The Office of Fair Trading (OFT) does not have the resources to protect consumers from companies' unscrupulous practices, a report has found.
The National Audit Office (NAO) said at least £450m of financial harm is being caused by the trading watchdog's failure to regulate the consumer credit market effectively.
It found the OFT is not adequately resourced to carry out either the supervision of companies or the monitoring of their compliance with licence standards.
As a result, the regulator only acts when it receives information of non-compliance, meaning much malpractice goes unreported.
But the report found the OFT had achieved good returns on the money available to it - saving consumers £8.60 for every £1 it spent on enforcing regulations.
The watchdog spent £11.5m regulating the consumer credit market in 2011-12, which the NAO said was not enough given the size of the market and level of consumer harm.
Excluding mortgage lending, UK consumers borrowed £176bn in 2011-12 from credit providers like credit card companies, small businesses and payday lenders.
High-cost credit is the fastest growing sector of the market - accounting for around £8bn of total lending annually - but these customers are the most at risk, the NAO warned.
These borrowers often have "lower than average financial understanding", low incomes and poor credit records, it said, and could end up paying too much for a loan or incurring interest and charges due to arrears.
The NAO's head, Amyas Morse, called on the Government to ensure consumers are better protected.
"The OFT has achieved a good return for a small outlay, but has not been able to tackle the full extent of harm to consumers in credit markets," he said.
"This is because it has not had enough resource to regulate effectively or the right kinds of powers.
"The Government's proposed new regulatory system will need to address these problems."
Consumer Affairs Minister Jo Swinson said: "The OFT performs an outstanding job within the limits of its resources, saving consumers more than eight times what they spend on enforcement activities.
"But Government recognises there is more we can do to protect consumers."
She added that the policing of consumer credit will be strengthened by the new Financial Conduct Authority, which will have wider powers and and be better resourced when it takes over in 2014.
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