Cash-strapped families are being urged to avoid using payday lenders charging huge rates of interest as a trading watchdog revealed several companies are facing formal investigation over the use of “aggressive debt collection” methods.

Last year Bradford & Airedale Citizens Advice Bureau (CAB) saw 2,000 people with combined debt problems totalling £25 million and its advisors say that figure is expected to rise even higher this year.

The Office of Fair Trading (OFT), which is carrying out a compliance review into the industry, is writing to all 240 payday lenders in the market to outline its concerns about poor practices in the sector.

It said it expects to warn the majority of 50 firms it has inspected, which account for the lion's share of payday loans, that they risk enforcement action if they do not improve their standards.

That warning comes months after the Telegraph & Argus revealed that young mums were being harrassed at the gates by loan shark heavies trying to get repayments.

It also comes as the CAB warned people about increasingly turning to payday lenders, unauthorised overdrafts and other high-interest credit to meet the additional cost of Christmas Alex Bohdanowicz, its specialist services manager, said the demand for debt advice was still very high and showed no sign of subsiding.

“We understand that this is an important time but ask that people sit down and do a real budget to see what they can afford, taking into account what you need to pay to meet your essential expenditure, such as rent and fuel and council tax first,” she said.

“Recognise that many people are in the same situation, so it is okay to reduce the cost of gifts, pool resources and food over the Christmas period and try to minimise the impact that you will have to face in January.

“Our advisers are very busy and we launched a dedicated telephone debt advice line in July on Monday, Tuesday, Thursday and Friday at 9.30am to 12.30pm and this is constantly busy and we struggle to meet this demand.

“The economic climate is very difficult for everyone at the moment. We are seeing many people who are facing job cuts, wage cuts and an increase in the cost of living.

“In particular at this time of year, people are trying to manage the additional expenses of Christmas at the same time they are facing high fuel bills as well as other commitments.”

Meanwhile, David Fisher, OFT director of consumer credit, said: “We have uncovered evidence that some payday lenders are acting in ways that are so serious that we have already opened formal investigations against them.

“Lenders need to improve their business practices or risk enforcement action.”

The Debt Advice Line is (01274) 758047.