COMPANIES offering short-term 'payday' loans are being invesitgated by the Office of Fair Trading, according to reports.

Debt advice groups claim the loans charge interest rates of up to 2,000% annually and are calling for the Government to take action over the loans.

But the firms, which are already regulated and licensed, say they are responsible and offer a valuable service to people and claim the high cost of their loans reflected the high level of risk involved.

Payday loans generally involve the lender advancing the customer cash in return for a post-dated cheque.

The BBC reports the OFT is to investigate the lenders.

Beccy Boden Wilks, of debt charity National Debtline, told the BBC that the credit crunch meant that people were looking at alternative forms of borrowing.

“If they can’t get another credit card balance transfer, they will start to look at other forms of borrowing, which could be payday loans or pawnbroking, which are quite expensive,” she said.

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