Payday lenders could be forced to place "risk warnings" on their adverts to advise borrowers about the dangers of debt.
It is one of several new rules being proposed by the Financial Conduct Authority (FCA) to protect consumers.
Under the plans, the FCA would also be able to ban any loans, or adverts, that it did not approve of.
The payday loans industry said it would welcome the changes if they helped to protect consumers.
Martin Wheatley, the FCA's chief executive, said: "Today I'm putting payday lenders on notice: tougher regulation is coming and I expect them all to make changes so that consumers get a fair outcome. The clock is ticking."
Among other proposals, it suggests that:
- Lenders will not be able to extend, or "roll over", loans more than twice
- The number of attempts a payday lender can take money out of a borrower's account using a Continuous Payment Authority (CPA) should be limited to two
- Anyone extending a loan should be told about free debt advice
- The FCA could order lenders to change misleading adverts, or drop products that are not in the best interests of consumers.
Mr Wheatley said: "Our aim is to create a regime that protects consumers and allows businesses to operate. There is a balance to be struck here, and to make sure we get it right we want to hear from as many interested parties as possible.
"We believe that payday lending has a place; many people make use of these loans and pay off their debt without a hitch, so we don't want to stop that happening. But this type of credit must only be offered to those that can afford it and payday lenders must not be allowed to drain money from a borrower's account."
Business Minister Jo Swinson said the new rules would "call time on unscrupulous payday lenders". She said the industry had "failed to self-regulate effectively".
"We warned the industry months ago that if it didn't get its house in order we would step in."
The FCA said the risk warnings would be similar to those used by mortgage lenders, which remind borrowers that their home may be repossessed if they fall behind with payments.
After the FCA takes over as the new regulator for consumer credit, in April 2014, it will also consider whether to put a cap, or limit, on the interest rates that lenders can charge.
The government has decided against such a cap for the moment, but does not want to rule it out in the future.
Previously the FCA has also said it will consider making rogue payday lenders reimburse customers where necessary.
It has also said it might close firms down overnight if it needs to.
On the other hand, the FCA said that it did not want to cut off the supply of credit through payday loans, as that could force people into the arms of loan sharks.
The current regulator, the Office of Fair Trading (OFT), wrote to 50 payday lenders earlier this year to see if they were suitable to continue in business.
Nineteen lenders withdrew from the market as a result.
A further six companies have stopped offering payday loans since, or have had their licences suspended by the OFT.
But the FCA said that, despite the OFT campaign, the industry was still failing to respond.
Irresponsible lendersDespite 25 companies leaving the payday loans market, it is thought there are still more than 200 firms offering short-term loans within a matter of minutes.
Many belong to the Consumer Finance Association (CFA).
Under the CFA's code of conduct, roll-overs are permitted three times only.
If borrowers default on their repayments for longer than 60 days, the amount they owe is frozen.
"As major lenders in the mainstream market, CFA members have always supported well-designed, well-implemented regulation in order to protect consumers and drive up standards," said Russell Hamblin-Boone, the CFA's chief executive.
He added that the FCA's proposals were "an opportunity to set a bar over which irresponsible lenders will struggle to jump".
Labour MP Stella Creasy, who has campaigned against payday loans, told the BBC she would not be declaring victory following the FCA's proposals.
She said people would be "horrified to hear just how happy the legal loan shark industry is".
Ms Creasy, referring to a Citizens Advice Bureau study of payday lenders, said: "When 76% of these companies are shown to be lending in a way that would have cause to go the financial ombudsman, if we don't act now to change this, this is going to the next PPI (payment protection insurance) scandal. I am convinced of it."
Earlier this year the Archbishop of Canterbury, Justin Welby, said that he wanted to "compete" payday lenders out of business, by encouraging more people to borrow from credit unions.
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