The new regulations bring the Island in line with payday loan practices in other provinces.
Payday lenders provide customers with short-term cash. They have been heavily criticized for charging high fees, and Katharine Tummon, the director of consumer, labour and financial services for the province, told CBC News Thursday there has been other trouble.
"We have seen problems here. We've seen collections practices that are improper," said Tummon.
"We've seen some very, what we would call, harassment techniques out there."
The new regulations will force lenders to make the terms of their loan very clear, and it will impose a cap of $25 in fees for every $100 borrowed. The province will also be able to shut down operations that don't follow the rules.
"It gives us a lot more power to deal with the problems rather than just persuasion," said Tummon.
Walter MacKinnon vice president of PWC Debt Solutions in Charlottetown, said he has seen clients who have landed in trouble using payday lenders.
"Payday lenders might be a way to get some cash immediately, to solve the problem now. But in many cases they've created another problem: having to pay back the payday lender maybe more," he said.
The Canadian Payday Loan Association welcomes the new regulations.
"Our members look forward to operating within the new laws and regulations to provide a valued service to the consumers of P.E.I.," wrote association president Stan Keyes in an email to CBC News.
The new regulations will have to be approved federally before they are put in force, but the province says it's pretty much a done deal, and the new rules should be in place in less than a year.