Debt firms that take upfront fees from people but fail to offer them a loan have been warned they face closure.
The stark warning has been made by the Office of Fair Trading (OFT), which has been investigating a complaint made by Citizens Advice.
The complaint was made after the charity found that some firms were calling people with the offer of loans, but demanding an upfront fee.
As well as taking money and offering no services in return, some firms had requested people's bank details and taken fees without having obtained permission to do so.
It is estimated that 270,000 UK consumers paid an upfront fee to a sub-prime, unsecured credit broker in the last 12 months, typically between £50 and £70, on the expectation of being offered an unsecured loan.
Complaints to Consumer Direct about these upfront fees more than doubled between 2008 and 2010.
In response, the OFT has told firms they must pay back any fee paid to them if a loan is not arranged.
The Government will also be asked to look at changing the current laws so that firms are not allowed to ask people for upfront fees.
Any firms found to break the new rules will have their operations shut down.
"The super-complaint from Citizens Advice has been timely given our ongoing work to protect vulnerable consumers from poor practice in the credit sector," said John Fingleton, chief executive of the OFT.
"Our evidence suggests some businesses are deliberately taking people's money upfront with no realistic expectation of finding them the type of loan they need.
"We will continue to take robust enforcement action against businesses using unfair or improper business practices and we are providing new guidance making very clear the kind of behaviour we expect from the industry.
"We are also asking the Government to look at the impact of a ban on upfront fees."
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