London - Britain's consumer watchdog has launched investigations into several payday lenders over aggressive debt collection and expressed its concern about general poor practice within the sector.
Payday lenders offer short-term loans, which are intended to be paid back when borrowers receive their wages. Britons have increasingly turned to these loans as mainstream banks have tightened their criteria for granting short-term credit.
"We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them," David Fisher, the Office of Fair Trading's (OFT) director of consumer credit, said on Tuesday.
"It is also clear that, across the sector, lenders need to improve their business practices or risk enforcement action."
The OFT identified issues around debt-collection practices, the adequacy of affordability checks made by lenders, the number of loans not repaid on time and the lack of forbearance shown by some lenders when borrowers get into financial difficulties.
Wonga.com, which offers individuals short-term loans of up to 1 000 pounds, more than trebled its earnings last year. Like other payday lenders, the company has faced criticism that its annual percentage rate (APR), listed on Wonga.com as 4 214%, takes advantage of the financially vulnerable.
The OFT is reviewing the whole sector and has said that some firms will face enforcement action if they do not improve their practices.
Wonga said that it welcomed the OFT's review. "We provide a valued, transparent service to more than a million customers and want to see rogue practices rooted out across all financial services," it said.
The OFT will publish a full report next year and state whether wider action is needed to tackle problems in the sector.