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Payday Loans Firm 'Shut Down' By Watchdog

(c) Sky News 2012

An online payday loan firm is under threat of closure amid claims it allowed fraudsters to impersonate thousands of customers who were then hounded for millions of pounds of loans they knew nothing about.

The Office of Fair Trading (OFT) imposed a £544,000 penalty on MCO Capital which had traded under the names of Helploan and Balanceloan at the time of the fraud.

The OFT said the company wrote to at least 7,000 victims of the identity theft in the full knowledge many may not had taken out fresh loans, asking unequivocally for repayment.

It ignored, the watchdog said, the OFT's warnings to stop contacting innocent victims of the fraudsters' scam.

Payday loans, which have attracted heavy criticism from consumer groups, have become increasingly popular.

The short term loans are generally relatively small, emergency, sums of cash which are repayable on the applicant's pay day but the interest rate rises substantially should deadlines be broken.

MCO was found to have breached the Money Laundering Regulations 2007 through its failure to adequately verify the identities of loan applicants and broken rules governing unfair business practices.

The OFT revoked MCO's consumer credit licence, saying it lacked the necessary skills, knowledge and experience to run a consumer credit business.

But the company has a right of appeal within 28 days, currently allowing MCO to continue trading under its three current brands Paycheckcredit, Popcredit and Speedcredit.

David Fisher, OFT Director of Credit, said: "MCO's failure to put adequate procedures in place made it vulnerable to fraud.

"The way in which MCO then wrote to consumers to collect debts caused unnecessary distress and inconvenience to thousands of people.

"This financial penalty sends out a strong message that businesses lending to consumers must have adequate anti-money laundering procedures in place."