A report claiming that new consumer credit regulations have resulted in a 70% reduction in access to short-term credit has been criticised as "shameful".
The Consumer Finance Association (CFA) said low and middle-income borrowers are facing new risks as access to payday loans is restricted.
In its report, entitled Credit 2.0, the group which represents major short-term lending businesses in the UK, said changes to the economy and lifestyle have resulted in a higher demand for short-term credit.
The findings, detailed in a 40-page document, are based on analysis of hundreds of thousands of loan applications since regulations were introduced last year by the Financial Conduct Authority (FCA).
The rules capped the fees and interest imposed by lenders in an effort to stop debts spiralling out of control.
Payday lenders were banned from rolling over a loan more than twice and and they can only now make two unsuccessful attempts to claw money back out of a borrower's account.
Last month Citizens Advice said the number of payday loan problems reported to it had halved compared with the previous year.
The CFA, which said its report is the most up-to-date snapshot of the short-term loans industry, has been accused of being "dishonest" in its findings.
Carl Packman, author of a book on payday loans, said that while government, local councils and the legal authorities must do all they can to stop illegal lenders exploiting people in their communities, it is shameful of the CFA to pretend it knows definitely that illegal lending is rising and that sensible regulation over a controversial industry is to blame.
He said: "There is no evidence that illegal loan sharking is on the rise and it is dishonest to pretend otherwise. What the CFA is guilty of today is to suggest that sensible regulation over the controversial and out-of-control payday lending industry is anything other than a good thing.
"It may have escaped the CFA's knowledge that payday lenders faced scrutiny in the first place because its business model was based on trapping people in debt. Poor credit checking, punitive default charges and intimidating collections practices were among the many examples of exploitative behaviour.
"Nobody is fooled: of course the CFA would rather have less attention on their members, it is more profitable for them that way. But we shouldn't stand for it. Protecting consumers by tackling loan sharks and regulating payday lenders should not be mutually exclusive."
CFA chief executive Russell Hamblin-Boone said: "Credit 2.0 takes a fresh look at alternative forms of credit, including short-term loans, and shows that turning off the credit tap has had no impact on demand or debt levels. It is an attempt to educate all those who continue to call for further restrictions on lenders without considering the consequences for millions of families.
"Our analysis of hundreds of thousands of loan applications proves that borrowers are being excluded from credit and concerns are growing for how they are filling the gap in their finances. It's time to draw a line under the attacks on short-term lenders, recognise the huge improvements in lending and accept that we have a highly-regulated, legitimate market to keep people out of the hands of unscrupulous, illegal lenders.
"The report shows the scale of the challenge for the regulator in finding the right balance between consumer protection and maintaining a competitive alternative credit market."
Mr Hamblin-Boone said mainstream lending services are being left behind by the use of "pioneering technology" by short-term lenders.
He added: "The economy is growing again, but the financial landscape has changed forever. Technology is changing the way we live and our 'instant society' demands quick decisions, simple products and convenient ways to borrow small sums for short periods of time.
"Critics of innovation that refuse to embrace the change by trying to hold back the tide could find themselves swept away by modern life."