Comply with high-cost short-term credit rules

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.

HCSTC is 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 HCSTC-specific provisions.

The HCSTC price cap

The price cap has three parts, and they all apply at the same time. You may charge less, but never more:

• Interest and fees must not exceed 0.8% a day of the outstanding balance.
• Default fees must not exceed £15 in total, whatever costs you actually incur. Interest at the daily rate may continue on the defaulted amount, but only up to the total cost cap.
• A borrower must never repay more than double what they borrowed. All interest, fees and charges count towards this 100% total cost cap, and once charges reach 100% of the original loan you must stop charging.

For example, a customer borrows £300 for 30 days. Maximum daily interest is £2.40 (0.8% of £300), so total interest over 30 days is £72. If the customer defaults, you may charge a one-off £15 fee and continue accruing interest, but the total amount repayable can never exceed £600.

Enhanced affordability assessment

CONC 5A sets out additional affordability requirements specifically for HCSTC lending. These go beyond the standard CONC 5 obligations.

Under CONC 5A:

• your assessment must be more rigorous than for standard consumer credit, and you cannot rely mainly on what the customer declares
• where it is available, use real-time income and expenditure data (such as Open Banking) rather than static documents
• assess whether the customer can repay within the agreed term without needing to borrow again from any source
• if credit reference data shows the customer has recently taken HCSTC from you or another provider, apply extra scrutiny

Risk warnings and advertising

All HCSTC financial promotions must include a mandatory risk warning. This is not discretionary.

The required warning text is:

"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.

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.

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.

Where you identify a pattern of repeat borrowing, you should signpost the customer to free debt advice services (MoneyHelper, StepChange, Citizens Advice).

FCA supervisory expectations

HCSTC firms are subject to enhanced FCA supervision. In practice, this means:

• The FCA does not wait for complaints. It runs regular thematic reviews and may ask for data at any time.
• The FCA may require you to submit lending data more often than standard annual reporting, including product-level data on volumes, defaults and customer outcomes.
• The FCA may commission a section 166 skilled persons report on your affordability processes, compliance arrangements or customer outcomes.
• The price cap was designed to make unsustainable business models unviable, and the FCA expects firms to operate within it and still deliver good customer outcomes under the Consumer Duty.

To check your compliance:

1. Confirm whether your products meet the HCSTC definition (APR 100%+ and designed for repayment within 12 months)
2. Audit your pricing against all three cap components
3. Review your CONC 5A affordability process, particularly for repeat borrowers
4. Verify that all advertisements carry the mandatory risk warning