LOAN companies that give misleading information or shackle consumers with huge interest rates will be given “yellow cards” by the Office of Fair Trading (OFT), before being banned if they persist, under tough new laws to be unveiled this week.

Consumers who consider that they have unfair loans will also be able to challenge their agreements without going to court. And there will be stricter rules on how loan products can be advertised.

The consumer credit white paper will be revealed by the government at a time of concern about the amount of debt consumers are getting into.

Matt Barrett, Barclays chief executive, recently caused consternation when he told a committee of MPs that he did not use a Barclaycard because they were too expensive.

The Department of Trade and Industry (DTI) is keen that the legislation does not just target unscrupulous “loan shark” companies but supposedly respectable lenders who are simply not giving consumers enough detail to make informed choices about loans and interest rates.

For credit cards and other loans there will be a new “honesty box” on agreements — similar to the Schuman box in America — that will state exactly what the APR is.

Companies will be forced to have the box as a standard part of their credit agreements in order to help make what the customer is signing up for more comprehensible.

The aim is to increase transparency by allowing customers to easily compare agreements which are offered by different companies.

The box will list monthly rates and minimum payments.

Under current regulations the OFT is only allowed to use its ultimate powers of stripping a company of its credit licence when it uncovers cases of severe wrongdoing.

However, that meant that many companies would not be reprimanded.

A DTI source said: “That problem had to be addressed. The OFT only had the nuclear option of taking away their licence to offer credit.

“The new system will see the OFT able to issue ‘yellow card’ warnings for lesser indiscretions.”

The OFT currently also reviews licences every five years.

That will be scrapped.Instead, the white paper will give the trading watchdog the power to carry out unannounced spot checks.

The white paper, which will see the overhaul of the 1974 consumer credit act, has been overseen by consumer and competition minister Gerry Sutcliffe.

Advertisements for loans will also come under stricter guidelines, Sutcliffe is expected to say.

The Consumers’ Association has been concerned that the British credit boom has created an unsustainable situation, especially when taken together with dwindling personal savings and pensions.

One of the reasons cited is the increasing complexity of credit products that make it difficult for consumers to select the most appropriate product.

The Treasury select committee has also been looking at credit card rip-offs and is due to report its findings shortly.