Is this the ethical way for payday lending?

An ethical, payday loan may sound like a contradiction, but that is what new provider fridayfriday.com says it is offering.

The web-based lender promises to limit the use of controversial "rollover" loans, where borrowers are given a new loan as soon as an old one ends, to cap the annual percentage rate and take a less aggressive approach to debt collection.

"We charge £25 for each £100 loaned a month, but the maximum number of loans that someone can take out is limited to three consecutively. We then put the borrower on a single loan, charging 30 per cent over six months," says Jason Gardiner, the founder of FridayFriday.

"It is not in our interests to put borrowers into difficulty by loading on the fees. In addition, bad debtors are given weekly reminders rather than hassled at work or on their doorstep."

But this hardly qualifies fridayfriday as an "ethical" provider, according to the UK's biggest debt charity.

"While limiting the number of times that someone can rollover a payday loan to three is a good step, this is still extremely expensive credit, particularly when you can borrow up to £1,000 each time," says Una Farrell of the Consumer Credit Counselling Services. "Paying 30 per cent interest on £1,000 is very steep, especially for someone who is in financial difficulty." .

The Office of Fair Trading is investigating the payday industry, following revelations about sales tactics . Lenders have been criticised by consumer groups for targeting the young and vulnerable, while the credit reference agencies are unhappy that payday lenders are not fulfilling their statutory obligations to let them know when people are building up debts. This means borrowers can slip into serious debt without this being logged on their credit record.

"The industry has a bad name and rightly so," admits Mr Gardiner. "We need tight regulation of lenders by the Financial Services Authority and lenders must pass on the details of new loans to the credit reference agencies," he adds.