The Government and regulators are facing calls to improve protection for customers falling into a 'downward spiral of debt' through payday loans.
The payday loan market has expanded dramatically in the UK in recent years, with companies such as Wonga and QuickQuid coming in for criticism over sky-high interest rates.
But the lenders have defended themselves, saying that they offer a viable short-term solution for borrowers who need money quickly, and citing stringent credit checks.
However, research by Which? has found an alarming trend of people getting trapped in debt as they are being hit by charges when they cannot afford to pay back loans on time.
A quarter of people who have taken out loans have been hit with hidden charges such as high fees for reminder letters, while one in five failed to meet their repayment deadlines, meaning the amount they owed rose quickly.
In fact, a third of people experienced greater financial problems as a result of taking out a payday loan, with 45% hit with unexpected charges.
The debt trap is compounded with 57% being encouraged to take out further loans, and 45% rolling over their loans at least once. A third of people were bombarded with unsolicited calls, texts and emails before they had even signed an agreement.
In addition, people were also potentially being allowed to take on credit they couldn't afford - eight out of 34 companies don't carry out any credit checks as part of their approval procedure, and nearly two-thirds surveyed were not asked about any aspect of their financial situation apart from their salary.
Which? is calling on the OFT to properly enforce existing consumer credit and lending rules that already apply to payday loan firms, and to go further without delay to protect consumers by restricting the default charges that payday loan companies can charge.
"With 1.2 million people taking out a payday loan last year, it is unacceptable for this rapidly growing number of people to be inadequately protected from extortionate charges and dodgy marketing techniques," said Which? executive director, Richard Lloyd.
"At its worst, this booming £2 billion industry can be seriously bad news for borrowers who are struggling to afford food or pay their bills.
"People are getting caught up in a debt trap, whacked with high penalty charges, or encouraged to roll over payments and take out more loans at inflated rates."
The group also wants the Government to review other options to protect consumers, including Australian-style proposals for sensible limits on the total cost of credit coupled with measures to increase the supply of affordable alternatives.
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