Payday lenders have been branded as "out of control" by debt advice charity Citizens Advice, after it found cases where money had been lent to people who were aged under 18, had mental health issues, or were drunk when they took out the loan.

The charity also found that people were being chased for loans they had never taken out and customers were being "hounded" at their home to shame them into paying up (see our Debt Problems guide for what to do and where to get help if you're struggling).

Struggling borrowers' bank accounts were being drained of cash "without any warning" by lenders using a type of payment agreement called a continuous payment authority (CPA). While the charity also found evidence that some lenders took more than they were owed and refused to give a refund.

It also said that in almost nine out of 10 (87%) cases, borrowers were not asked to hand over documents to show they could afford the loan.

Meanwhile three-quarters of people questioned said they struggled to repay their payday loan and 84% of people with repayment problems were not offered the chance to have their interest and charges frozen.

The debt advice charity has been calling for banks to offer "micro-loans" as an alternative to pay-day lenders.

Payday loan industry 'out of control'

The findings come at a time when Britain's biggest payday lenders are under threat of being put out of action if they fail to prove to the Office of Fair Trading (OFT) that their practices are up to scratch.

The OFT is expected to announce whether it will refer the payday market for an investigation by the Competition Commission in June.

It handed 50 payday lenders a 12-week deadline in early March to prove their good behaviour or risk losing their licences, which they need in order to trade (see the Payday loan firms told to play fair MSE News story).

Citizens Advice chief executive Gillian Guy describes the payday loan industry as "out of control" and says it has shown a "complete disregard" for customers.

She says: "It is vital that, following the investigation, the OFT takes swift action to protect consumers from the harm caused by these unscrupulous lenders."