The federal government will crack down on “dodgy” credit providers with what it calls the most significant overhaul of financial service regulation in the past hundred years.

Under draft legislation announced by Corporate Law Minister Nick Sherry on Thursday, margin lenders within the $21 billion industry will have to be licensed and clearly disclose fees and commissions before lending.

The new laws are also designed to stop unsolicited credit offers and protect consumers from falling into a spiral of debt.

“This is a crackdown on irresponsible lending, wherever it may occur in Australia,” Senator Sherry told reporters in Sydney.

“We intend to weed out dodgy providers of credit finance from the financial services industry.

“Consumers cannot be put into a credit financial product which is unsuitable for them and they do not have the capacity to pay.”

The Financial Services Modernisation Bill will bring together competing state laws under a single, national standard for regulation of all credit providers.

The Australian Securities and Investments Commission (ASIC) will regulate the new national regime and has been allocated $71 million of additional funding to ensure it can implement the new licensing and product disclosure requirements of margin lenders.

Senator Sherry said there had been a 13 per cent increase in investor loans between 2006 and 2008, which had placed some people in inappropriate agreements resulting in the loss of the family home.

The new laws would help protect the more than 3.6 million households who have a home loan or investment loan from the same fate, he said.

“One area where we have had a high level of concern has been where people have been advised to take equity out of their family home and then use this debt to leverage into buying shares through a margin loan. This `double debt’ trap, with home as security, is of serious concern.”

The legislation is expected to pass the House of Representatives in June.

AAP