Payday lenders have moved to head off the threat of tighter regulation by promising to do more to explain to customers how their loans work.
Four trade associations, representing more than 90% of the payday and short-term loan industry, have also pledged to offer "practical help" for customers who are struggling to repay their loans.
Their move comes as the Office of Fair Trading (OFT) carries out an investigation into the sector and the Government considers whether to give the OFT new powers to suspend credit licences.
The Consumer Credit Counselling Service welcomed the move but said that the lenders must back up their words with greater action.
The sector has come under fire for giving people loans without making sure they can afford to pay them back, rolling over loans and charging interest rates running to several thousand percent.
A recent report from the Business, Innovation and Skills Committee called for a clampdown on "opaque and poorly regulated" commercial debt management companies and payday lenders, after finding that people had lost their homes in some of the worst cases.
The agreement was announced in the same week that high-profile payday lender Wonga.com was criticised by the OFT for using aggressive and misleading debt collection methods.
Payday lenders have argued that they want to maintain "high standards" and the industry generally has been unfairly tarnished. They say most customers are satisfied they are getting good value for money.
The agreement will be incorporated into payday lenders' codes of practice by July 25. It includes a customer charter to explain how loans work and the costs involved and there will be a commitment to inform customers three days before their money is withdrawn.
Struggling customers should also be given more help by freezing charges and interest if necessary and more robust assessments should take place to ensure people can afford a loan in the first place.