Writing in the Financial Times today, Citizens Advice chief executive Gillian Guy welcomed a “responsible high street challenger to the payday lending market.” She criticised high street banks for their “weakness at dealing with poorer families” and said that even the poorest need financial services.

The charity said banks should accept some responsibility for the growth of the payday loan market and have an opportunity to right past wrongs by offering an inventive, low-interest and responsible solution to the need for short term credit.

Citizens Advice has seen a ten-fold increase in payday loans over the last four years as people use them to make up a shortfall in income or to cope with unexpected expenses. It said the squeeze on living standards and dramatic changes to the benefit system will further compound the need for short term credit as households have to get by with less. The rise in food banks already exposes the income gap and access to emergency funds has been reduced with the Social Fund abolished earlier this month.

Guy said: “Banks risk becoming the dinosaurs of financial services, outstripped by new lenders who are quick to meet the demand for immediate credit.

“Banks have turned their backs on some of the poorest people by shutting them out of mainstream banking, leaving them at the mercy of predatory payday lenders. They can step up to the plate by offering responsible short term loans that can be spread across a person’s bank account so they can pay an urgent bill and still feed their family without being sent into a spiral of debt.”

In February the charity reported four payday lenders to the Office of Fair Trading and called for them to be immediately banned from trading.

Citizens Advice is carrying out a year-long study which monitors the performance of the payday loan industry against its self-regulating charter.