Payday loan company Wonga is to pay £2.6 million compensation after it pretended to be a non-existent law firm in an attempt to convince customers to repay their debts.
The controversial company, which offers short-term loans to over one million UK customers, now has to offer compensation to 45,000 customers who suffered as result of such "unfair and misleading" practices.
Wonga customers who were overdue on their debts would receive letters from "Chainey, D'Amato & Shannon" and "Barker and Lowe Legal Recoveries", leading customers to believe they were facing imminent legal action.
But neither of the companies actually existed and Wonga was instead using this tactic to increase the pressure on customers, the Financial Conduct Authority found.
Customers were then charged administrative fees for receiving the fake legal letters.
The regulator said Wonga often exacerbated "an already difficult situation for customers in arrears" with its tactics, which put customers under great pressure to make loan repayments that many could not afford.
Wonga, which advertises itself under the slogan "straight talking money" and features a group of elderly puppets in TV adverts, said it had stopped such practices in 2010.