Britain's markets regulator said many so-called payday lenders are failing to treat properly customers who are in arrears and may be forced to leave the market.
The Financial Conduct Authority (FCA) said it had conducted a year-long review of the high cost, short-term credit market which offers to tide borrowers over until their receive their salary.
The sector has been criticised by lawmakers and the Church of England for causing misery among borrowers.
"We found unacceptable practices from many lenders, including failure to recognise customers in financial difficulty; failure to direct people to free debt advice; and firms offering inflexible repayment options," the FCA said in a statement.
The review found firms engaging in misleading practices to get more money from customers in arrears, forcing the regulator to intervene.
"In some cases our investigations are ongoing and we will consider what further action to take in due course," the watchdog added.
Most firms were making changes such as new senior management and better training but none of those reviewed met the required standard and could end up having to close.
"The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market," said Tracey McDermott, the FCA's director of supervision.
Most firms were making changes such as new senior management and better training but none of those reviewed met the required standard and could end up having to close.
"The real test for these lenders will be FCA authorisation where they will have to demonstrate exactly how much progress they have made if they want to remain in the market," said Tracey McDermott, the FCA's director of supervision.
The sector is undergoing change after the FCA imposed a cap on interest rates in January, limiting them to 0.8% a day, equating to an annual rate limit of 292%.
Last month pay-day lender Wonga said it would close its Dublin office by the middle of next year as part of a cost-cutting programme.
The closure comes as the company announced plans to cut 325 jobs worldwide as it seeks to reorganise its business in the face of tighter regulation.
