WORCESTER'S MP has welcomed the news that the UK's biggest payday lender is handing £2.6 million compensation to 45,000 customers.

Robin Walker told your Worcester News the decision to heavily punish Wonga is a big step forward.

The firm has been handed the penalty by the Financial Conduct Authority (FCA) for what it called 'unfair and 'misleading' practices.

An investigation launched by the Office of Fair Trading found the company had sent letters to customers in arrears from non-existent law firms threatening legal action.

In some instances Wonga added charges to customers’ accounts to cover the administration fees associated with sending the letters.

Mr Walker has done a lot of lobbying in parliament to encourage tough measures on payday lenders.

He says some of the tales he's heard from constituents in Worcester, several of whom have ended up thousands of pounds in debt after going to payday lenders, have concerned him.

He said: "This is very interesting - it's certainly a sign that they have been behaving badly for a long time, and politically it's a reminder that much of the problematic behaviour by payday lenders started under the last government.

"I am glad we are now introducing tougher regulation and a cap on the cost of credit but this shows that other areas such as collection practices are just as important.

"It's good to see the FCA is able to take tough action to ensure that where loans have been improperly collected, the people who took them out are repaid."

The failings took place between October 2008 and November 2010, and saw Wonga use what the FCA call "unfair debt collection practices" to put people under pressure to take out loans they could not afford.

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

Wonga will start contacting customers in July to offer compensation, with money likely to be paid by the end of the month.

"We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result," said Tim Weller, interim chief executive of Wonga.

"The practice was unacceptable and we voluntarily ceased it nearly four years ago."