The loans which first became prominent in the US during the current credit crunch have begun to be taken up in greater numbers in the UK and as far afield as Australia.

The offshore companies behind the loans often make no credit or income checks on borrowers and charge interest sometimes as high as 3000% annually.  In some states including New York these types of fast loans have been banned outright for their extreme interest rates posing a danger to consumers.

These loans are prominently advertised on the Internet, a typical example is that of Pounds Till Payday which, operates from Malta and its website declares annual interest rates of 2,225 per cent.

Peter Tutton, debt policy adviser at Citizens Advice said:

“We are concerned that although payday loans have been on the UK high street for some time they are now springing up in increasing numbers online.  Until recently people on a low income could still access loans from mainstream lenders but now the banks have closed their doors to higher risk customers.”

The majority of those taking up these kinds of loans are often the most desperate members of society who have been rejected by high street banks because of the cutback in loans during the credit crunch.  Many have no way of raising enough money to pay all bills and expenses.

The Guardian reports that:

“No credit checks are carried out and all that is required in most cases to get the money is bank account or debit card details. The money is paid into the borrower's account the same day and is debited straight from the account - with charges - 31 days later.”

Many have criticised the lenders excessively high rates and its lack of credit checks calling them dangerous and irresponsible.  The Archbishop of Canterbury recently called for an ‘urgent review’ of this kind of lending. 

Citizens Advice recently discovered the case of a single mother who only received a weekly income of £250 taking out a loan with interest rates of over 1000%, which would be near impossible to pay back.

“Her mental health was deteriorating and her financial situation was becoming increasingly impossible,” said a Citizens Advice spokesman.

Damon Gibbons, chair of Debt On Our Doorstep, a coalition of debt charities and credit unions, who have recently tabled a motion in Parliament calling for an investigation into them, says:

“We would suggest that not bothering to run any credit checks or verify income constitutes irresponsible lending and would like the Office of Fair Trading to look at whether these companies should have their credit licences revoked”

As well as the lenders, some prominent internet based price comparison websites have come under fire for advertising payday loans.

Sean Gardner, chief executive of Moneyexpert.com says:

“Payday loans have their place, but people have to be very clear about what they are signing up for. There are rightly serious criticisms about the product and they should come with a health warning.”