The Banking Code is being strengthened to encourage more responsible lending following concerns about consumer debt.
The move comes after the Banking Code Standards Board expressed concerns that lenders were not going to sufficient lengths to ensure consumers could afford repayments.
In future when people borrow money to consolidate debts, lenders who think the customer may be facing
financial problems will have to take reasonable steps to make sure the money is used to repay any borrowings the person holds with them.
At the same time banks should make sure that if two people's incomes are used to access the affordability of a loan, the loan should then be made in joint names.
Lenders will also have to go to greater lengths to assess people's ability to repay debt, considering at least two aspects of affordability.
These include looking at their income and financial commitments, considering how they have handled their finances in the past, using information from credit reference agencies, credit scoring, or, subject to permission from the customer, using information from other sources such as their employer or landlord.
Banks are also being asked to consider additional information when assessing an application for credit, such as what the money is being used for in relation to the period over which it will be repaid.
Finally, if banks turn down an application for credit but refer a customer to another lender, they should make it clear that the referral does not mean their application will be successful.
The new guidance will cover banks, building societies and credit card companies.
Meanwhile companies offering financial advice must improve the information they give consumers, the Financial Services Authority has warned.
It said financial advisers were failing to give people the right information on the services they were offering at the right time.
It said half of the firms it looked at were failing to follow its new rules, under which consumers must be made aware of whether a firm is independent or acting on behalf of one or a number of companies, as well as whether they will be paid any commission from a sale. As part of these rules consumers must be given two key facts documents setting out details on the service being offered and its cost.
But a mystery shopping exercise on 81 companies, including independent financial advisers, advisers who sold products for a range of companies and in-house advisers, found that consumers were only given both these documents in 58 per cent of cases, and in only 42 per cent were they given them at the right time.
The regulator also looked at 519 disclosure documents from 168 firms, and found that 65 per cent of them contained errors, and many of these were in key sections, which would have made it difficult for people to shop around.
Clive Briault, managing director of retail markets at the FSA, said: "FSA rules are not optional and these results are very disappointing."
