Page last updated at 05:00 GMT, Saturday, 26 July 2008 06:00 UK

Call for action on payday loans

A purse
Providers of pay day loans could face increased scrutiny

Debt advice groups are calling for urgent action over payday loans that charge extremely high interest rates.

They want the market regulator to make lenders behave responsibly, as some companies have lent money at a rate equivalent to almost 2,000% annually.

Payday loans typically involve a lender advancing a customer cash, usually for a month, against a post-dated cheque.

The Office of Fair Trading (OFT) said they would be covered by investigations of the issue of responsible lending.

Although the loans, often used by people to tide themselves over until they get their wages, generally attract high rates of interest, the businesses offering them are properly licensed and they say they are professional and responsible.

One company providing payday loans, The Money Shop, told BBC Breakfast it offered a valuable service to those "who may alternatively be faced with high unauthorised overdraft costs".

It said the cost of its lending products reflected the levels of risks it took.


Beccy Boden Wilks, of National Debtline, a helpline for those in debt, said that the credit crunch meant that people were looking at alternative forms of borrowing.

"If they can't get another credit card balance transfer, they will start to look at other forms of borrowing, which could be payday loans or pawnbroking, which are quite expensive."

Damon Gibbons, of debt campaign group Debt On Our Doorstep, said urgent action was needed.

"We certainly welcome the fact the OFT says it is looking at the issue of responsible lending more generally in the UK," he said.

"But we want to push them further to ensure payday lending is at the top of their list and is acted on immediately.

"We believe there is a lot more they could be doing to curb the worst excesses of the payday industry."

Many loan shops are owned by American companies, and hundreds have opened in the UK after some state authorities capped the rates they could charge in the US.

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