The laws on consumer credit are set for a major overhaul, the government has announced.

Following concerns by pressure groups and MPs, consumer affairs minister Gerry Sutcliffe said the new laws will target loan sharks, magnify small print and put a stop to irresponsible lending.

Attention will centre on the Consumer Credit Act which first came into force nearly 30 years ago.

Then borrowers had no options as there was only one type of credit card: now there are more than 1300.

These range from traditional credit cards to store cards where interest rates can be as much as 30 per cent even though the base rate is just 3.5 per cent.

Sutcliffe also announced plans to get a fairer deal for consumers who settle loans early.

This will involve abolishing the "Rule of 78" - an obscure formula hidden in small print which is used by lenders to calculate how much consumers have to pay in order to settle a loan early.

It can also mean that for people in serious debt they have to pay off all the interest before any loan is reduced.

This means people could end up owing the same amount as they started despite months of regular payments.

The announcement followed new research by market analyst Datamonitor which found unsecured personal debt has soared from £2200 per person five years ago to £3400 last year.

Consumer borrowing has soared in recent years with Britons now owing £49 billion.

Experts are concerned that should interest rates go up it will trigger a wave of personal bankruptcies and repossessions as seen in the early 1990s.

Sutcliffe said full details would be released in a white paper which will be published later this summer.

"I want to ensure our credit laws meet the needs of a modern credit sector," he said.

"A central part of the Consumer Credit Act review has been changing the rules to deliver a better deal for consumers who settle loans early.

"The current system is outdated and the formula used by many lenders to determine how much is owed always favours the lender as opposed to the consumer."

The Consumers' Association backed the government's decision to tackle the problem.

"We welcome the government's much-delayed proposals to revamp the credit laws. One in seven adults in the UK is affected by loan sharks and sub-prime lending of some kind," said a spokesman.