The payday loan firm that has united the North-east
Sponsorship is an emotive issue, as Wonga's new deal shows.
Wonga's £24m sponsorship of Newcastle United announced this week has started a spark of protest in the region. The complaints focus on the fact that the payday lender targets hard-up people with expensive loans they often can't afford.
Wonga is a relatively young business so is keen to raise its profile among people who may be tempted by the chance of borrowing money very easily. The north-east is a prime recruitment area, with Newcastle the 40th most deprived borough in the country.
But local debt experts fear that Wonga's arrival as Newcastle United's shirt sponsor could encourage more people into easy credit and, eventually, into a desperate debt cycle and even into the arms of unscrupulous and often violent loan sharks.
Shona Alexander is manager of the Newcastle Citizens Advice Bureau (CAB). "Our workload has increased remarkably in the past 12 months and more and more people get into trouble by taking out payday loans," she says.
"The lenders seem to target young people which is why it's worrying that the Wonga deal includes funding for the football club's academy. They're exactly the kind of people that payday lenders want to get their grips into."
Alison Baxter is development manager at Financial Inclusion and Capability North East, a new company recently set up to tackle financial exclusion and improve financial confidence in the area.
"High cost credit, and, in particular, payday loans, are a great cause for concern in the north-east," she says. "Some parts of the region suffer from high levels of deprivation, more people are economically inactive than in the rest of the UK, and we have fewer job vacancies. Coupled with the lowest household incomes in England, this creates the perfect market for high-cost lenders as more people struggle to cope financially."
Wonga already sponsors Blackpool FC, which is located in another area notable for being full of struggling, hard-up folk. The company claims it doesn't target vulnerable people, but there's plenty of evidence of Wonga's irresponsible advertising or the company trying to flog its expensive loans to people who are unlikely to be able to afford them.
Earlier this year we reported it caused outrage by suggesting in an article on its website that students should take out loans that cost up to 4,214 per cent rather than using Government-backed student loans, which charge around 5 per cent.
Before being removed, the article outrageously suggested that "student loans potentially encourage you to live beyond your means".
In the summer, the Office of Fair Trading criticised Wonga for accusing some of its own customers of being fraudsters. Aggressive letters and emails were sent to struggling people who had started debt-management plans to try to stop their debts spiralling out of control.
Even this week Wonga was in the news after its ads were found on a smartphone app aimed at children. The Talking Ginger app teaches children how to get ready for bed but included Wonga ads offering "cash loans of up to £400".
The Office of Fair Trading is now investigating the whole sector amid accusations that payday lenders target the vulnerable and encourage them into a spiral of debt by rolling over loans, month after month, until the total owed is much more than the amount originally borrowed.
Wonga has made huge profits on the back of its offer of easy money. It made pre-tax profits of £59.2m in 2011 – more than four times the 2010 figure of £14.1m, showing how it's cashed in on people struggling to survive during the recession.
In Newcastle, council leader Nick Forbes was disgusted with the club's tie-up with Wonga. On Monday he wrote to Newcastle United owner Mike Ashley to raise his concerns.
"The city council is leading a campaign against legal loan sharking as we believe it is morally unjustified and will cause financial hardship and misery for thousands," he wrote. "I believe the sponsorship deal is the wrong image for Newcastle, NUFC and football as a sport."
Back at Newcastle CAB, Ms Alexander is worried that the more people are encouraged into taking out a Wonga loan, the more will step down a path into the arms of local loan sharks.
"In our experience, it is often the case that someone who gets into trouble with payday lenders then turns to local loan sharks, who often work in groups on the estates," she says. "While Wonga and other payday lenders are aggressive in chasing debts, at least they only send threatening texts or emails.
"The loan sharks terrorise their clients, so much so that people are often too scared to tell us how much trouble they've got into."
A couple of Newcastle illegal loan sharks have been successfully prosecuted, but the battle to stop them continues. The arrival of Wonga as the local club's sponsor, won't help the campaign to keep people out of the clutches of the unscrupulous.
"For the north-east the use of short-term, high-cost credit is on the increase," says Ms Baxter. "Raising its profile through the use of football sponsorship just means that more people will use it. In turn, that means the cycle of low-income leading to high-cost credit leading to even lower disposable income will continue.
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