The payday lender Cash Genie may have to pay compensation to customers after it uncovered a string of problems with the way it had imposed charges and collected money from borrowers who were in arrears. The firm, which offers loans of up to £500 at an annual interest rate of 2,986%, told the Financial Conduct Authority (FCA) that it had discovered three matters “that raised serious concerns as to whether customers had been treated fairly”.

It said a systems weakness may have meant that unauthorised charges were applied to customers accounts, that it may have misused banking information to collect outstanding debts and that there were a “number of issues” around the way it had allowed customers to extend loans.

The firm, which is registered under the name Ariste Holding Limited and says on its website that it has “helped over 200,000 Britons solve their unexpected cash flow problems from the privacy of their own home”, must now conduct a consumer redress scheme to determine if the breaches caused any detriment to customers. If it has, it must compensate anyone who has been affected. The scheme will be headed by a “skilled person” appointed by the FCA.

Stella Creasy, Labour MP and fierce payday critic, tweeted the Consumer Minister: “Your payday lending summit looks interesting – can I come?”

Speaking to the Daily Telegraph, Ms Creasy said: “It’s good to see ministers finally getting round a table with this industry.

“I hope they don’t use this as a cosy chat to keep calm and carry on, but an opportunity to hold these legal loan sharks to account for their broken promises to change their ways.”

Richard Lloyd, executive director at Which?, said: “It’s high time there was a crackdown on irresponsible lending, so we’re pleased to see the Government putting payday loans firmly on the agenda.”

MoneySavingExpert.com creator Martin Lewis welcomed the Government’s move but said it should have acted far more quickly. He said: “Payday loans have become a scourge across our society – enticing desperate people to borrow money at extortionate rates using shifty marketing, and sidestepping responsible lending criteria.

“While I applaud the fact the Government is finally taking this issue seriously, for many of us who see the dangers of this type of short-term credit, there is a bitter taste about how long it has taken to get here.”

Cheshire East Council said it had banned payday websites because it wanted to protect 370,000 residents from “irresponsible lending and harassment”.

Michael Jones, council leader, said: “These companies are targeting vulnerable people.”

Clearly there is little justification for any form of major tax avoidance around the cash in hand culture – but the idea of finding ways to legitimise some of the activities which take place in what is euphemistically called the “informal economy” could lead to a reduction in benefit claiming and some better regulation of very dubious working practices.

One of the issues which forces people into the informal economy is the lack of alternatives for bridging short term financial problems. This article explains how the “pay day loan” one highly dubious alternative to the informal economy is starting to look at some form of reform. Until something far more radical than the measures announced below is implemented, I for one will not be surprised to see the current informal economy grow and thrive as things get increasingly worse economically.

“One hundred payday and short-term lenders must freeze interest and charges for struggling borrowers, under rules introduced by their trade associations.

The measures are part of a customer charter drawn up by four trade bodies – the Consumer Finance Association (CFA), British Cheque and Credit Association (BCCA), the Consumer Credit Trade Association (CCTA) and the Finance & Leasing Association (FLA) – and implemented on 26 November. The 100 lenders who are their members represent 90% of the total short-term loan market.

Under the charter, lenders must:

• Give clear information about how a payday or short-term loan works and an example of the price for each £100 borrowed, including fees and charges

• Not pressurise customers to take out a loan or extend (roll over) the term of an existing loan agreement

• Carry out a sound, proper and appropriate affordability assessment and credit vetting to check that customers can afford the loan

• Set out clearly how continuous payment authority works and the customer’s rights to cancel this authority, so they can decide if this type of repayment is acceptable to them

• Notify customers at least three days in advance of recovering payments through a continuous payment authority

• Freeze interest and charges if a customer is in financial difficulty and making payments under a repayment plan, or after a maximum of 60 days of non-payment.”