The move comes amid calls for tighter restrictions on high-interest lenders and last week the trading watchdog said that formal investigations have been launched into several firms over their debt collection methods as it continues a compliance review into the sector.
The improved standards, which were announced in July and must be implemented by today, have been agreed to by four trade associations, representing more than nine per cent of the short-term or payday loan industry.
Any lender who is a member of the trade associations must abide or ultimately face expulsion.
Lenders have agreed to give clear information about how a payday loan works and an example of the price for each £100 borrowed, including fees and charges. They have also promised that customers will not be pressured into taking out a loan or rolling one over. They will freeze interest and charges if a customer is in financial difficulty and making payments under a repayment plan, or after a maximum of 60 days of non-payment.
Customers will also need to undergo affordability assessments and credit vetting to make sure they can pay the loans back.
Consumer Finance Association chief executive Russell Hamblin-Boone said the CFA would continue to work with the Government, regulator and consumer groups “to set high standards.”