Riiiight. What's a Wonga?

Stu Forster - Getty Images

It has been reported that Newcastle United are in "detailed negotiations" with Wonga.com for some degree of sponsorship - either a kit-only or kit + stadium deal - (it has also been reported that no negotiations are being held between the two parties as well...) We take a look at what a Wonga is.

It is international break time, which if you have been reading me lately means that I'm bracing for less-than-popular news from our fearless owner - and he looks set to not disappoint. We know that he has already canceled the shirt only deal with Virgin Money (you remember the one... the one reported to be worth £10m per year? Or was that £10m total over two years?) for next season to investigate other partnerships. The newspapers are alight with connections between Newcastle United and Wonga.com, a somewhat notorious payday loan operation.

Wonga.com is currently the shirt sponsor for Heart of Midlothian FC as well as for Blackpool. In addition, it was a participant in advertising through a family of Football League club websites through an entity called Football League Interactive. There has been backlash to this association, with supporters of 18 clubs having published a letter through The Guardian in March requesting their clubs' websites end the association. They are also encouraging 60 other clubs who have a similar association to join in. So what's the big deal?

There has been an enormous amount of adverse commentary in the press and parliament of the business practices of Wonga.com and the dozens of similar "payday loan" companies. It has been argued that these companies are doing nothing illegal – but that is only because there are at present few, if any laws, restricting their activities in UK. Their practices would not be allowed in most other European countries, or in most of the US.

--From The Guardian

The laws and regulations regulating payday loans in England leave significant loopholes through which less-than-honest business dealings aren't "technically illegal".

Payday loan companies will come under fresh scrutiny after the Office of Fair Trading (OFT) launched a review of the sector amid concerns some lenders are taking advantage of people in financial difficulty.

However, consumer groups warned that further action needed to be taken to prevent borrowers falling into "debt traps".

Payday lenders offer short-term loans to borrowers, usually up to £1,000 at a time. But interest rates and charges are high – APRs can reach as much as 16,000% – and lenders have been accused of targeting low-income borrowers who often end up rolling over their borrowing and accruing large debts.

--From The Guardian

The point of a payday loan company is to charge exorbitant interest as the loan life is intended to be quite short term - higher interest = more return on "investment". APRs at 16,000%, though? In contrast, here are the current payday loan controls in the state of Washington:

Under the Truth in Lending Act, the cost of credit must be disclosed. Among other information, you must receive information outlining the finance charge and the annual percentage rate (APR). The APR informs you of the cost of your loan. For example, a 14-day, $500 payday loan with the maximum fee permitted by statute would have an APR of 391.07%.

If you're into the whole payday lending thing, you can click through - this quote is only one of the several controls in just one particular state in the US. It's not just a matter of APRs and length of loans that Wonga has come under fire for.

Wonga staff had tried to collect some debts by suggesting the defaulting customers had committed fraud and might be reported to the police, it said.

The improper pressure was applied in letters, emails and phone calls.

--From The BBC

It's ok, though - Wonga says that they didn't deserve the censure of the OFT as the offenses "happened a long time ago" and asserting that the letters and scripts in question would not be used again. I'm sure that any of us can debunk the "it happened a long time ago" defense in terms of morally reprehensible behaviors without thinking too hard.

Is it all as bad as it sounds? Wonga would have you not think so. They assert that they are filling a "digital age role" in the financial industry, making short-term cash loans available 24-7 and "they have dared to ask some hard questions" about the financial industry. Their process purports to eliminate persons who would get themselves in trouble through this particular loan avenue. In fact, they say that their successes speak for themselves.

Wonga's technology filters out applicants who are thought to be too risky, and about 66% of them are currently turned down for not being credit-worthy.

For instance you have to have a regular income, a bank account, a functioning debit card, a mobile phone and a good credit record.

The result of this filtering is that so far only about 7% of Wonga borrowers have failed to repay.

--From The BBC

There are a number of questions still out there regarding this potential deal. Is it a shirt + stadium deal? Recent reports have suggested that if it is such a deal, it is worth £8m per year - if it is not, it's hard to imagine that the shirt sponsorship deal alone is going to be significantly more than the £5m that seemed to settle in regarding the Virgin Money deal.

What is your take? Can you live with a Wonga shirt sponsorship deal if it is not significantly higher than the Virgin Money deal? What if it is a shirt only deal at £8m? Would you be able to stomach it if St. James' Park became... Wonga.com Arena? Comments below!

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