Credit Action says that with credit becoming harder to obtain from traditional high street sources, social networking sites such as Facebook, which are hugely popular among young people, are seen as fertile marketing ground for expensive credit. It's advising Facebook users to warn the website about adverts which break the rules.
Payday loans are big business in the US and have been blamed for exacerbating the country's housing and economic crises - and now they are over here too and cashing in on the fact that credit is increasingly difficult to obtain for some people.
PayDay UK is one of the companies advertising on Facebook but a quick Google search brings up firms such as Quick Quid, ePayday Loan, Payday Express and SamedayMoney all offering the same type of loan and claiming to be the answer to consumers' financial woes.
In most cases all you need to qualify is be over 18-years-old, have a full time job, a bank account and a debit card. The debt is re-paid on payday either by a post-dated cheque or by debit card.
Expensive credit
Payday loans are designed to be paid back over the short term. Generally they allow you to borrow between £80 and £750 until you get your salary and most charge £25 for every £100 borrowed. So if you take a loan of £500 you will repay £625 when you get paid by your employer at the end of the month.
Although this might sound reasonable in an emergency, the charges can spiral if you cannot pay the money back when it's due. If you fail to pay it back on payday the firms add on another £25 charge per £100. Fail to pay back any of the £100 loan for, say, six months, and you will be looking at having to repay nearly £400.
Payday UK openly admits that this equates to an APR of 1,355% but says the APR is a false measure as it is intended that you repay the cash over a month, rather than a year. The companies behind the ads - such as MEM Consumer Finance - also claim the loans work out cheaper than bounced cheques or unauthorised overdrafts.
When a payday loan might make sense
In some cases this can prove correct - and used with caution payday loans can help people out of short term problems. Tom Black is a typical example. He got himself a bad credit rating as a student and, three years later, an error at the bank forced him to go seriously overdrawn. With few other options open to him he took out a payday loan from Payday UK to see him through Christmas.
"I had heard bad things about these companies but carefully studied the terms and conditions," he says, "It seemed that for every £100 borrowed I would be charged £25. Obviously that would be extortionate as an equivalent APR, but what should be remembered is that these loans, when used to meet short-term liquidity problems like mine, are actually a god-send to those of us who can't get credit from their banks.
"PaydayUK were very thorough when it came to making me aware of repayment schedules and interest amounts due, both on the phone and through their online support software."
However experts generally warn consumers to steer clear of these loans and warn that as well as high charges borrowers may find that repaying the loan on payday leaves them struggling by the end of the next month.
People struggling with debt problems should seek free advice from a charity such as Credit Action, the Citizens Advice Bureau or Consumer Credit Counselling Service before things get out of control. These organisations can give general budgeting advice as well as advising on existing debts.