Citizens Advice has branded the payday loan industry "out of control" and called on the Office of Fair Trading (OFT) to protect consumers from "these unscrupulous lenders".
Research by the consumer group found payday loans companies were lending to under 18s, harassing those in debt, and pressurising borrowers into extending their loans.
Gillian Guy, Citizens Advice's chief executive, said: "The payday loan industry is out of control and is acting as a law unto itself.
"Many (customers) have been driven into debt by irresponsible lending and their debts ballooned as lenders put pressure on them to extend the loans."
Citizens Advice found cases of firms:
- Lending to under 18s, people with mental health issues, and people who were drunk when they applied.
- Chasing debts of people who were victims of identity fraud when the loan was taken out
- Taking more money from a customer's account than was owed
- Persistently taking money from bank accounts without giving warning to the borrower, leaving no money in their account
- Harassing those in debt and hounding others at the same address in an attempt to shame the borrower
- Refusing to help a borrower struggling to repay by agreeing to a reasonable repayment plan.
Opportunity to wipe out distress
In March, the OFT issued a warning to the payday loans sector to shape up or risk losing their credit licences.
"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, " Guy added.
So far, only one payday lender has had its licence revoked by the OFT and is no longer able to make regulated loans to UK consumers.