Repayments to credit and store card firms must be used to pay off the most expensive debt first before cheaper borrowing in a reversal of current industry practice.

There will also be a ban on credit limit and interest rate hikes for those facing financial difficulties and a 60-day right to reject rate increases.

Mr Brown said:

‘These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing.’

Building society Nationwide said consumers could even potentially save as much as £500million under the changes, which come into force in February next year.

The practices currently cost the average card-holder £1,500 and allow firms to take advantage of customers who do not pay their card balance in full each month.

Almost all card firms charge borrowers different interest rates on the same account depending on the types of transaction they complete.

So balance transfers might be charged at 0 per cent, purchases could be charged at 16 per cent and cash withdrawals may incur up to 30 per cent.

But those who just pay off part of their monthly bill will only start to reduce borrowings at the lowest interest rates first.

Someone who pays £90 towards a £1,000 bill that includes transactions for £800 at 16 per cent and £200 at 30 per cent will only be clearing the part of the debt charged at the lower rate.

This leaves borrowers paying interest on the dearest borrowing for as long as possible, meaning it can take years to start tackling the most pricey debt.

The Government launched a review of credit and store cards in a consumer White Paper in July last year.

Following a three-month consultation, consumers will also be given more guidance on the consequences of paying back too little and an annual statement allowing them to compare costs with other providers.

Credit and store card firms will work with consumer groups and debt advice agencies to identify borrowers who are at risk and protect them from credit limit or interest rate hikes.

In his weekly podcast, Mr Brown said: ‘Lenders that don’t comply will face tough sanctions, like having their licences revoked.’

Consumer minister Kevin Brennan said the changes represented a major victory for the Government.

He told GMTV he wanted to make sure there was a ‘responsible culture’ of borrowing and lending in Britain.

PricewaterhouseCoopers partner Richard Thompson said the plans represented a ‘sensible and balanced’ response to concerns.