Several debt advice groups have called for action over what they call the ‘worst excesses’ of companies offering payday loans.

Payday loans are generally used by customers to tide themselves over until their salaries are paid, and consist of an immediate cash advance for one month, set against a post-dated cheque.

However, interest rates can be very high, with some companies lending money at a rate equivalent to almost 2,000% annually.

Although the Office of Fair Trading (OFT) has said that payday loans will be covered in its general investigation into ‘responsible lending’, debt campaign group Debt On Our Doorstep has called for urgent action. A spokesman said:

‘We certainly welcome the fact the OFT says it is looking at the issue of responsible lending more generally in the UK. 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.’

Payday loan companies themselves, such as The Money Shop, argue that they are already properly licensed and professionally run. They claim to offer a valuable service to customers who might otherwise face high unauthorised overdraft costs, and that the high interest rates are justified by the high level of risk faced by the lender.