Payday lender summit called to tackle 'deep-rooted' problems

He said: "We want new rules banning excessive charges, a restriction on the number of times a payday loan can roll over and clearer advertising to help people struggling with spiralling debt."

Payday lenders have argued they have worked to clean up their act, including the introduction of a new code of practice last year to make sure loans are affordable and give more help to borrowers who are struggling.

New regulator the Financial Conduct Authority, which has powers to step in quickly and stamp out problems, will oversee payday lenders from next April. Its powers would enable it to place a possible cap on interest rates and limit or ban the number of rollovers lenders can offer, if it sees fit.

The OFT has written to 50 payday lenders in waves, giving them 12 weeks to prove they are up to scratch or risk being put out of business.

So far, 20 responses have been received and the rest are expected by the end of July. Of the lenders contacted, five have told the watchdog that they have left the payday market, including two which have surrendered their licences.

The OFT has promised to "crack down" on lenders that break the rules and if it finds they are still non-compliant it can stop them instantly in their tracks by suspending their licences, which they need in order to trade.

Work and Pensions Secretary Iain Duncan Smith said last week that he has "personally seen the destruction of lives caused by the unscrupulous practices of payday lenders".

He said: "It is only right that the Office for Fair Trading has referred the payday lending industry to the Competition Commission. These firms - with their questionable practices - have preyed on the vulnerable for too long."

The Government is investing £38 million in credit unions to help them offer a more low-cost alternative option to payday lenders.

Russell Hamblin-Boone, chief executive of the Consumer Finance Association, which represents short-term lenders, said those who are not up to scratch should "shape up or ship out" of the industry.

He said that responsible payday lenders already operate to high standards and have the measures in place that consumer groups are calling for.

Gillian Guy, chief executive of Citizens Advice, said: "We need to see tough action on advertising, with new rules brought in which would end wall-to-wall advertising on daytime TV and stop the use of glossy celebrity endorsements which conceal the misery of life in debt. Much more needs to be done to make the cost of loans and consequences of late repayments clear, and to end the focus on speed rather than affordability.

"Every day, Citizens Advice Bureaux help people who have been pushed into serious financial trouble by the reckless actions of the payday loans industry. Our evidence shows that payday lenders are failing to treat people fairly, breaking 12 of the 14 promises they laid out in their customer charter."

Chris Leslie MP, shadow Treasury minister, said: "Urgent action is needed to grip the regulation of the payday loan industry, as the number of cases of misery and hardship are growing rapidly because of pressures on living standards and personal finance.

"The Government have consistently ducked clamping down on predatory pricing and extortionate interest charges - despite Labour securing an amendment in the House of Lords last year which gives regulators the ability to control costs and loan duration.

"Instead of resisting action now, ministers should use their summit meeting to announce steps which prevent vulnerable customers from being fleeced so unfairly. When the OFT have found that half of the profit for these firms is generated from roll-over loans, we also need action to prevent people becoming ensnared in very high interest personal debt year after year."