Millions of borrowers will receive greater protection against "rip-off" lenders from Friday under what is billed as the biggest shake-up in consumer law for 30 years.
The 2006 Consumer Credit Act will extend the scope of regulation to cover the work of all licensed lenders including pawn-brokers and firms offering car loans and store cards.
As a result customers will now be able to challenge unfair credit agreements in court and take any grievance they may have to the Financial Ombudsman Service (FOS).
The new law extends the work of the FOS to cover all licensed lenders, instead of the 70% of lending activity that previously fell under its remit.
Customers of up to 80,000 businesses will be covered for the first time as a result of the changes.
If the ombudsman rules that a firm has acted irresponsibly in giving credit or advice, it can order the lender to pay compensation, repay charges or interest, and even write off debt.
The act also introduces an unfair relationships test, which will enable consumers to mount a legal challenge against rogue lenders.
Consumer minister Ian McCartney, said: "The Consumer Credit Act beefs up protection for borrowers especially those with debt problems.
"It helps them challenge unfairness and protects them from dishonest lenders who try to rip them off.
"Our aim is a market that protects all consumers and is fair to honest lenders, leaving those without scruples with nowhere to hide."
