A crackdown on a dangerously burgeoning credit culture or an opportunity to whip banks and insurance companies into line? The draft consumer protection code published yesterday by the financial regulator could be interpreted as both in light of the Central Bank's recent warnings of consumers' "heightened vulnerability" to interest rate rises and the shadow of 2004's overcharging scandal at AIB.

The proposals from the Irish Financial Services Regulatory Authority (IFSRA) include a number of measures designed to curb uninhibited borrowing by consumers.

The suggested measures include a ban on unsolicited pre-approved credit, a requirement for all regulated firms to explain in writing why they are recommending a certain product and an obligation for financial services firms to include stark warning notices in their advertisements.

In relation to mortgages, which account for about 80 per cent of consumer debt, this should, for example, prevent lenders from foisting expensive standard variable rate loans on first-time buyers, while keeping quiet about their cheaper, better-value tracker mortgages.

IFSRA is also emphasising that consumers have a responsibility not to lie on their loan applications. Lenders cannot be censured for irresponsible lending if the mortgage applicant has supplied an intermediary with a fake P60 or fictional certificate of earnings.

"The financial institutions have certain responsibilities but, equally, there is a responsibility on the customer," said Ms Mary O'Dea, IFSRA's consumer director.

"Buying a house is a hugely emotional time," she said. "People are so focused on getting the house they always dreamed of, or the only house that they can get.

"In a situation where they are bidding against somebody, people tend to take their eye of the ball. Instead of thinking 'who will give me the best value mortgage?' or 'how much can I afford?', they start wondering 'who will give me the most money', and 'how can I get the most money?' "

Over one-quarter of all mortgage lending now falls into the "equity release" category, where homeowners extend their mortgages in order to pay for consumer goods.

However, lenders offering debt consolidation have been criticised for encouraging people to pay for goods that only have a lifespan of a few years over terms as long as 25, thus bumping up the total interest repayments.

Under the IFSRA code, if it is implemented in its current form, advertisements for these refinancing offers must include the following warning: "This loan may lengthen the term of some of your existing outgoings and will cost you more over the long term. Your home is at risk if you do not keep up repayments on any loan secured on it."

Other proposed advertisement regulations should ensure that consumers think twice about opting for fixed-rate loans or hire purchase deals.

IFSRA expects "very healthy debates" in relation to these product warnings in the submissions it receives from industry and consumer bodies between now and the consultation deadline of April 15th.

Among the institutions likely to be affected by IFSRA's proposed ban on unsolicited pre-approved credit are Bank of Ireland Group, Permanent TSB and credit card provider MBNA.

IFSRA research of consumer attitudes to unsolicited pre-approved credit revealed that 86 per cent of people felt that pre-approved loans encouraged people to borrow more than they needed. Of those who had taken financial institutions up on an unsolicited credit offer, 70 per cent had not shopped around for a better interest rate before borrowing.

Although a consultation on formal sanctions procedures is still taking place, IFSRA has had the power to fine financial institutions up to €5 million since last August.

Other sanctions include naming and shaming of institutions, the withdrawal of an advertisement and formal warnings requiring that the regulated firm makes a "commitment to improve".

For the first time, financial institutions must have proper systems and controls in place to prevent customers from being overcharged, or at least to check that any previous incidents of overcharging have not slipped through the net or been covered up, as occurred during the foreign exchange overcharging scandal at AIB.

"This document is not to say that there will not be mistakes done unto customers, but what we are saying is that there is a requirement now for financial institutions to notify us and their customers immediately," Ms O'Dea said.