.
Wonga used the names of "law firms" Chainey, D'Amato & Shannon and Barker & Lowe Legal Recoveries. Further legal action was threatened if the debt was not repaid.
The regulator said Wonga had put pressure on customers to pay.
Citizens Advice Scotland head of policy Susan McPhee welcomed the ruling and said it would act as a warning to the industry to clean up its act.
She added: "Wonga's conduct in this example is completely unacceptable and more befitting of a backstreet lender.
"The idea that one of the UK's fastest-growing financial companies can think it's acceptable to make up fake legal firms to bully customers is extraordinary, and it is of course right that they have been penalised for this."
Richard Lloyd, executive director of Which?, said the case marked a "shocking new low" for the payday industry.
He said: "Wonga deserves to have the book thrown at it. The FCA must now also clamp down on excessive fees and charges, starting with default fees charged by some payday lenders, to show it is serious about getting a fairer deal for borrowers."
Tim Weller, interim chief executive of Wonga, said: "We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result. The practice was unacceptable and we voluntarily ceased it nearly four years ago."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article