The UK Financial Conduct Authority (FCA) has found evidence of what it termed "poor firm behaviour" among logbook companies in research it carried out in November and December 2013.
Examples included insufficient affordability checks, with some applicants even being encouraged to doctor their income details on application forms.
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The research also found borrowers failed to be informed of the cooling off periods, APR rates, total amount due, and the consequences of missed repayments, including repossession of the vehicle.
In light of the findings, the FCA warned logbook lenders wishing to operate under the Authority’s regulations that they "will need to dramatically raise their standards".
Christopher Woolard, director of policy, risk and research at the FCA, said: "People who use logbook loans are often in difficult circumstances with few other borrowing options.
"The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found."
He added: "Our new rules give us the power to tackle those firms found not putting customers’ interests first and remove them from the market if they don’t improve," and warned: "Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action."
