The Association of Christian Financial Advisers has called for a cap on interest rates in response to new research showing people who take out payday loans are getting into more debt by using overdrafts to pay them off.

The R3 group of business recovery professionals found that 40% of people who took out payday loans said they had only made matters worse.

The Association of Christian Financial Advisers is backing calls from Stella Creasey MP for an interest rate cap to prevent the personal debt crisis worsening.

The ACFA said it was dismayed at the lack of government support for limiting interest rates and challenged the Conservative Party for accepting donations from individuals with links to companies charging high interest rates.

It wants to see greater government promotion of free debt counselling services and non-predatory sources of credit, like Credit Unions.

It also wants legislation to set up local community banks to encourage business growth and education at a younger age to teach the true meaning of debt and its potentially harmful effects.

"How much more evidence does the government require before taking decisive action?" said ACFA spokesman, Arwyn Bailey.

"The government must act immediately to cap interest rates and curtail one of the clearest social evils of our day. It must withdraw the legal sanction for usury - excessive and immorally high interest rates."