Payday loans costs will be capped under plans being announced by Chancellor George Osborne today.
New financial regulator the Financial Conduct Authority will set the level of the cap, which will cover fees charged on the loans as well as interest.
Treasury officials said the Government had always kept the case for a cap under review and there is now "growing evidence" internationally to support the move.
The changes will be made through an amendment to the Banking Reform Bill currently going through Parliament.
It will put a duty on the FCA to use powers it already has to impose a cap, the Treasury said.
Earlier this year Labour announced that it would cap the cost of credit from payday lenders and force them to put funding into credit unions.
Mr Osborne said the cap would protect loan users from being exploited.
He told ITV's Daybreak: "We are going to introduce a cap on the cost of these loans and I mean a cap on all the different elements brought together because it is not just the interest charge, it's also the arrangement fees and the like, to protect people who take out these loans to make sure they are not being exploited, to make sure hard-working people get a fair deal from the financial system, whether it's the banks or the payday lenders or internet lenders."
He added: "The best thing is to empower this body we have created, the consumer regulator, the consumer authority is going to look at all of this because I think one of the traps here is to think you can just control one part of this industry and then you'll find it's a bit like squeezing a balloon - the costs will appear somewhere else."