The Financial Conduct Authority (FCA) said Leeds-based Motormile has agreed to write off £414 million of debt and pay £154,000 to 2,148 customers after it slammed the firm over the way it was pursuing them for debt repayments.
Motormile, which also trades as MMF, MMF Debt Purchase and MMF UK, had been calling customers up to five times a day as it sought to recover money owed.
The firm buys up debt portfolios, such as old payday and car finance loans, and then looks to recover the debts.
But the FCA said its IT systems were not up to scratch and it had failed to carry out the proper due diligence to make sure the sums of money that were said to be owed were correct.
“This in turn led to unfair and unsuitable customer contact for recovery of those sums,” added the FCA.
The redress programme agreed with Motormile means the vast majority of the 500,000 affected customers will see debts written off - typically running to several hundred pounds each.
But cash payments will be made to those who have already started making payments to Motormile.
Jonathan Davidson, director of supervision for retail and authorisations at the FCA, said: “We have agreed this package, and previous action, to protect the customers of Motormile from unfair practices.
“We have worked closely with Motormile, and are now satisfied with their progress and the way that they will address their previous mistakes.”
The FCA imposed a restriction earlier this year on Motormile that meant it could only contact a debtor up to two times in writing and two times over the phone each week.
It then authorised Motormile in August after the firm made “major changes”, including a new IT system and the appointment of Denise Crossley as chief executive.
Motormile apologised to those impacted in a message on its website and said they would be contacted regarding redress by email or post in the coming weeks.
It hopes to complete the redress scheme by February.