The government’s Financial Services Bill, which was presented to Parliament today, could see Payday loan companies facing much tighter regulation.

Payday loans are designed to provide emergency funds for a short period of time.

Amounts of between £50 and £1,000 are offered on weekly or monthly terms for a charge of around £30 for every £100 borrowed.

If the loan is paid back at the end of the term there isn’t a problem, but they are extremely expensive if the loan is rolled over for another month, as the cost equates to interest rates as high as 2,000% APR.

Consumer groups have been calling for payday lenders to be more heavily regulated for some time, over concern that many people end up in a spiral of debt after using their services.

Housing charity Shelter recently warned that one in seven Britons have used payday loans or unauthorised overdrafts in order to pay their rent or mortgage in the last year.

Payday lenders are expected to come under the scrutiny of a new watchdog, the Financial Conduct Authority (FCA), which will have to power to impose unlimited fines on lenders that break the rules.

When the FCA starts operating in 2013 lenders have to undergo more rigorous checks before they can commence trading and will have to present a business plan and explain how they will treat customers.

The FCA will have stronger powers than current watchdog, the Financial Services Authority, to investigate firms believed to be flouting regulations and will be able to ban specific products that harm consumers’ interests.

The Financial Services Bill will also see the launch of the Financial Policy Committee and the Prudential Regulation Authority, which will take on some of the outgoing Financial Services Authority’s role.

Together the three new agencies will be expected to develop a regulatory culture of judgment, expertise and proactive supervision, rather than ‘tick-box compliance’.

Payday loan company Wonga has removed an article from its website which suggested that students should take out a payday loan rather than a Student Loan.

The article suggested that student loans, which charge around 5 per cent, encouraged students to live beyond their means.

With Wonga charging around 4,000 per cent for its loans, the article provoked protests from education groups, MPs, students and debt charities.

The National Union of Students (NUS) said that Wonga was wrong to target its marketing on students.

Vice-president of the NUS, Pete Mercer, said: “It is highly irresponsible of any company to suggest to students that high-cost short-term loans be a part of their everyday financial planning.”

He said that students should talk to the NUS or financial advisers at their university as financial support was available for students in difficulty.

Wonga removed the article, which it said was designed to make its services easier to find on internet search engines, and published a statement saying the article had given rise to misunderstandings and was out-of-date.

Worries over money are causing fewer students to apply to university, with the number of UK-born university applicants falling by 8% according to the Universities and Colleges Admissions Service (Ucas).

An increase in university fees, which can now be as much as £9,000, is believed to have contributed to the number of UK applications falling to 283,680, compared with 306,908 at the same point last year.

However this could be partly due to a significant increase in applications in 2010, when some students brought forward their studies in anticipation of the fee increase.

Martin Lewis, the head of a government taskforce on student finance information, believes that prospective students could be deterred by the mistaken belief that they would have to pay the fees upfront on their first day of university.

University fees can be paid with a student loan which students do not have to repay until they graduate and start earning more than £21,000.

Financial Services Limited and Shopacheck, which are both part of the Cattles Group, are writing to 1.4 million customers, warning them that back-up storage tapes containing their personal details have been lost.

The storage tapes contained the names, addresses and payment histories of 600,000 customers and the names and addresses of another 800,000.

They also contained HR data about 18,000 current and former employees of the Cattles Group.

The loss of the tapes, from the company’s office in Birstall, West Yorkshire, was discovered at the end of November and customers were contacted by letter the following month.

The Cattles Group has been criticised for not ensuring that the data was encrypted and correctly monitored and it has appointed a data security specialist to review security procedures across all its businesses.

The security breach is being investigated by the Information Commissioner’s Office which has the power to impose a £500,000 fine if a data breach has occurred.

Cattles group said: “There is no evidence that the information has fallen into the wrong hands or been used maliciously.

However, Cattles takes its obligations to protect the personal data of its customers and staff extremely seriously, and we deeply regret what has happened,” it added.

Payday loans companies such Financial Services Limited and Shopacheck have expanded in recent months as a result of the economic downturn.

With household incomes stretched by the high cost of living, tax increases and pay freezes many people are turning to doorstep lenders to cover their living costs.

A recent survey suggested that one million Britons took out a payday loan in 2010 to pay their mortgage or rent.

This type of loan allows customers to borrow small amounts, usually less than £400, for up to a month, but the annual percentage rate (APR) can be more than 4,000.

Marks & Spencer Money is offering borrowers a personal loan at a rate of just 6 per cent.

This represents the lowest rate since 2008 when Moneyback Bank was offering 5.8 per cent, while just one year ago Tesco Bank offered the lowest loan rate, of 8.4 per cent.

Marks & Spencer Money’s 6% deal is for personal, unsecured loans of between £7,500 and £15,000 for a period of one to five years.

Tesco Bank is not too far behind M&S Money after cutting its rate from 6.4 per cent to 6.1 per cent on loans of between £7,500 and £15,000 with a term of between one and ten years.

Yesterday the Co-operative Bank cut rates on all of its personal loans by one per cent for existing customers who hold Privilege and Privilege premier account holders.

This means that these customers can now borrow between £7,500 and £14,999 at 6.9 per cent, while the interest rate on loans between £15,000 and £25,000 has been cut from 8.9 per cent to 7.9 per cent.

Personal loan rates have been on a downward trend since the start of the New Year, with Santander and Barclays also announcing lower rates.

In related news the Bank of England has revealed that it expects UK banks to toughen their loan terms for both individuals and businesses because of difficulties in wholesale funding markets and the uncertain economic outlook.

In its fourth-quarter Credit Conditions Survey the Bank of England suggested that lenders would introduce more stringent credit-scoring criteria for mortgage applications and tighten covenants on business loans.

This means that homebuyers, who already struggling to raise the large deposits demanded by lenders, are likely to find it even more difficult to secure a mortgage in the coming months.

The supply of mortgages has plummeted since the onset of the international banking crisis in 2007.

The Student Loans Company is contacting customers who it believes may have had their personal details compromised as a result of a phishing attack.

The email attack was designed to steal students’ personal details and the company is advising students that a genuine email from the company would never ask them to divulge personal or financial information such as bank details.

The Student Loans Company handles government loans taken out by students at UK universities and colleges, to support them in their studies.

It has not confirmed how many customers may have been affected by the latest scam, which follows a number of earlier phishing attacks.

Attacks often take place in September, January and April, the months when most students pay the instalments on their loans.

Heather Laing, fraud prevention and detection manager for the Student Loans Company, said: “We are currently contacting a number of students by telephone who we have identified as being at risk of having their details compromised, to advise them of the necessary security steps they should follow to ensure their details are protected”.

Earlier this week it was announced that the Metropolitan Police Service has arrested six people over a phishing scam which targeted UK students in August.

The suspects are believed to have stolen more than £1 million through the scam which involved an email asking the Student Loan Company’s customers to update their loan account details.

A link in the email directed the students to a bogus website which appeared genuine but allowed the phishers to steal personal details and take large sums of money from bank accounts.

The suspects were arrested on suspicion of conspiracy to defraud, for money laundering offences and under the Computer Misuse Act.

The Office of Fair Trading (OFT) has today published guidelines which should help to stamp out unfair practices by credit brokers and intermediaries.

The guidance also clarifies the responsibilities of businesses who take referrals from credit brokers.

Earlier this year Citizen’s Advice complained to the OFT that credit brokers were cold-calling consumers and offering loans that they had no intention of arranging, in return for large fees which the customer was asked to pay up-front.

Many consumers paid an upfront fee on the understanding that they would receive credit at a certain interest rate, but they either never received the loan, or were offered credit at a much higher interest rate than they had originally agreed.

Following the complaint by Citizen’s Advice, the OFT launched a consultation process in order to address growing public concern over unscrupulous practices.

Other complaints included the unauthorised debiting of customers’ accounts, expecting customers to use premium rate phone numbers and dragging out the length of the call to bump up charges, as well as refusing to refund brokerage fees when it would be appropriate to do so.

David Fisher, Director of the OFT’s Consumer Credit Group, said: “The number of complaints in this area has risen significantly and is a cause for concern.

“Credit brokers and intermediaries must comply with our guidance. Any business that fails to do so will face the risk of enforcement action, which may include revocation of its licence.”

Under the new guidelines, brokers and intermediaries must offer clear information about their status, their fees and the commission they receive, and the customer’s right to a refund.

The OFT is calling on the government to make it illegal for credit brokers to ask for upfront fees in exchange for arranging loans.

The Office of Fair Trading (OFT) is warning people to steer clear of scam loan companies that take upfront fees but fail to provide credit, or offer unsuitable credit alternatives.

The watchdog has seen a 50% year-on-year rise in complaints about loan scams, particularly credit applications that involve upfront fees sent through money transfer companies. It has therefore issued key “dos and don’ts” for consumers as follows:

Do be cautious if a loan company cold-calls you.

Do some research about the business offering the loan – look for phone numbers and physical addresses and ask for information in writing.

Don’t believe adverts which indicate a loan is “guaranteed”.

Don’t give out your card details “for security reasons” as the company may then debit your account without you knowing.

Don’t wire money to loan companies using money transfer services.

Don’t go ahead with a loan if a company approves it and then demands a fee before you get the money.

In June, the OFT published new draft guidance that gives people better protection when dealing with credit brokers and the watchdog is asking consumers who think they have been approached or tricked by an advance-fee loan scam to contact Consumer Direct.

Provisional figures released today have revealed that the UK’s five biggest banks are on track to meet their lending targets under the Project Merlin deal.

Under the agreement, Project Merlin, Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander all committed to lend £190 billion to all businesses this year.

Of this figure, around £76 billion of credit should be made available to SMEs this year – equating to around £19 billion every quarter.

A spokesperson for the five banks said: “The Merlin banks are on track to meet their business lending commitments.”

The banks said they had lent £100.4 billion to UK businesses in the first six months of the year against an annual target of £190 billion.

Meanwhile, £37.4 billion of this went to SMEs against an annual target of £76 billion.

A spokesperson for the Treasury said: “Today’s provisional results are a big improvement, with lending to small businesses up by 20% for quarter two compared to quarter one.”

The Project Merlin agreement includes a clause that if banks do not meet lending commitments, chief executives will not be able to receive their maximum pay and bonus.

A report has revealed that the majority of small and medium-sized enterprises (SMEs) are successful when applying for credit.

According to the study, more than half (59%) of applicants were successful when applying for a loan, while 72% who applied for an overdraft were successful.

The figures come from the latest SME Finance Monitor report by market research firm BDRC Continental, which questioned 5,000 business owners.

The report comes shortly after figures showed that banks loaned £16.8 billion to SMEs in the first quarter – around £2 billion short of target.

Under the Project Merlin deal, agreed earlier this year, the big five banks all committed to lend around £19 billion every quarter to SMEs.

As a result of the shortfall, it was announced last week that the UK’s five largest banks: Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Santander, have launched a scheme aimed at providing support and financial advice for SMEs.

The latest initiative was established by the business finance taskforce and will offer firms support in areas such as finance, marketing and HR.

In the meantime, commenting on today’s report, the Federation of Small Businesses (FSB) said the key figure was the low percentage of firms actually applying for loans.

FSB chairman, John Walker, comments: “Small firms have been telling us for the past few years that they are fearful of approaching the banks for new finance, or to extend an overdraft, because they know they are likely to be turned down, or be offered a deal on terms that just aren’t favourable for them.”

Figures published by the Bank of England today have revealed that the “big five” banks loaned £16.8 billion to SMEs in the first quarter – around £2 billion short of the £19 billion target – agreed under the “Project Merlin”.

Under the agreement, Project Merlin, Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander all committed to lend £190 billion to all businesses this year.

Of this figure, around £76 billion of credit should be made available to SMEs this year – equating to around £19 billion every quarter.

In response, the banks said targets were missed due to weak demand from small businesses as a result of the weak economic recovery.

However, the Project Merlin agreement includes a clause that if banks do not meet lending commitments, chief executives will not be able to receive their maximum pay and bonus.

Last year, banks loaned £179 billion to businesses.