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The FCA Price Cap on High-Cost Short-Term Credit Explained

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Budget Cash Advance

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This article explains the FCA’s price cap on high-cost short-term credit (HCSTC) – the regulatory category that most payday-style cash advance products fall into in the UK. It is general information, not financial advice.

Where the cap came from

The Financial Conduct Authority (FCA) took over regulation of consumer credit, including payday lending, from the Office of Fair Trading on 1 April 2014. From January 2015 it introduced a formal price cap on high-cost short-term credit, after finding that the previous system allowed costs to spiral in ways that caused serious harm to borrowers, particularly through repeated rollovers and aggressive repeated collection attempts. The cap remains in force and is a core part of how this type of lending is regulated in the UK today.

The three parts of the cap

1. A daily cost cap

Interest and fees on high-cost short-term credit are capped at 0.8% of the amount borrowed per day. This limits how quickly the cost of a loan can build up the longer it takes you to repay.

2. A default fee cap

If you miss a payment, a lender cannot charge more than £15 in default fees, regardless of how much you borrowed. This was specifically designed to stop the flat, disproportionate default charges that used to apply regardless of loan size.

3. A total cost cap

This is the part that matters most in practice: the total amount you can ever be required to pay back – combining interest, fees and default charges – is capped at 100% of the amount you originally borrowed. In plain terms, if you borrow £200, you can never be required to repay more than £400 in total, no matter how long the debt takes to resolve or how many charges accumulate along the way. This is an absolute ceiling, not a target, and it applies for the life of the loan.

What counts as “high-cost short-term credit”

The FCA’s definition is fairly specific: broadly, it covers unsecured credit agreements with an APR of 100% or more where the credit is due to be substantially repaid within 12 months. This is the category most payday-style cash advance products sit in. It’s worth knowing, though, that not every form of short-term or high-cost borrowing falls under this exact definition or gets the identical cap treatment – guarantor loans, logbook (bill of sale) loans, home-collected credit and credit union loans are regulated under different rules within the FCA’s wider Consumer Credit sourcebook, so don’t assume the same three caps automatically apply if you’re comparing a payday-style advance against one of those alternatives. Always check how a specific product is actually regulated rather than assuming from its marketing description.

Limits on rollovers and repeated collection attempts

Alongside the cost cap, FCA rules also restrict how a lender can chase repayment. Lenders are generally limited in how many times they can “roll over” (extend) the same loan, and there are restrictions on repeatedly attempting to take payment from your card or account through a Continuous Payment Authority once an earlier attempt has failed – a lender is expected to make reasonable contact with you about your situation rather than simply repeating automatic withdrawal attempts. If a lender is behaving as though there’s no limit on rollovers or repeated collection attempts, that’s worth raising directly with them, and escalating to the Financial Ombudsman Service if it isn’t resolved.

What the cap doesn’t do

The price cap limits how much a loan can ultimately cost you – it doesn’t guarantee the loan is affordable for you in the first place, and it doesn’t replace a lender’s separate legal duty to carry out proper affordability and creditworthiness checks before lending. A loan can be fully compliant with the cap and still be a bad fit for your circumstances. The cap also doesn’t apply retroactively to older, uncapped debt, and it doesn’t limit non-HCSTC products in the same way, so always check the specific regulatory category and terms of what you’re being offered.

If you think a lender has breached the cap

Breaching the FCA’s price cap is a regulatory breach, not just a contractual dispute. If you believe you’ve been charged beyond what the total cost cap allows, raise a formal complaint with the lender first, then escalate to the Financial Ombudsman Service if it isn’t resolved to your satisfaction – and you can also report the firm to the FCA, which doesn’t resolve individual complaints but does use reports to inform its supervision of the market.

How to check the cap is being applied correctly on a specific loan

If you want to check a specific loan against the cap yourself, work out 0.8% of the amount borrowed and multiply by the number of days the loan has been outstanding to get a rough sense of where interest should stand, then add any default fees (capped at £15 each) and compare the running total against your original amount borrowed – it should never exceed double that amount in total. This is a simplified check rather than a precise legal calculation, since real agreements can have their own specific fee structures, but it’s a useful sanity check if a balance looks like it’s grown further than it reasonably should.

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