Payday lender Wonga will not face a criminal investigation after sending fake legal letters to customers, police have confirmed.

City of London Police said that, after a "thorough review", it has concluded "there is not sufficient evidence to progress a criminal investigation".

Last June, Wonga said it had agreed with the City regulator to pay £2.6 million in compensation for the letters it sent from non-existent law firms.

Last summer, City of London Police confirmed it would reassess whether Wonga should be subject to a criminal investigation after it sent fake legal letters to pressure customers in arrears into paying up.

Police had discussed the case a year earlier but it was previously decided that it should be left to regulators so the 45,000 consumers affected would not be delayed in receiving their compensation.

The case, which consumer campaigners described as a ''shocking new low'' for the payday industry, saw Wonga add charges to some customers' accounts to cover administration fees for sending the letters, from fictitious firms Chainey, D'Amato & Shannon and Barker and Lowe Legal Recoveries.

The Financial Conduct Authority (FCA) could not impose a fine on Wonga for what it described as ''unfair and misleading'' debt collection practices, which happened between October 2008 and November 2010, because the failings were uncovered by a previous regulatory regime and it does not have powers to issue retrospective penalties.

Wonga has apologised ''unreservedly'' and said the ''few'' people who were directly involved with sending the letters are no longer in the business.

The Law Society, which represents around 160,000 solicitors across England and Wales, also previously stepped up the pressure for an investigation.

Law Society chief executive Desmond Hudson said last year: ''It seems that the intention behind Wonga's dishonest activity was to make customers believe that their outstanding debt had been passed to a genuine law firm."

The statement issued by police today said: "The central allegations were that Wonga had deceived its customers by sending letters falsely purporting to be from lawyers with the aim of recovering outstanding debts from customers.

"After a thorough review of all the material gathered, the City of London Police has concluded there is not sufficient evidence to progress a criminal investigation."

Wonga, which is Britain's biggest payday lender with more than one million active customers, has recently tightened up its lending procedures, as well as removing its adverts featuring cuddly puppet characters from British TV screens.

It also said recently that it expects to be smaller and less profitable in the near term.

The payday lending industry generally has been subject to a huge clampdown after coming under the FCA's regulation last April.

Firms have only been granted interim permission to operate under the FCA's toughened regime and they will have to apply for full permission to continue operating.

Payday lenders are now no longer allowed to roll over a loan more than twice and and they can make only two unsuccessful attempts to claw money back out of a borrower's account.

Last month, the rules were tightened further, with a cap being placed on the overall cost of a payday loan as part of moves to stop such debts spiralling out of control.