People who borrowed money from lender firm Wonga are only to receive just 4.3% of the compensation they are owed.
Administrators have started to inform 400,000 claimants who were mis-sold loans by the payday lender.
The Financial Conduct Authority (FCA) found Wonga was lending money to people who would not be able to repay which led to a quick crackdown on payday lending firms.
Sara Williams, who runs Debt Camel, said former customers had been “badly let down.”
“Wonga ignored the regulator’s rules about checking the affordability of loans and they were allowed to get away with this for 10-years.
“Now customers are being let down again because they are not getting the compensation they deserve from the regulator.”
She added, that those who borrowed money from Wonga are not covered by the financial services compensation scheme.
Williams said, “Borrowers from many payday lenders have been unable to get proper compensation after the lender has had to close.
“The FCA needs to rethink this and provide a safety net for people who were mis-sold unaffordable loans.”