Card firms must sharpen up their act on loan binge

We all know that the British have a bit of a credit habit - a report to be released tomorrow will show we are the biggest card borrowers in Europe - and that it's a love-hate relationship. We object to being bombarded virtually daily by fresh offers from credit card companies, but we're easily tempted by the deals and don't look too closely at the fine print.

The Treasury Select Committee has done an excellent job of highlighting the issue. Its investigation extracted from Barclays boss Matt Barrett the unforgettable admission that he never uses cards himself to borrow. Last week the committee published a report summarising its findings and listing recommendations for a clean-up. Some of these were pre-empted by the White Paper on Credit published earlier this month, but that was disappointingly vague on the issue of responsible lending.

The Treasury committee says lenders should be looking in detail at borrowers' incomes and existing commitments. This is seen by organisations like the Consumer Credit Counselling Service as crucial to tackling binge borrowing. The organisation expects to make recommendations on the issue when it responds to the White Paper.

There are signs though, that the lenders are getting the message. They won't want draconian legislation or credit card regulation by the Financial Services Authority and their umbrella organisation, the Association of Payment Clearing Services, expects to begin examining how lenders could do better. Already, card operators have agreed to put 'honesty boxes' on card marketing literature designed to spell out the hard facts on interest rates and charges now concealed in fine print.

The Treasury Committee has done an excellent - even entertaining - job in highlighting the problems with credit cards and reflecting public concern over the current orgy of card marketing. Even if nothing were to come of its work, the reporting of its investigation has edu cated millions of people who normally take no interest in their finances. If the industry does not quickly show signs that it will act on its recommendations voluntarily, there is time to beef up the legislation proposed in the White Paper.

Beware enthusiastic marketing of corporate bond funds over the coming months. Sales of these have been booming recently and the early months of the New Year will provide investment companies with an excuse to push them even harder. The funds invest in bonds issued by companies as a way to raise funds. On the investment risk scale they sit a little lower than shares, but not much, as the price of the bonds will rise or fall depending on the fortunes of the companies that back them, and on how interest rates are moving.

The market for bond funds has become increasingly diverse, spawning specialist funds that invest in bonds from just one industry. This increases risk. The income that bonds produce is attractive when interest rates are falling but is seen as less so by financial markets when rates are rising, and this can hit the capital value of the bonds. Interest rates are expected to rise next year, of course, so the climate for bond funds could cool.

This will happen as bonds gain a technical advantage over equity funds; all income from bond funds will remain tax free within Individual Savings Accounts, whereas, from April, equity Isas lose their income tax break. Unfortunate timing. The first three months of the calendar year are the last three of the tax year, and this is the peak selling time for Isas. Sales for bond funds have increased by 27 per cent year on year. Some of the biggest sellers at present are high street banks which do not give independent advice on investment. This could be an early warning of careless selling practices, and the Financial Services Authority says it is watching the situation. It has updated information on its website and will look again in the New Year at what is going on.

Corporate bond funds are not inherently unsound, but they may not suit everyone. If you are advised to buy one, or receive a mailshot promoting them, take a second opinion and don't go ahead unless you understand what you are buying and why.