The government has backed capping interest on payday loans, after concerns some annual rates can reach up to 4,000%.
It came after more than 40,000 people signed a petition calling on payday lenders to cap the loans.
Labour peer Lord Mitchell had put down an amendment on the financial services bill, which is going through the upper house, that would have instated a cap.
But following the government announcing they would support a cap and will amend the bill in the House of Lords next Wednesday, Labour MP Stella Creasy, who supported calls to cap the cost of credit, told The Huffington Post UK she was pleased the government had "accepted they've got it wrong."
"Am I pleased? yes, I'm pleased they've finally accepted they've got it wrong and they need to do something because what they were doing was nothing," she said.
"It's a massive u-turn, just a week ago they were promoting self-regulation."
In a statement released on Wednesday she said the government were "finally waking up to warnings about the high cost credit industry."
"Only last week that they continued to argue self-regulation was the way forward and refused to act – citing codes of practice and a review of self-regulation planned for 2013. Today’s developments show they now accept they have been on the side of the legal loan sharks for too long and it’s time to speak up for British consumers."
Payday lenders have already signed up to a new code of practice, which came into effect this week, devised by the Consumer Finance Association.
The new code of practice means people applying for a loan must be given clear information about the way a payday loan works and an example of the price for each £100 borrowed.
Lenders will also be asked to freeze interest on a loan as soon as they know a customer is experiencing financial difficulties.