Labour to clean up credit law

A crackdown on loan sharks will be among a range of measures to be announced by the Government tomorrow to clean up Britain's consumer credit industry.

The Government will publish a White Paper on loans and credit, paving the way for the first major overhaul of consumer credit law in 30 years. The plans come at a time of increasing concern among debt advice charities and social commentators over levels of indebtedness in the UK.

The White Paper is expected to include confirmation of measures announced by Consumer Minister Gerry Sutcliffe this year. He said the Government intended to clamp down on loan sharks, magnify the small print in loan agreements and put a stop to irresponsible lending.

He pointed out that the market for loans and credit cards had grown dramatically since the law was last updated. 'The amount of money owed on credit cards then was £32 million but it's now over £49 billion,' he said.

Tomorrow's package could go as far as to give the Office of Fair Trading powers to fine lenders and undertake surprise raids on loan companies. The Government is also expected to tighten up the regime for licensing credit brokers, which has over the years been criticised by consumer groups as inadequate.

Requirements for lenders to use plain English in marketing literature will address concerns that people are being trapped by deals they do not understand. Research released today by polling organisation Mori for the Department of Trade and Industry showed that 76 per cent of people found the language used in consumer credit advertisements confusing; 84 per cent said they found the language in credit paperwork confusing and 56 per cent said the language on credit agreement forms baffled them. The poll showed that 80 per cent wanted more information on their rights when using consumer credit.

Consumer groups and charities for people in debt will welcome the package. But they will be disappointed if it does not include measures to encourage responsible lending through controls on the amount of credit individuals can build up.

The National Consumer Council said: 'With the average household owing more than £5,000 on top of their mortgage and one in five people reliant on loans and credit cards to pay for household bills, it is vital the new regime tackles irresponsible lending and provides robust redress for victims of misleading and unfair selling practices.'