Anyone turned down for a payday loan should be steered towards debt advice services, Citizens Advice chief executive Gillian Guy has urged.
Some people are left financially worse off when turned down for a payday loan according to the Consumer Finance Association.
But Guy said: “Anyone who is turned down for a payday loan should be pointed towards free, impartial debt advice to help them address their money problems.
“Borrowers were only told about debt advice in just one in five payday loan cases people reported to us.
“It’s important the new rules introduced by the FCA clean up the payday loan market. The regulator needs to make sure that people aren’t being treated unfairly by lenders and are only allowed to borrow what they can afford to repay.
Between April and August Citizens Advice’s payday loans tracker found that just 19% of people were told how to get free debt advice.
Just over a quarter (26%) said they were treated sympathetically by their payday lender, 22% were made aware of the risks of extending a loan, while only half were asked questions about their finances before being given a loan.
Guy added: “As people continue struggling to make ends meet, the demand for short term credit will remain high. People need more choice when it comes to short-term credit.
“Increasing the number of credit unions will provide an alternative but so too will banks offering a responsible micro-loan.”