Companies such as Wonga and Quickquid face a compulsory interest rate cap after the Treasury said there is growing evidence to support the move.
Chancellor, George Osborne,told BBC's Today Programme that the move would limit the "overall cost of credit" and not just interest rates.
Mohsin Mehdi, CEO of My Community Bank, said: “After months of well-meaning handwringing, the fightback against the payday lenders has begun.
“Handled right, these curbs could protect hundreds of thousands of vulnerable people from payday lenders’ extortionate charges.
“The restrictions must be more than just an interest rate cap, as for many people it’s the hidden costs – fees and rollover charges – that make borrowing from a payday lender so punitively expensive, but also a debt trap from which it is hard to escape.”
“The government and the Archbishop of Canterbury have called on credit unions to provide an alternative to payday lenders.”
My Community Bank has launched the first national credit union which Mehdi said is looking to take the fight to the payday lenders by offering affordable loans to the many thousands of Britons who can’t borrow from the high street banks.
Mehdi said: “The payday lenders have successfully marketed themselves by trivialising debt and the eye-wateringly high cost of the credit they provide.
“Ultimately the government should seek to restrict their ability to portray themselves as benign. They are anything but.
“Today is an important first step in the fight to restrict their power – My Community Bank is seeking to provide some genuine competition, and together with the FCA cap on their cost, this should force them to end their exploitative charges.”
The cap will be included in the Banking Reform Bill, which is already going through Parliament, but a cap is not expected before 2015.
