Universities minister David Willetts has admitted he did not know the Student Loans Company was sending misleading debt-recovery letters to graduates – even though his department was informed back in February.

Willetts said the use of the letters, which were addressed from ‘Smith Lawson and Company’, had not been brought to his or the business sectretary’s attention before they were reported in the media last week.

But in a written ministerial statement to the House of Commons today, Willetts said the Office of Fair Trading had contacted the Department for Business, Innovation and Skills, in February with concerns about the practice.

The OFT considered the letters ‘misleading’ because they created the impression that debts had been escalated for collection by transfer to a third party. In fact Smith Lawson was a trading name of the SLC, even though the letters referred to the company as ‘my client’.

Willetts (pictured) confirmed use of the letters has now been permanently scrapped, after being suspended last week, though he admitted that two letters and some emails had been sent in the past seven days by mistake.

Willetts said he has insisted that SLC conducts a review of the strategy that led to it sending misleading debt collection letters to around 309,000 graduates from 2005 onwards.

The company suspended the letters last week after the Financial Conduct Authority ordered payday lender Wonga to pay compensation to customers who received letters purporting to be from two fake law firms.

Willetts said Christian Brodie, chairman of the SLC, had offered his resignation last week, which was not accepted. 

But he has ordered that the new executive director for repayments and fraud will conduct a review of the collection strategy to ensure people are treated fairly.

Willetts said: ‘It is important that the government recovers taxpayers’ money, but it must do so in a way which is fair. It must not use misleading tactics to get people to do the right thing.’

Willetts added that the SLC will seek assurance from its legal advisers that it is ‘fully compliant with the spirit as well as the letter of consumer credit protection and financial services legislation’.

He promised there would be ‘no repeat in future’ and that: ‘The company is now ensuring that its procedures and correspondence adopt the high standards of customer service expected of it as a public sector organisation.’