Sefton Central Labour MP Bill Esterson has joined a cross-bench coalition calling on government to cap the cost of credit.
But the MP said he was disappointed by the antics of the government who frustrated efforts to build a cross-party consensus on the subject.
Bill supported the introduction of a series of caps on the amount that payday and home credit lenders can charge for credit. But an amendment by government MPs removed the legal requirement for regulation of the industry which was the key element of the proposal.
The motion had gained widespread cross-party support from MPs who recognised that the government has a duty to intervene in the high-cost credit
market, which is often uncompetitive and exploitative. But government business managers were behind moves to water down what was agreed by MPs.
Currently lenders can charge any price for credit which means that sector of the market currently charge £82 for every £100 lent. Annual interest rate charges of over 2,500% are also now common - despite the Bank of England base rate being just 0.5%. Borrowing at these rates repeatedly tips customers deep into debt.
According to the Office of Fair Trading £16,000 of excess profit is made every hour by this sector.
The Sefton Central MP Bill Esterson said: "People are being pulled into a deep spiral of debt because of the lax credit regulations.
"Loan sharks are being allowed to take advantage of those people who are most vulnerable when it comes to credit. These are people who are in need of financial help, but who are being exploited and tied in to longterm debt.
"I am more than pleased to add my voice to calls for the government to enforce limits on just how much these credit lenders can charge. But that enforcement needs regulation and the amendment forced through by the government means that there will still be no requirement for lenders to behave in a responsible fashion and no legal protection for the most vulnerable people.
"The government took out the teeth from the proposal. The amendment was moved by backbench MPs from the Conservatives and Lib Dems and it had the finger prints of the government all over it. They don’t believe in legal protection and only support voluntary regulation. If voluntary regulation worked then there would have been no need for this proposal.
"We need to give all the help we can to the people who are in need of financial assistance and struggling to make ends meet and we need to curb the immoral practice of many of these so-called legal loan sharks."
Joe Cox, Campaigns Organiser for the End Legal Loan Sharking Campaign said: "I am delighted that Bill supported moves to end legal loan sharking. Credit and loan companies are legally allowed to charge whatever they like for lending money.
"Door to door lenders are now charging £83 for every £100 borrowed, while some online pay day lenders charge a whopping 3,000% APR. Now is the time to protect the most vulnerable by capping the cost of consumer credit."