A 71-year-old woman was left with just £18 a week to live on after bank managers approved a loan she could barely afford to repay.
Her case was raised in the House of Commons by Black Country MP Ross Cranston (Lab Dudley North), as he backed new laws giving the public more protection from loan sharks and unfair interest rates.
The MP said he had come across a series of worrying cases in his own constituency, including a loan shark charging interest at 10,000 per cent.
He said: "The Citizens Advice Bureau in Dudley has given me a list of the intimidating behaviour of some rogue lenders that includes bullying, telephoning debtors at work and at relatives' houses, telephoning at all hours of the day and night, and saying that clients are liable for the debts of others such as close relations.
"However, the problem is not confined to what I have just described. The big banks also have a responsibility. Let me give one example from my constituency.
"A bank lent a 71-year-old lady, who is on pension credit, £1,700. Her monthly income is just under £490 and she has to pay £418 a month. The result is penury."
The Department of Trade and Industry had set up an "anti-loan shark" scheme in his constituency, he said.
"They have identified one lender in the West Midlands region that charges an annual percentage rate of between 8,000 to 10,000 per cent, with hundreds of clients."
The Consumer Credit Bill will make it easier to take lenders to court if customers feel interest rates are too high, and lenders will be obliged to provide clear information about repayments and how much is owed.
Consumer Affairs Minister Gerry Sutcliffe said: "I favour the change to the banking code of practice as a means of dealing with this, but we shall need to monitor the issue and, if that is unsuccessful, we shall have to see what we can do."
