The government has set out plans to tackle loan sharks who charge exorbitant rates of interest through complex and costly finance schemes.

In a white paper released on Monday, the trade secretary said Britain's 30-year-old credit laws required a radical reappraisal.

Patricia Hewitt said the government wanted to get tough with "predatory lenders" whilst ensuring consumers make informed choices about the credit they take.

Ministers also plan to get tough with credit card firms - who currently lend nearly £50 billion on plastic.

The reforms will also see tougher action to halt the widespread use of large early settlement fees and other "hidden costs" which can come as nasty surprises for consumers seeking to reschedule or repay their debts early.

"Some consumers take out loans that are inappropriate and expensive," Hewitt said. "Others are tipped into debt by a sudden change in circumstance.

"But there are also consumers that are preyed upon by loan sharks, whose activities often exploit the socially deprived sections of our community."

The trade secretary said the new approach would ensure that borrowers and lenders took a more responsible approach.

"Credit has become an integral part of our daily lives. For many, it is the lifeline that enables them to deal with the emergencies that arise, helping match regular income against the irregular demands and risks of modern life," she said.

Consumers must have "the right information at the right time", she added. "Consumers need to be able to consider the key factors of a loan before they take it out. To do this they need clear, understandable information," said Hewitt.

To tackle loan sharks the government plans to strengthen the credit licensing regime to target unfair practices.

Enforcement organisations, such as the Financial Services Authority, will be given new powers to police the market.

Ministers also plan to change the law to end unfair selling practices - toughening the regime by replacing the limited "extortionate" test with a wider "unfairness" test.

The government will also work with banks and the voluntary sector to tackle the growing problem of over-indebtedness - with a new strategy to be unveiled in the Spring of 2004.

Britons have cashed in on soaring house prices and low interest rates by spending billions on credit card and mortgage equity release schemes.

In 1971 there was only one credit card available with just £32 million of credit card debt throughout the entire country.

Today there are over 1,300 credit cards available - with £49 billion owed on credit card debts.

The government believes consumer debt levels are unsustainable and fears many households could be pushed to breaking point by a significant increase in interest rates or a downturn in the economy.

According to the white paper one in five households experience financial difficulties as a result of their credit commitments.

The white paper also sets out new plans to clarify the complex nature of a significant number of credit agreements.

Ministers want to work with the EU to develop a common system of calculating interest - following widespread confusion over the difference between interest rates and the APR system.

The government will seek to overhaul the advertising regulations to make credit advertisements clearer and simpler.

"Many of today's products have become difficult for consumers to understand because they are so complex, and because there is a lack of transparency of standardised information," said the white paper.

Hewitt also announced that the government will pilot an enforcement scheme to tackle illegal moneylenders who prey on low income households.

The Conservatives welcomed the moves towards transparency but expressed reservations about any further regulation of the finance sector.

"Any legislation should be aimed at providing a fair deal for consumers. We are concerned by the rising levels of debt and are fearful of the effects that higher interest rates could have," said Stephen O'Brien, the party's industry spokesman."We would support moves to provide transparency in the consumer credit and loans industry and will be studying the white paper to see how far it provides for this.

"But we will also be wanting to ensure that businesses do not have greater burdens placed on them to no positive effect."What the government fails to realise is that one of the best ways to reduce prices for consumers would be to halt the torrent of taxes and regulations."