Consumer organisation Which? has announced the results of its investigation into default fees charged by payday lenders. Its press release on the subject lists the fees charged by 17 lenders, and Which? has suggested that ten of these charge an inappropriately high fee of £20 or more. The highest fee is the £30 charged by Wonga, while MoneyShop charges £29 and customers of MyJar and SpeedyDosh can expect to pay £25.

Which? has even asserted that the fees being charged are illegal, in that the Unfair Terms in Consumer Contracts Regulations 1999 prohibit default fees being charged that are disproportionate to the administrative costs incurred by the lender as a result. Some lenders can expect to receive a letter from Which? regarding this.

They go on to say that their research indicates that 56% of payday loan borrowers incur some form of late payment fee, and also state that previous guidance from consumer credit regulator the Office of Fair Trading has suggested that default fees should be no higher than £12 for credit card defaults, unless there are exceptional circumstances. None of the 17 lenders charge less than £12, while four charge exactly this amount – QuickQuid, MyMate, Zebit and Safeloans.

Which? then re-iterates its call for a cap on default fees to be imposed as part of the restrictions on the overall cost of credit that will be set by new credit regulator the Financial Conduct Authority, and that will come into force in January 2015.

Richard Lloyd, executive director at Which?, said of his organisation’s findings: “We believe payday lenders are exploiting borrowers with excessive fees which can push them even further into debt. If they cannot justify why these charges are so high and refuse to cut them, we would look to take further steps to protect vulnerable consumers. The regulator must also take action to ensure all fees are fair, proportionate and only reflect lenders’ costs.”

A spokesman for Wonga reacted to the study by saying: ‘We charge a one-off default fee of £30 on late repayments that reflects the additional costs we incur in collecting these loans. This charge has been independently assessed as reflecting these expenses.”

Russell Hamblin-Boone, Chief Executive of the Consumer Finance Association, a trade association which represents a number of payday lenders, said: “We do not comment on prices. The industry is subject to a market investigation by the Competition Commission and this is the appropriate body to make judgments on fees.  It is for the regulator to rule whether lenders are compliant with the current trading regulations and have made their charges clear to customers. Our members, of which only four were reviewed in Which?’s survey, are responsible lenders that are committed to helping those in financial difficulty rather than immediately imposing default fees.”