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Payday loans market rife with poor practice, finds Which?

26th September 2011 Print

A Which? Money investigation has uncovered widespread poor practice in the payday loans market, including potential breaches of the Consumer Credit Act, poor privacy provisions and inflated APRs.

With the take up of payday loans on the increase, the consumer champion has reported two lenders - and - to the Office of Fair Trading (OFT). appeared to be operating without a valid Consumer Credit Licence, while failed to show the APR for its loans anywhere on its website.

Which? has also reported Casheuronet UK, which operates and, to the Information Commissioners' Office (ICO)  after its researcher received dozens of unsolicited third party emails and phone calls in the days following his application. This was despite the lender assuring Which? that it does not sell customers' details to third parties.

Other examples of poor practice included potentially misleading claims about APR, firms encouraging customers to borrow more than they need and to rollover existing loans for several months. Which? also found that several firms had lax website security, with one provider requiring customers to enter their bank details on an unsecured page.

Payday loan providers typically charge from £20-£35 for a short-term £100 loan. The most expensive Which? found was offered by, which quoted £36.72 for a 30-day loan of £100 - equivalent to an APR of 4,394%. The same amount borrowed through an authorised overdraft from Which? Recommended Provider Co-operative Bank would cost just £1.35.

Which? executive director, Richard Lloyd, says: "Payday loans might seem like a good solution for people whose money won't stretch to the end of the month, but they should be treated as an absolute last resort. They can be an incredibly expensive way to borrow and we've uncovered a long list of poor practice by lenders.

"A temporary overdraft extension can be a much cheaper, safer way to borrow so if you're struggling to get to pay day then the first thing you should do is talk to your bank. 

"With increasingly squeezed household budgets, more people are taking out payday loans so it's vital that regulators keep a close eye on providers and deal firmly with any lenders breaking the rules."