Credit law shake-up to stem loan sharks and bank rip-offs

The Government is planning the biggest shake-up of credit laws for almost 30 years, with new powers to protect consumers from being ripped off by high street banks and loan sharks.

The Independent on Sunday has learnt that Gerry Sutcliffe, the new consumer and competition minister, intends to publish a consumer credit White Paper in October.

The centrepiece will be tough new regulations on money-lenders and new laws to encourage consumers to collectively take legal action against loan providers.

Whitehall insiders said the Department of Trade and Industry hopes to introduce a Bill late next year. This would replace the ageing Consumer Credit Act of 1974, widely considered ineffective in tackling the new breed of loan sharks and door-to-door lenders.

Only last week the Office of Fair Trading (OFT) called on the Government to publish new credit laws to tackle the growing problem of rogue lenders.

The White Paper will be based on two years of consultation kicked off by former competition minister Melanie Johnson. The DTI has issued six separate consultation papers. A DTI spokeswoman refused to comment on when the findings and conclusions would be made public.

However, it is understood that the White Paper will prescribe stricter criteria for licensing money-lenders. There are 150,000 licensed lenders in the UK, but the DTI believes that it is too easy to become accredited.

On top of this, the DTI is expected to give new powers to the OFT to fine and warn lenders if it suspects sharp practice.

The White Paper will give consumers new powers, too, with a new definition of what a "fair" loan is and what is classed as "exorbitant credit". Armed with this, the DTI hopes that disgruntled consumers will launch so-called class action lawsuits against lenders that have offered loans on unfair terms. This could be done through local trading standards offices. Since 1974 there have been only 30 cases of consumers overturning lending agreements through the courts.

In the next few weeks the DTI will also publish the conclusions of its review of early payment of loans. The Government is worried that many lenders penalise consumers if they want to reduce their debts before the agreed time.