A new law to police lenders that provide loans for people on low incomes means that they have to reconsider the way they sell those loans.

The new rules – the Consumer Credit Act 2006 – allow borrowers to challenge loans that create an “unfair relationship” between them and the lender.

Credit analyst Steve Jones said: “The unfair relationships test means that lenders must look at all the circumstances that borrowers are in before they make the decision to lend money. This would include factors like age, health and the ability to make repayments.

“If the borrower does experience trouble repaying the loan, and then the lender behaves in a way that goes against the unfair relationships test, then that will rebound on the lender and action could be taken by the Financial Ombudsman Service.”

Once a borrower does complain, the onus of proof falls on to the lender to confirm that it has not acted unfairly, meaning it will have to record a lot more information, such as telephone calls and face-to-face discussions.

Borrower Melanie Piper said: “I took out a loan with small credit firm a few years ago and recently ran into difficulties paying it back. The way it pursued me, with really heavy debt collectors and the like, was awful.

“I am glad there is now a law to prevent this happening.”