loan sharks and irresponsible lenders are to face a crackdown in a radical overhaul of the UK's 32-year-old credit laws.

Rules which often penalise consumers who pay back loans early will be scrapped and fairer rules put in their place.

Consumer Affairs Minister Gerry Sutcliffe will tomorrow announce a White Paper to implement a package of reforms that will clamp down on loan sharks, magnify the small print of loan agreements and put a stop to irresponsible lending.

The changes, being announced after a wide-ranging consultation, will allow consumers to exit unfavourable credit deals without fear of excessive charges and increase the transparency of early settlement rules.

Around 70 per cent of all personal loans are settled early.

"The credit sector is far larger and more sophisticated than the one our credit laws were designed for," said a DTI spokesman.

"Back in 1971 only one type of credit card was available, compared to around 1,300 credit cards on the market now.

"And the amount of money owed on credit cards back then was worth £32 million but now it's over £49 billion."

Reforms to early settlement rules are expected to include abolishing the use of the "Rule of 78" - the formula often used by lenders to calculate how much consumers have to pay when they settle a loan early.