Defunct payday lender Toothfairy was under investigation by the OFT when it went bust last year

Toothfairy was under investigation for dodgy practices according to the OFT (GETTY IMAGES)

Payday lender Toothfairy, which went bust late last year, was under investigation for dodgy practices the Office of fair Trading has revealed.

The company, which had changed its name to Web Loans Processing, went into administration on 28 November, along with two associated debt collection firms - Marshall Hoares Bailiffs, previously known as Toothfairy Cheque Cashing, and Northern Debt Recovery.

David Fisher, the senior director of consumer credit at the Watchdog, said: “The OFT had serious concerns about the business activities of these firms, which we were actively investigating. If they had not surrendered their licences it was our intention to take steps to revoke them.

“The surrender of the licences means that the businesses may no longer operate as debt collectors. The lender is in administration and we will be taking steps to ensure any outstanding debts are collected legally and fairly.”

The consumer credit licences for the firms will terminate next Tuesday, following a request by the OFT.

As well as waving goodbye to Toothfairy, the administration sees the back of 46 other payday lending names that the company traded under including Fastloan4you, OKcash, Takeoutcash and Wegivecredit.

The OFT refused to divulge what activities had prompted the investigation into Toothfairy but did reveal that it has launched an investigation into another payday lender. However it refused to reveal the lender’s name.

Citizens Advice said it presented a dossier of evidence to the OFT in February 2013 asking them to take immediate action to stop four payday lenders and three debt collection companies trading. The submission included evidence about Toothfairy.

The evidence provided by Citizens Advice sparked formal investigations and Citizens Advice continued to provide OFT with consumer complaints. All of the companies it reported are no longer able to lend money or collect debts.

Citizens Advice chief executive Gillian Guy said: “This sends a strong message to unscrupulous companies that exploiting customers does not deliver a sustainable business. The sharp practices employed by these firms were particularly alarming and caused significant distress for customers.

“In some cases, people were subject to constant harassment, left seriously out of pocket and given no option to get on top of their debts. What was supposed to be a quick fix turned into a debt nightmare.

“There is now an onus on the company which has bought the loans to treat people fairly and within the law.

“This case is a timely reminder of the need for tough action against a booming payday loan industry that is preying on its customers. It is vital that the Financial Conduct Authority sticks to its guns to clamp down on payday lenders and debt collectors to make sure people are treated fairly. The regulator must put new applications to lend money or collect debts under serious scrutiny.”