The City regulator says payday loan customers in arrears are still being failed by companies, despite new rules to improve how they are treated.
The Financial Conduct Authority (FCA) said it had found "serious non-compliance and unfair practices" in all firms that it reviewed since taking over regulation of the sector in April last year.
Its report identified poor outcomes for many customers and in some cases "serious detriment and financial loss".
The watchdog said reviews of three firms, which it did not identify, revealed a backlog of letters and documentation, including from vulnerable customers who had fallen behind in repayments.
This documentation, the FCA said, included medical evidence and letters from debt advisers providing crucial information about why some customers were failing to pay.
Upon further investigation it was revealed that some of these customers were still being pursued by collection agents.
The regulator said firms are required to give customers "breathing space" from collections activity if they provide evidence that they are working with a debt adviser to manage their debts.
The FCA found further examples of actions that may have exacerbated already stressful situations, including repayment plans that were clearly unsustainable and subsequently failed, and customers having to explain their situation multiple times as a result of poor record keeping.
Where situations of non-compliance were uncovered, the FCA said it had intervened quickly to get firms to take specific steps to ensure the failings were not repeated in the future, including appropriate levels of redress.
It confirmed it had restricted the ability of a firm to do business until improvements were made.
The industry has been subjected to a series of new rules aimed at ensuring customers are treated fairly and the FCA said some progress had been made.
The results of its review were revealed just weeks after a 20-month investigation by the Competition and Markets Authority (CMA) said online payday lenders would be forced to publish details of their products on at least one price comparison website.
The crackdown on payday lenders has sparked a wave of loan firm closures.
Wonga - Britain's best-known payday lender - confirmed in February it was cutting a third of its workforce as it shrank its operations in response to the new industry rules.
The company said it had to cut costs by £25m over two years but committed to operate "fairly and responsibly".
Tracey McDermott, director of supervision at the FCA, said: "Our rules are designed to ensure loans are affordable; that customers who get into difficulty are treated fairly and that they are not pressurised into unaffordable and unsustainable repayment plans.
"The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market".
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