Banks will be forced to cut loan charges

High Street banks are to be forced to cut the penalties they charge customers for paying back loans early.

Millions of borrowers will benefit from the proposed change in the Consumer Credit Act, announced today and due to be introduced later this year. It would mean someone with a 15-year loan for £15,000 could pay it back after only five years and save £2,000 in charges.

The move comes as new figures show Britons more in debt than ever before, with each owing an average £3,383 on credit cards, motor deals and in personal loans.

The Datamonitor statistics show personal loans up 50 per cent in five years. At present around 70 per cent of people with personal loans try to pay them back early.

Consumer Minister Gerry Sutcliffe said the law change would also make it easier to change to a better deal from a rival bank.