The move follows growing pressure from MPs in all parties, who accuse the industry of running ads that target vulnerable groups, such as people on benefits, and making loans without being sure the recipients can repay them.
The Department for Business, Innovation and Skills will decide its next moves after studying the findings of an investigation by the Office of Fair Trading. Government sources said ads would be "reined in", if necessary by legislation, unless the industry puts its house in order.
After carrying out a sweep of more than 50 payday lending websites, the OFT has written to seven trade bodies demanding that advertising standards are improved.
Norman Lamb, the Consumer Affairs Minister, said: "We look forward to seeing the findings, which, where necessary, will be used to take further enforcement action and drive up standards. This includes improving consumer protections and having a transparent lending market."
Wonga.com was the largest spender on above-the-line advertising in 2011, with Quickquid.co.uk placed second.
MPs claim the payday loan market "exploded" to an estimated £1.9 billion in 2010.
The Labour MP Yvonne Fovargue, who chairs an all-party group on debt, has tabled a bill to make advertisers flag up free debt advice.
The OFT has already acted to stamp out ads designed to look like those by charities offering free advice.
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