According to the Consumer Finance Association (CFA), short-term lending has been cut by 68% over the past two years.
The trade body stated in a report to MPs that 80% of applications for payday loans were rejected.
Of the 80%, 4% went on to borrow from illegal lenders.
The chief executive of the Consumer Finance Association, Russell Hamblin-Boone said: “Our analysis of hundreds of thousands of loan applications proves that borrowers are being excluded from credit and concerns are growing for how they are filling the gap in their finances,”
“It is time to draw a line under the attacks on short-term lenders, recognise the huge improvements in lending and accept that we have a highly-regulated, legitimate market to keep people out of the hands of unscrupulous, illegal lenders.”
A number of debt charities have disagreed with the CFA’s view. They argue that the new, stringent regulations are reducing the likelihood of borrowers falling into spiralling debt.
Citizens Advice have seen a 53% drop in payday loan problems between April and June compared with the same period the year before.
The chief executive of Citizens Advice, Gillian Guy said: “High-cost credit is not the answer to financial difficulties,”
“All too often payday lenders were lending to people to who could not afford to repay. The 53% decrease in payday loan issues reported to Citizens Advice shows the new regulations are having a positive effect for consumers.”