LONDON (Reuters) - Britain's consumer watchdog has launched investigations into several payday lenders over aggressive debt collection and expressed concern about 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 the economy struggles to recover from recession and 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.
The OFT, already reviewing the payday lending sector, declined to name the firms it is particularly concerned about.
The watchdog 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 percent, takes advantage of the financially vulnerable.
Wonga said 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 Financial Ombudsman Service, which deals with cases where lenders and their customers cannot agree a settlement, said it had seen a big rise in the number of complaints relating to payday lenders this year and is currently taking on about 50 cases each month.
In the first half of the current financial year, it received 271 new complaints about payday lenders, compared with 296 in total last year. About 80 percent of the complaints were upheld in favour of the consumer.
Many of the complaints alleged the charges being applied to loans were too high and loan providers would not accept a suitable repayment plan.
"It's perhaps inevitable that we're seeing an increase in complaints about payday lenders, as consumers who are finding it hard to obtain credit search for new ways to make ends meet," the Ombudsman said.
The OFT will publish a full report next year and state whether wider action is needed to tackle problems in the sector. Under UK laws, the OFT can seek court orders against businesses which breach consumer protection laws
Editing by David Goodman and Mark Potter