A NORTH-EAST MP last night called on Newcastle United to reconsider its relationship with payday loans company Wonga after it was ordered to pay £2.6m in compensation for "unfair and misleading debt collection practices”.

Jenny Chapman, MP for Darlington, said the firm, which sponsors the football club, had “behaved despicably”, after being found to have sent letters to customers in arrears from non-existent law firms threatening legal action.

The Financial Conduct Authority (FCA) said in some cases, Wonga added charges to customers' accounts to cover administration fees for sending the letters.

It added consumers were put under "great pressure" from communications sent by fictitious law firms to make loan repayments that many could not afford.

Wonga contacted customers in arrears under the names Chainey, D'Amato & Shannon and Barker and Lowe Legal Recoveries, leading customers to believe that their outstanding debt had been passed to a law firm, or other third party.

Further legal action was threatened if the debt was not repaid.

Neither of these firms existed and Wonga was using this tactic to maximise collections by piling the pressure on customers, the regulator said.

Mrs Chapman said: “I think the compensation should be paid at Wonga’s rates of interest. It is good they are being made to pay it back but it doesn’t address that they entice people to take loans that they can’t afford to pay back.”

She stressed the importance of the likes of Darlington Credit Union as better options for people in desperate need of a loan.

She added: “It is heartbreaking to see little kids running around in football shirts with Wonga on them as it desensitises debt to young people.

“I hope Newcastle United’s relationship with Wonga isn’t a long one and I urge them to reconsider the deal.”

Tim Weller, interim Wonga CEO, said: "We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result.

"The practice was unacceptable and we voluntarily ceased it nearly four years ago."

Citizens Advice chief executive Gillian Guy said: “Irresponsible payday lending has been a scourge on borrowers looking for a short-term loan to tide them over. People have been coming to Citizens Advice because payday lenders are harassing them, taking more money than they owe and chasing people for debts they didn’t take out.”

Martin Lewis, founder of MoneySavingExpert.com said: "This just shows that while Wonga hires expensive marketing, PR and public affairs consultants to try to position itself as 'the good guys in a bad industry', it's all a sham.

"Using lawyers as fake as its puppets, then having the stomach to charge people for it is a thuggish tactic, aimed at scaring and intimidating people who are already struggling.”

The ruling comes after Sir Hector Sants, a former chief executive of the Financial Services Authority, was appointed to head a task group for the Archbishop of Canterbury, Justin Welby, on responsible savings and credit.

Sir Hector launched the Church Credit Champions Network aimed at offering an alternative to payday lenders.

Mr Welby received widespread publicity last year when he said he had told Wonga founder Errol Damelin that he wanted to drive payday lenders out of business through the creation of credit unions.

A Church of England spokeswoman said: "This highlights the need for more responsible alternatives to payday lending and other forms of high cost credit.

"That is why the archbishop's task group is developing a set of practical initiatives to meet the need for more affordable and responsible lending and saving opportunities."

A spokesman for the Diocese of Durham said: “We have been talking about credit unions and likes of Wonga and payday loans for a very long time.

“We have been talking about getting churches to support local people and credit unions are a more affordable way and it keeps the money in the community.

“The one thing we have been saying is you have a choice and credit unions/community banks are the right choice.”

Newcastle United declined to comment.