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Show Wonga the Red Card

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Julian Knight has written a counter-intuitive reaction post to the news that Wonga's sponsorship with Newcastle United Football Club has carried successfully:

as someone who has written about Britain's addiction to debt for well over a decade, you think I'd be lining up to pour scorn on Newcastle's owners. But I'm not

Knight observes that there was little scorn when the payday lender sponsored former Premier League club Blackpool and what's more, that a slogan is displayed on the front of a shirt does not mean people will then go out and borrow from Wonga. After all, we weren't much better off with Northern Rock, who Wonga have replaced on the front of the shirts.

In sum, payday lending was boosted by the recession and it would be a better use of our time to concentrate on what caused that boost: bad bank lending policy, poor personal finance education and poverty pay.

With the first point, though the noises weren't quite so loud, many campaigners were disturbed that Wonga were winning their battle for respectability by printing their brand on the fronts of football shirts.

Chris Walker for example, editor of Blackpool site Up the 'Pool, told Thom Gibbs of the Telegraph:

"I think it's extremely disappointing to see Blackpool associated with such a company when the Fylde coast is the sort of deprived area where payday loan companies tend to thrive, to the severe cost of working class people in some instances."

With Newcastle being a team with a higher profile, it's not surprising to me that the issue has gained more reach. Moreover - and as per the point of sponsoring football teams - the greater exposure for the company does increase their brand identity and the prospect of selling more loans.

On Knight's point about Northern Rock, he is right to spot slight confusion here. After all Northern Rock signed thousands of borrowers up on 125% mortgage deals - which will cause tremendous problems for those borrowers for years to come.

The difference here is that banks and banking are, in general, healthy for a society and when there is a problem within this sector, we naturally want to see the sector reformed. Banks are a part of civil society, whereas payday lenders are a sign of society losing its privilege to call itself civilised.

Payday lending is an outside agitator, which aims to increase our debt profiles, and when we see problems within it, we tend not to want to reform it, but ensure the reforms within the banking sector price this type of product out.

Many negative things have been given a boost by the recession (illegal loan sharks for example), and we can blame the banks for what they've created, but this does not absolutely absolve those companies who perpetuate the debt crisis in the way payday lenders do.

We can blame the banks for opening a window for legal loan sharks on our high streets, but when those companies lend in breach of the Office for Fair Trading's guidance then the blame must lay entirely with them.

In 2010 the OFT's guidance for creditors on irresponsible lending pointed out that:

All assessments of affordability should involve a consideration of the potential for the credit commitment to adversely impact on the borrower's financial situation, taking account of information that the creditor is aware of at the time the credit is granted.

Wonga are just as likely to ignore this guidance as other payday lenders. During an interview in March 2011 by the Guardian journalist Amelia Gentleman, with the opportunity to showcase some examples of, in Gentleman's words, the "web-savvy young professionals that the company believes it's catering to", Wonga decided to showcase Susan. Gentleman writes of Susan:

She finds that with the cost of living rising, her benefits sometimes don't stretch to the end of the month, and has taken out loans with Wonga to buy food, if she's caught short. She's a bit vague, but thinks she's taken out half a dozen loans with Wonga over the past few months...She has had problems with credit cards before, and doesn't have an overdraft, but Wonga gave her credit very swiftly.

Not only will Susan's income be significantly less than that of the average person to take out a Wonga loan, according to Wonga themselves, she manages to be in that category of people who haven't access to mainstream forms of borrowing, has taken out nearly double the average payday loans per year per borrower (three and a half), has taken out exactly double the average amount of loans Wonga customers use and is still an example Wonga felt was a "good representative."

Julian Knight is absolutely correct to say that we must concentrate on the causes as well as the symptoms of the financial crash, debt and poverty in the UK. But this in no way means we should not criticise Wonga and pour scorn on Newcastle United for accepting their cash and granting them more legitimacy.