Guide
Comply with high-cost short-term credit rules
Additional compliance requirements for firms providing high-cost short-term credit (HCSTC), including the price cap regime, enhanced affordability assessments, mandatory risk warnings, repeat borrowing interventions, and persistent debt rules for credit cards.
If your firm provides high-cost short-term credit (HCSTC) such as payday loans or similar products, you face significantly tighter regulation than other consumer credit providers. The FCA introduced a comprehensive price cap and enhanced conduct requirements following its 2014 review, which found widespread consumer harm in this market.
What counts as HCSTC: Credit where the annual percentage rate of charge (APR) is 100% or more and the credit is designed to be repaid, or substantially repaid, within 12 months. This captures payday loans, short-term instalment loans, and some running-account products with very high interest rates.
These rules are in addition to the standard consumer credit requirements. You must comply with both the general CONC obligations and the specific HCSTC provisions set out here.
The HCSTC price cap
The price cap has three components, all mandatory. You cannot exceed any of them.
How the price cap works in practice
The three-tier cap operates simultaneously:
- Daily interest: 0.8% per day on the outstanding balance. This is a hard ceiling. You may charge less, but never more.
- Default fees: GBP 15 maximum. This is the total default charge you may impose, regardless of the costs you actually incur. Interest at the daily rate may continue to accrue on the defaulted amount, but only up to the total cost cap.
- Total cost cap: 100%. A borrower should never have to repay more than double what they borrowed. This includes all interest, fees, and charges combined. If the accumulated charges reach 100% of the original loan, you must stop charging.
Example: A customer borrows GBP 300 for 30 days. Maximum daily interest is GBP 2.40 (0.8% of GBP 300). Over 30 days, total interest is GBP 72. If the customer defaults, you may charge a one-off GBP 15 fee and continue accruing interest, but the total amount repayable can never exceed GBP 600 (100% of the original GBP 300 loan).
Enhanced affordability assessment
CONC 5A sets out additional affordability requirements specifically for HCSTC lending. These go beyond the standard CONC 5 obligations.
What CONC 5A requires:
- Stricter assessment: The assessment must be more rigorous than for standard consumer credit. You cannot rely primarily on self-declaration.
- Real-time data: Where available, use real-time income and expenditure data (such as Open Banking) rather than static documents.
- Short-term sustainability: Assess whether the customer can repay within the agreed term without needing to borrow again from any source.
- Repeat borrowing check: If the customer has recently taken HCSTC from you or another provider (visible via CRA data), apply extra scrutiny.
Risk warnings and advertising
All HCSTC financial promotions must include a mandatory risk warning. This is not discretionary.
Required warning text:
"Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk"
This warning must be:
- Included in every advertisement, regardless of medium
- Displayed prominently and legibly (not buried in small print)
- Shown with at least equal prominence to any rate or cost information
- Present on social media posts, even where character limits apply
Additionally, representative APR rules apply. If you quote any interest rate, you must show the representative APR and all triggered information under CONC 3.
Repeat borrowing and rollovers
The FCA is particularly concerned about customers who borrow repeatedly using HCSTC products, as this often indicates underlying financial difficulty.
Rollover restrictions: A maximum of 2 rollovers is permitted. After 2 rollovers, you must not allow further rollovers and the customer must repay the outstanding balance. Before each rollover, you must carry out a fresh affordability assessment.
Pattern of repeat borrowing: If a customer returns to borrow again shortly after repaying a previous HCSTC loan, you must consider whether this indicates they cannot sustainably manage their finances without HCSTC. CONC 5A requires you to take this pattern into account in your affordability assessment and, where appropriate, decline the application.
Signposting to debt advice: Where you identify a pattern of repeat borrowing, you should signpost the customer to free debt advice services (MoneyHelper, StepChange, Citizens Advice).
Persistent debt rules for credit cards
While not limited to HCSTC, the persistent debt rules under CONC 6.7 are closely related to the FCA's high-cost credit strategy. They apply to credit card issuers and require a two-stage intervention when customers pay more in interest and charges than they repay in principal.
FCA supervisory expectations
HCSTC firms are subject to enhanced FCA supervision. In practice, this means:
- Proactive supervision: The FCA does not wait for complaints. It conducts regular thematic reviews and may request data at any time.
- Real-time data sharing: The FCA may require you to submit lending data more frequently than standard annual reporting, including product-level data on volumes, defaults, and customer outcomes.
- Skilled persons reviews: The FCA may commission a section 166 skilled persons report to assess your affordability processes, compliance arrangements, or customer outcomes.
- Market viability: The price cap was explicitly designed to make unsustainable business models unviable. The FCA expects firms to operate within the cap and still deliver good customer outcomes under the Consumer Duty.
Next steps:
- Confirm whether your products meet the HCSTC definition (APR 100%+ and designed for repayment within 12 months)
- Audit your pricing against all three cap components
- Review your CONC 5A affordability process, particularly for repeat borrowers
- Verify that all advertisements carry the mandatory risk warning
- Ensure your persistent debt monitoring systems flag customers at 18 months