The Financial Conduct Authority (FCA) says firms that take people's cars as security for loans must raise their standards or face being closed down.
According to the City regulator, some lenders are not doing enough to check certain vulnerable people can afford loans, while many others are not making clear the true cost of the debts they could build up.
The FCA notes that some so-called 'logbook loans' have annual percentage rates (APRs) of more than 400% and important terms are being hidden in small print, such as the fact that borrowers could lose their cars if they fail to meet repayments.
The regulator discovered that this has happened to a small number of borrowers and some cases have even involved people being stopped on the way to work and left at the side of the road.
It also reports how some borrowers struggling to meet their repayments have brought to light "aggressive" treatment from lenders.
Logbook loans are thought to be worth as much as £75 million to lenders and in the region of 60,000 are expected to be provided this year.
The FCA took on responsibility for regulating logbook loans in April. Every firm currently doing consumer credit business has to have an "interim permission", but will need to eventually become fully authorised by the FCA.
Logbook lenders will need to apply for full authorisation from between January and April next year. The FCA warned that any firms that are not up to scratch will not be authorised.
Copyright Press Association 2014