The payday lending sector is to face an 'extensive review' after concerns that some lenders may be taking advantage of people in financial difficulty.
The Office of Fair Trading (OFT) conducted a similar review in 2010, resulting in 43 companies surrendering their trading licences, while another 13 had their license taken from them.
Since then the payday loan market has grown substantially. "This combined with the current tough economic conditions makes it the right time for us to review the industry and improve protection for consumers," said the OFT.
The regulator said that evidence gained during the review will be used to boost standards across the sector and to drive out companies that are not fit to hold consumer credit licences.
"We are concerned that some payday lenders are taking advantage of people in financial difficulty, in breach of the Consumer Credit Act and not meeting the standards set out in our guidance on irresponsible lending," said David Fisher, director of consumer credit at the OFT.
"This is unacceptable. We will work with the trade bodies to drive up standards but will also not hesitate to take enforcement action, including revoking firms' licenses to operate where necessary."
Fifty payday lenders are to be visited by the OFT as part of the investigation, while leading up to the review the OFT has conducted a sweep of over 50 payday lending websites and written to the main trade bodies outlining areas where it considers advertising standards need to be improved.
The final report of the review together with information on follow up action will be published later in the year.
Joanna Elson, chief executive of the Money Advice Trust, said the number of calls made to National Debtline about payday loans has increased from 150 a day to 1,150 a day in the space of just two years.
"Payday loans have a habit of making a bad situation worse," she added.
"The people calling National Debtline who have borrowed from payday lenders tell us they are extremely aggressive in the way they collect debts, often refusing to listen to proposed repayment plans and demanding full and final settlements that represent huge profits for the payday lender based on the money originally given out."
Find the best loan for you - Loans Calculator
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.