The Office of Fair Trading has announced that it will be investigating the business practices of " pay day" lending companies that have proliferated when money has become less easy to obtain from banks and more traditional sources.

In theory, they lend clients small amounts of money for short periods at extremely high interest rates but if you don't repay the loan the interest mounts up very quickly.

With this kind of business there is going to be a higher level of default and the tactics these companies use to chase bad debts will be looked at in detail and some of them, as yet unidentified, are already under formal investigation.

The OFT has found that many of these transactions taken out in theory for short terms, run much longer than anticipated and the rates which can be in excess of 4,000%, can lock the borrower into an unpayable debt spiral, very quickly. At this stage the borrower has to face very dubious debt recovery tactics and this is one of the aspects of this business the Government is seeking to control.

There are over 200 companies preying on people needing to borrow urgently and it is very clear that this business sector needs some urgent regulation, probably long overdue.