Payday loan firms 'are out of control': They exploit the mentally ill, under-18s and even drunks, finds damning report by Citizens Advice

Research carried out by Citizens Advice which urged Office of Fair Trading to ban rogue firms

Payday loan firms have been criticised for charging crippling interest rates of more than 4,000 per cent

Anthony Breeze killed himself after being pestered by texts from payday loan firms demanding money

Harrassed: Anthony Breeze, pictured with his partner Amanda Lowe, killed himself after being pestered by texts from payday loan firms

Payday loan firms lent money at high interest rates to under-18s, the mentally ill, and even customers who were drunk, an investigation revealed last night.
Citizens Advice, which carried out the research, said the lenders were ‘out of control’ and urged the Office of Fair Trading to ban rogue firms.
It warned that such practices fuelled debt and misery among the vulnerable.
Payday loan firms have been criticised for charging desperate, low-income customers crippling interest rates of more than 4,000 per cent.
MPs on the House of Commons Public Accounts Committee are this week expected to demand tough action on the so-called legal loan sharks, and the OFT is already investigating 50.
OFT officials gave the firms a 12-week deadline, which expires next month, to improve their practices or risk losing their consumer credit operating licences.
It emerged this month that a man killed himself after being pestered by texts from payday loan firms demanding money.
Debt-ridden Antony Breeze, 36, from Bolton, who had a six-year-old daughter, burned to death after dousing himself in petrol and setting himself alight.
The soaring cost of living has provided rich pickings for loan firms, whose total annual lending has more than doubled from £900million in 2008 to £2billion.
Many who borrow small sums are encouraged to roll these over several times, ending up being charged far more than they can afford.
An analysis of 780 cases reported to Citizens Advice between November and May found evidence of appalling failures, including arranging loans for under-18s, people with mental health issues and some who were drunk at the time.
The charity said the firms make inadequate checks on borrowers, which has led to innocent people being chased for debts run up by criminals using stolen identities.
Some firms take more than they are owed from bank accounts and refuse to refund the money, while a number harass people who are in debt and hound others at the same address to shame the borrower into paying up.
Citizens Advice chief executive Gillian Guy said: ‘The payday loan industry is out of control and is acting as a law unto itself. It has shown a complete disregard for its customers.

‘Many have been driven into debt by irresponsible lending and their debts ballooned as lenders put pressure on them to extend the loans. 
‘The OFT has an opportunity to wipe out the distress caused by this industry and make sure it is transformed into a responsible short-term credit market. It is vital that, following the investigation, the OFT takes swift action to protect consumers from the harm caused by these unscrupulous lenders.’ 
As well as examining 780 loans in depth, Citizens Advice also looked at customer feedback on 2,000 payday loans from more than 100 lenders.
In nine out of ten cases, borrowers were not asked to show that they could afford the loan.
This confirmed concerns raised by the OFT, which said: ‘Too many people are granted loans they cannot afford to repay and it would appear that payday lenders’ revenues are heavily reliant on those customers who fail to repay their original loan in full on time.’

Ministers have ruled out putting a cap on the interest rates in what was seen as a victory for the lobbying of the payday loan firms, including the largest, Wonga

It gave the example of someone who borrows £300 for one month with a view to repaying an interest charge of £90, making a total of £390. 
But if they rolled over the loan three times and paid the interest off, they would end up paying £660. 
The OFT said that of the 50 firms it is investigating, it has received information from 48 saying they intend to provide proof they are operating within the rules, while the remaining two have surrendered their licences.
The Treasury and Department for Business have measures they claim will ensure the firms give a fair deal to customers. 
These include a new code of practice and tighter rules around the advertising of loans.
They also suggested there would be large fines for those that mislead or mistreat customers.
However, ministers ruled out putting a cap on the interest rates in what was seen as a victory for the lobbying of the payday loan firms, including the largest, Wonga.
The Prime Minister’s former digital adviser, Jonathan Luff, joined Wonga on a six-figure salary last year.
The firm has thrived during the recession. It sold a record 2.5million loans in 2011 – equivalent to more than 6,000 a day – and tripled its net income to £45.8million. 
It is keen to present itself as the acceptable face of payday lenders through its sponsorship of Saturday night TV shows on ITV, such as Red Or Black, which is fronted by Ant and Dec, and Newcastle United football club.
The business was founded in 2007 by two South Africans, Errol Damelin and Jonty Hurwitz, both 43. Mr Damelin is now said to be worth £34million, while Mr Hurwitz’s fortune is put at £25million.
The Consumer Finance Association, which speaks for the loan firms, insisted they have introduced safeguards to ensure they lend responsibly.
These include carrying out credit checks on all new applications, limiting the number of loan rollovers and providing help to those who get in to financial difficulty.
Earlier this month, they published a report claiming their customers were generally ‘intelligent, financially-savvy consumers’.