With pay freezes, relatively high inflation and the rising cost of living at the forefront of many people’s minds, pay day loan companies have become something of an essential industry in the country today. As more and more people struggle to pay bills and mortgages on time, these companies are becoming increasingly popular, with millions of short term high interest loans approved every year in the UK.
However, Wonga has been accused of targeting the most financially vulnerable in society by becoming an official sponsor of football club Newcastle United, with the official body for the insolvency industry in Britain now becoming involved in the controversial issue.
R3, which is made up of 97 per cent of the UK’s insolvency practitioners, has released figures which seem to indicate that the pay day loan company is preying on areas of the country which have the highest rates of bankruptcy per head.
The North East, including Newcastle, has been one of the worst hit areas since the recession began in 2008, with an average of 32.5 adults per 10,000 now claiming insolvency. This compares poorly to London, where 17.5 adults in 10,000 are insolvent, and even the neighbouring North West has managed to remain relatively stable, with 29.6 adults per 10,000 insolvent on average.
Furthermore, R3 discovered that 26 per cent of people in the North East admit to struggling financially in the week leading up to pay day, compared to 21 per cent on average in the rest of the country.
Lee Manning, R3 President, says; “Wonga has chosen to target a region that has comparatively high numbers of people experiencing financial difficulty.
“Our experience tells us that many of those seeking high cost credit need professional advice for their financial problems, rather than accruing further debt.”
The controversial pay day lenders have already been accused of taking advantage of the financially vulnerable due to the high interest rates charged on their loans. The typical annual percentage rate (APR) is 4,214 per cent – meaning that customers often end up paying back far more than they borrowed in the first place.
Yet, unfortunately, in the current financial climate many people feel they have to turn to these high interest lenders in order to make ends meet. In 2011 alone, Wonga approved 2.5 million loans, which is an increase of 296 per cent from 2010. As banks have tightened the purse strings when it comes to lending, companies like Wonga can end up being the only option for those with bills to pay and homes to run.
Many Newcastle United fans have voiced their displeasure at their club’s decision to emblazon Wonga’s logo on the players’ shirts, with local MP Ian Lavery even threatening to give up his two season tickets in a public boycott should the sponsorship deal go ahead.
The Labour MP said; “Newcastle United will be sponsored by the money of deprived people up and down the country.
“If Wonga get this sponsorship through I will not set foot in St James’ Park until it is off the shirts. To have those players running around on that turf endorsing Wonga is an absolute outrage.
“I have more and more people coming to see me and saying that as a result of job losses or benefit cuts they are being forced into these terrible but legal money lenders whose interest rates only then trap them into further debt.”
Should the deal go ahead, Wonga will contribute £1.5 million to the club’s youth academy, which encourages promising youngsters from the local area to work their way up in the game, on top of the £24 million shirt sponsorship investment. Part of the contribution will also go to the Newcastle United Foundation Enterprise Scheme, which helps young people in Newcastle find employment.
Founder and CEO of Wonga, Errol Damelin, said; “We are really proud to be involved with Newcastle United.
“It is one of the biggest and most important clubs in the UK by any measure and has a fantastic following around the world.
“We are also really excited about investing in future stars both on and off the field. The Academy and the Enterprise Scheme gives us the opportunity to make a big difference.”
Do you think pay day loan companies such as Wonga should be allowed to, in effect, advertise through popular culture by using sponsorship deals? In your opinion, should such companies be monitored by an independent body to ensure they are not treating customers unfairly?
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