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Short-term lenders are warning that people who need to borrow money are at risk of falling into the hands of loan sharks because of tougher regulations imposed on their industry.

Short-term lending has been cut by 68% in two years as regulators imposed price caps, the Consumer Finance Association (CFA) said.

In a report to MPs, the trade body said that 80% of loan applications were rejected.

Of these, 4% have borrowed from illegal lenders instead, the CFA claimed.

鈥淲e鈥檝e seen the volume of customers decrease,鈥� said Stuart Howard, chief executive of The Money Shop.

He said The Money Shop had altered their business model and moved away from payday-focused 28-day loans to loans with a 3-4 month repayment period.

Mr Howard explained that 鈥減eople are modifying their behaviour鈥� in response to both this change and the CFA鈥檚 affordability checks.

"We want to build a business that鈥檚 focused on consumer credit rather than default fees," said Mr Howard.

But he said the appetite for loans had not diminished and there were undoubtedly some customers who had moved from a regulated to an unregulated part of the industry.

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