Borrowing guides

A short-term loan agreement is a consumer contract, and its standard terms can be tested for fairness under Part 2 of the Consumer Rights Act 2015, in addition to the credit-specific rules. The legislation.gov.uk text marks the provisions read here as applying across the UK. Whether a particular clause is unfair depends on its wording and the circumstances, and only a court can decide. This is general information, not legal or financial advice.

What Part 2 covers

Section 61 says Part 2 applies to a contract between a trader and a consumer, other than an employment or apprenticeship contract, and to a notice to the extent that it relates to rights or obligations between a trader and consumer or purports to exclude or restrict a trader’s liability. A loan agreement between a lender and a consumer borrower is therefore within its reach. Part 2 works alongside, not instead of, the credit-specific protections in the Consumer Credit Act 1974 and the FCA’s rules.

The fairness test

Under section 62, an unfair term of a consumer contract is not binding on the consumer, and the same goes for an unfair consumer notice. A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the consumer’s detriment. Fairness is judged by taking into account the nature of the subject matter of the contract, and by reference to all the circumstances existing when the term was agreed and to all the other terms of the contract or of any contract it depends on.

Section 62(3) adds that the rule does not stop the consumer relying on the term if they choose to.

Terms that are not tested: price and main subject matter

Section 64 says a term may not be assessed for fairness to the extent that it specifies the main subject matter of the contract or concerns whether the price is appropriate compared with what is supplied. That exclusion applies only if the term is both transparent and prominent. A term is transparent if expressed in plain and intelligible language and, where written, legible. It is prominent if brought to the consumer’s attention so that an average consumer, described as reasonably well-informed, observant and circumspect, would be aware of it. The section does not apply to terms listed in Part 1 of Schedule 2.

Regulated limits on the cost of short-term credit are covered in the guide to the FCA price cap.

The grey list in Schedule 2

Section 63 introduces Part 1 of Schedule 2, an indicative and non-exhaustive list of terms that may be regarded as unfair. Entries most relevant to borrowing include:

• a term requiring a consumer who fails to fulfil their obligations to pay a disproportionately high sum in compensation (paragraph 6);
• a term enabling the trader to alter the contract unilaterally without a valid reason specified in the contract (paragraph 11);
• a term giving the trader discretion to set the price after the consumer is bound, where no price or method was agreed (paragraph 14);
• a term requiring a disproportionately high sum from a consumer who decides not to conclude or perform the contract (paragraph 5).

Being on the list does not make a term automatically unfair; the list is only a guide to what may be regarded as unfair.

Financial services exceptions

Part 2 of Schedule 2 contains specific exceptions for financial services. Paragraph 22 says the unilateral-variation entry does not include a term allowing a financial services supplier to change the rate of interest or other charges without notice for a valid reason, if the supplier must tell the consumer at the earliest opportunity and the consumer is free to end the contract immediately. The rules on rate changes for regulated credit are set out in the guide to when a lender raises your interest rate.

Effect on the rest of the agreement and in court

Section 67 says that when a term is not binding on the consumer, the contract continues, so far as practicable, to have effect in every other respect.

Section 71 requires a court considering a term of a consumer contract to consider whether the term is fair even if no party has raised the point, provided the court has sufficient legal and factual material. A different route for the relationship as a whole is described in the guide to unfair relationships, and a complaint may also be made to the Financial Ombudsman Service.

FAQs

Does a term have to be on the grey list to be unfair?

No. Section 63 says the list is indicative and non-exhaustive, and section 62 applies to any term that meets the fairness test.

Can a court declare a loan term unfair by itself?

Section 71 requires the court to consider fairness even if no party raises it, where it has enough legal and factual material.

If one term is unfair, is the whole loan agreement void?

No. Section 67 says the contract continues, so far as practicable, to have effect in every other respect.

Can the fairness test challenge the interest rate?

Section 64 says price appropriateness cannot be assessed for fairness if the term is transparent and prominent.

The bottom line

Part 2 of the Consumer Rights Act 2015 lets an unfair term in a loan agreement be treated as not binding on the borrower, while the rest of the contract continues. The test asks whether a term creates a significant imbalance contrary to good faith, with price and main subject matter excluded only where they are transparent and prominent. Schedule 2’s list flags risky clauses, and courts must consider fairness of their own accord where the material is before them.

Sources

• legislation.gov.uk, “Consumer Rights Act 2015, section 62: Requirement for contract terms and notices to be fair”
• legislation.gov.uk, “Consumer Rights Act 2015, section 64: Exclusion from assessment of fairness”
• legislation.gov.uk, “Consumer Rights Act 2015, section 67: Effect of an unfair term on the rest of a contract”
• legislation.gov.uk, “Consumer Rights Act 2015, section 71: Duty of court to consider fairness of term”
• legislation.gov.uk, “Consumer Rights Act 2015, Schedule 2: Consumer contract terms which may be regarded as unfair”

A lender that wants a quick sale may push a borrower to sign before reading the paperwork, offer more than was asked for, or suggest that a new loan will reduce existing repayments. Rule CONC 4.8 in the FCA’s Consumer Credit sourcebook restricts all three practices for firms that lend to consumers. The rules apply across the UK, and this guide is general information, not advice on a particular offer.

Where the rule applies

CONC 4.8.1R says the section applies to a firm carrying on consumer credit lending. It sits in the part of the sourcebook that covers what happens before a credit agreement is made, alongside the disclosure and explanation duties in CONC 4.2. The rules in CONC 4.8 are aimed at lenders themselves, not at the borrower’s own conduct.

Rushing the borrower

CONC 4.8.2R says a firm must not unfairly encourage, incentivise or induce a customer to enter into a regulated credit agreement quickly without allowing the customer time to consider two things. For most regulated agreements, these are the pre-contract information under section 55 of the Consumer Credit Act 1974 and the explanations provided under CONC 4.2.5R. For a regulated deferred payment credit agreement, the rule refers instead to the information given or made available under CONC 4.2A.3R(1). The FCA Handbook shows that the rule is dated 15 July 2026, so the deferred payment wording is part of the current text.

CONC 4.8.3G adds that stating an end date for a promotion would not amount to the behaviour prohibited by CONC 4.8.2R. A limited-time offer is therefore not itself unlawful, but pressure that stops the borrower from considering the documents is.

What the borrower is entitled to consider

CONC 4.2.5R requires a firm, before making a regulated credit agreement, to provide an adequate explanation of specified matters so the customer can assess whether the agreement is adapted to the customer’s needs and financial situation. It also requires the firm to advise the customer to consider the information disclosed under section 55 of the 1974 Act and, where that information is given in person, to tell the customer that it can be taken away. The firm must give the customer an opportunity to ask questions. These are the materials that CONC 4.8.2R protects the time to consider. The explanations are covered in more detail in the guide to adequate explanations before you sign.

Under section 55 of the 1974 Act, if the disclosure regulations are not complied with, the agreement is enforceable against the borrower on an order of the court only, and retaking goods or land counts as enforcement. The wider consequences of an agreement made without proper paperwork are described in the guide to improperly executed credit agreements.

Encouraging a larger loan than requested

CONC 4.8.4R says a firm must not unfairly encourage, incentivise or induce a customer to enter into a regulated credit agreement for an amount higher than the customer requests. The guidance in CONC 4.8.5G explains the limit of the rule. Merely offering more credit than the customer asked for would not amount to the prohibited behaviour where the offer was based on a proper creditworthiness assessment, or where the firm offers more advantageous terms, conditions or prices for larger loans, provided the offers are sufficiently transparent and a proper creditworthiness assessment has been carried out, and the customer was not pressurised or unfairly coerced into accepting the higher amount. A borrower who is told that a larger loan is "the only option" may want to ask for a quote for the amount originally requested. The assessment duties are covered in the guide to affordability checks.

Misleading claims about lower repayments

CONC 4.8.6R says a firm must not lead a customer to believe that the customer’s current debt repayments can be reduced under a regulated credit agreement over the same term when this is not the case. Borrowers weighing a new loan against existing debts can use the guide to debt consolidation loans, which explains the risk of rolling debt together.

FAQs

Can a lender set a deadline on an offer?

CONC 4.8.3G says stating an end date for a promotion would not amount to unfairly rushing a customer, but the firm must still allow time to consider the pre-contract information and explanations.

Is it against the rules to offer me more than I asked for?

Not by itself. CONC 4.8.5G says merely offering more can be acceptable where it rests on a proper creditworthiness assessment and the customer is not pressurised or coerced. CONC 4.8.4R prohibits unfairly encouraging a higher amount.

Can a lender imply a new loan cuts my payments?

Not where that is untrue. CONC 4.8.6R bars leading a customer to believe current repayments can be reduced over the same term when they cannot.

The bottom line

CONC 4.8 stops lenders from unfairly rushing a customer past the pre-contract information and explanations, from unfairly encouraging a larger loan than the one requested, and from implying that repayments can be cut over the same term when they cannot. Stating a promotion end date is not itself a breach. Anyone who feels pressured can ask for time and for the documents to be provided. This is general information, not legal advice.

Sources

• FCA Handbook, “CONC 4.8 Pre-contract: unfair business practices: consumer credit lending”
• FCA Handbook, “CONC 4.2 Pre-contract disclosure and adequate explanations”
• legislation.gov.uk, “Consumer Credit Act 1974, section 55: Disclosure of information”

Some firms charge for arranging and running a debt management plan, and their fees come out of the money a borrower sends towards debts. The FCA’s Consumer Credit sourcebook sets rules for these firms in CONC 8.3 (information before a contract) and CONC 8.7 (charging). The rules apply across the UK, and this guide is general information, not a recommendation of any provider or product.

Information a firm must give at first enquiry

CONC 8.3.1R says a firm must, when the customer first enquires about its services, provide sufficient information in a durable medium to enable a reasonable decision. Except where the disclosure regulations for credit agreements apply, the list includes:

• the nature of the service and the duration of the contract;
• the total cost, or the formula used to calculate fees, or an estimate of the likely total cost;
• any fee or deposit, such as an arrangement, periodic, management or administrative fee;
• any fee that can be imposed on cancellation;
• how percentage or hourly fees are calculated, and which elements of the service the fees cover;
• the circumstances in which the customer can terminate the contract and receive a refund;
• the consequences for the customer’s credit rating, including how long the matter will show on the credit file;
• whether a right to cancel applies, and how payments will be allocated to lenders and when they will be made.

Fees must not swallow the payments to lenders

CONC 8.7.2R requires a firm to ensure that the customer’s obligations to pay its fees do not have the effect that the customer pays all, or substantially all, of those fees in priority to repayments to lenders under the debt management plan, and do not undermine the ability to make significant repayments to lenders throughout the plan, starting with the first month. The guidance in CONC 8.7.3G says an obligation is likely to be viewed as undermining that ability if the firm may allocate more than half of the sums received in any one-month period from the start of the plan to its fees or charges. That is guidance on how the FCA would view a firm’s arrangements, not a fixed cap, and it says the FCA would expect the proportion going to fees to fall once any initial fee has been paid or six months have passed, if earlier. The plan itself is explained in the guide to debt management plans.

Commissions and revised financial statements

Under CONC 8.7.4R a firm must, in good time before entering into a contract, disclose the existence of any commission or incentive payments between the firm and a third party that are relevant to the service, and must disclose the amount if the customer asks. If its fees change during an arrangement in a way that affects the amount available for distribution to lenders, it must send a revised financial statement to the customer’s lenders.

Payments the rules forbid

CONC 8.7.6R lists things a firm must not do. They include:

• requiring or taking any payment before entering into a contract about a debt solution;
• requesting payment from the customer’s payment account unless specifically authorised and not cancelled;
• accepting payment of fees by credit card or other credit, with a narrow exception where the firm does not know and cannot be expected to know that the current account is or would go into debit;
• imposing cancellation charges that are unreasonable or disproportionate to the actual costs necessarily incurred;
• claiming a fee that is not provided for in the agreement, or that is or is likely to be unfair under the Consumer Rights Act 2015;
• asking customers seeking a refund to use a premium rate telephone number.

The same rule bars a firm from switching a customer to a different debt solution without consent after a full explanation, and from switching between solutions while charging a further set-up or administration fee where some or all of that work has already been done, without a reasonable justification. The difference between solutions is explained in the guide to IVAs and debt management plans.

Refunds for wrong or missing service

CONC 8.7.4R also requires refunds in two situations. Where the firm identifies, or it is established, that advice was incorrect or not appropriate, it must refund or credit the fees or charges imposed for that advice. Where any part of the agreed service has not been provided, or not provided with a reasonable standard of skill and care, it must make an appropriate refund. CONC 8.7.6R(8) adds that a firm must not charge an additional fee for further or revised advice in those circumstances.

Free alternatives and complaints

Free, regulated help exists, as described in the guide to free debt advice, and a borrower can compare it with any fee-charging offer before signing. If a firm breaches the rules, the complaint route is set out in the guide to complaining to the Financial Ombudsman Service.

FAQs

Can a debt management firm take payment before I sign a contract?

No. CONC 8.7.6R says a firm must not require or take any payment before entering into a contract with the customer about a debt solution.

Can I pay a debt management firm’s fee by credit card?

CONC 8.7.6R prohibits accepting fees by credit card or other credit, subject to a narrow exception where the firm cannot be expected to know the current account is or would go into debit.

Is there a set limit on how much of my payment goes on fees?

The FCA guidance in CONC 8.7.3G treats allocating more than half of the sums received in a month to fees as likely to undermine the customer’s ability to make significant repayments. It is guidance, not a cap.

The bottom line

FCA rules require fee-charging debt management firms to disclose costs and the timing of payments to lenders at first enquiry, to structure fees so that lenders still receive significant repayments from the first month, to avoid forbidden payment methods and unreasonable cancellation charges, and to refund fees for wrong advice or missing service. This is general information, not legal advice.

Sources

• FCA Handbook, “CONC 8.3 Pre contract information and advice requirements”
• FCA Handbook, “CONC 8.7 Charging for debt counselling, debt advice and related services”

A borrower who finds transactions on a credit account or card that they did not make is protected by two overlapping UK regimes. Sections 83 and 84 of the Consumer Credit Act 1974 deal with misuse of credit facilities and credit-tokens, and regulations 75 to 77 of the Payment Services Regulations 2017 deal with unauthorised payment transactions. Both apply across the UK. This guide summarises them as general information, not advice on a particular dispute.

The starting point in section 83

Section 83(1) of the 1974 Act says the debtor under a regulated consumer credit agreement is not liable to the creditor for any loss arising from use of the credit facility by another person not acting, or to be treated as acting, as the debtor’s agent. Section 83(2) excludes non-commercial agreements and certain cheque misuse.

The limit for credit cards and other credit-tokens

Section 84 qualifies section 83 for credit-token agreements, such as credit cards. Under section 84(1) the debtor can be made liable up to £35, or the credit limit if lower, for loss arising from use of the credit-token by other persons during the period when it is out of the possession of any authorised person. Section 84(2) allows liability to any extent where the user acquired possession of the token with the debtor’s consent.

Several conditions protect the borrower. Under section 84(3), the limits do not apply to use after the creditor has been given oral or written notice that the token is lost or stolen or otherwise liable to misuse. Under section 84(3A) and (3C), they do not apply to use of a card in connection with a distance contract, subject to the exceptions stated. Under section 84(4), the limits apply only if the agreement contains, in the prescribed manner, the name, address and telephone number of the person to be notified. Oral notice can be required to be confirmed in writing within seven days under section 84(5).

A card the borrower never accepted

Section 66 says the debtor is not liable under a credit-token agreement for use made of the credit-token by any person unless the debtor had previously accepted it, or the use constituted acceptance. A token is accepted when it is signed, or a receipt for it is signed, or it is first used by the debtor or a person the debtor authorised. A card intercepted before it reached the borrower can therefore fall outside the borrower’s liability.

The Payment Services Regulations 2017

The 2017 Regulations apply to payment services, including card payments. Regulation 75 says that where a payment service user denies having authorised an executed payment transaction, it is for the payment service provider to prove that it was authenticated, accurately recorded, entered in the accounts and not affected by a technical breakdown. Under regulation 75(3), a recorded use of a payment instrument is not in itself necessarily sufficient to prove authorisation, and regulation 75(4) requires the provider to supply supporting evidence if it alleges fraud or gross negligence.

Under regulation 76, subject to regulations 74 and 75, the provider must refund an unauthorised transaction and restore the account to its previous state, as soon as practicable and no later than the end of the business day following the day it becomes aware of the transaction. That does not apply where the provider has reasonable grounds to suspect fraudulent behaviour by the user and notifies the relevant person in writing.

Regulation 77 lets a provider require the payer to bear up to £35 of losses from a lost, stolen or misappropriated payment instrument, but not where the loss was undetectable before the payment, or was caused by the provider or its agent. The payer is liable for all losses if they acted fraudulently or with intent or gross negligence failed to comply with regulation 72. Except where the payer acted fraudulently, there is no liability for losses after notification under regulation 72(1)(b), or for use in connection with a distance contract, other than an excepted contract.

Practical steps

Because notice ends liability under both regimes, the account provider should be told immediately by phone, and confirmed in writing, so there is a record. The statement should be checked for every transaction, and disputed items listed. If the provider refuses a refund, the complaint route is described in the guide to complaining to the Financial Ombudsman Service. Other protections on card purchases, where goods are faulty or not supplied, are covered in the guide to section 75.

FAQs

Am I liable if a thief uses my credit card before I report it?

Under section 84(1) liability is capped at £35, or the credit limit if lower, for use while the card is out of authorised hands. Regulation 77 of the 2017 Regulations also refers to £35, with exceptions.

Does the limit apply once I have told the card issuer?

No. Section 84(3) says the limits do not apply to use after the creditor has been given notice, and regulation 77(4) removes liability for losses after notification, except for fraud by the payer.

Who has to prove a payment was authorised?

Under regulation 75, it is for the payment service provider to prove that the transaction was authenticated and accurately recorded, and a recorded use is not in itself necessarily sufficient proof.

The bottom line

Under section 83 of the Consumer Credit Act 1974, a borrower is generally not liable for another person’s unauthorised use of a regulated credit facility, and section 84 caps liability for credit-token misuse at £35, or the credit limit if lower, with several exceptions. The Payment Services Regulations 2017 add proof and refund duties for providers. Prompt notice ends liability. This is general information, not legal advice.

Sources

• legislation.gov.uk, “Consumer Credit Act 1974, section 83: Liability for misuse of credit facilities”
• legislation.gov.uk, “Consumer Credit Act 1974, section 84: Misuse of credit-tokens”
• legislation.gov.uk, “Consumer Credit Act 1974, section 66: Acceptance of credit-tokens”
• legislation.gov.uk, “Payment Services Regulations 2017, regulation 75: Evidence on authentication and execution of payment transactions”
• legislation.gov.uk, “Payment Services Regulations 2017, regulation 76: Payment service provider’s liability for unauthorised payment transactions”
• legislation.gov.uk, “Payment Services Regulations 2017, regulation 77: Payer or payee’s liability for unauthorised payment transactions”

Missing a repayment can trigger extra charges, and a borrower may be told that a collector’s costs must also be paid. Two sets of UK rules limit what can be added: CONC 7.7 in the FCA’s Consumer Credit sourcebook, and section 93 of the Consumer Credit Act 1974. Both apply across the UK to regulated consumer credit, and this guide is general information rather than advice on a particular account.

Recovery costs need a contractual right

CONC 7.7.2R says a firm must not claim the costs of recovering a debt from a customer if it has no contractual right to claim such costs. CONC 7.7.3R adds that a firm must not cause a customer to believe that the customer is legally liable to pay the costs of recovery where no such obligation exists. Together these rules mean that a letter adding a "collection fee" or "agent’s costs" to the balance should be checked against the credit agreement. If the agreement does not give the lender or its collector a right to those costs, the firm must not claim them, and it must not suggest that the customer has to pay.

Default charges must be stated in the agreement

CONC 7.7.4G says that where a firm has a contractual right to levy default charges, a regulated credit agreement must state the charges and the conditions for making them, under the Consumer Credit (Agreements) Regulations 2010 or, for older agreements, the Consumer Credit (Agreements) Regulations 1983. The agreement therefore is the first place to look. A charge that appears on a statement but is not in the agreement is worth querying. Asking for a copy of the agreement is covered in the guide to asking your lender for a copy of your credit agreement.

Charges no higher than reasonable costs

CONC 7.7.5R provides that a firm must not impose charges on customers in default or arrears difficulties unless the charges are no higher than necessary to cover the reasonable costs of the firm. CONC 7.7.6G says that, in considering whether costs may be reasonable, a firm may have regard to the frequency and nature of the events to which the costs relate and whether they arise directly from the customer being in default or arrears difficulties. That guidance took effect on 4 November 2024, according to the date shown on the FCA Handbook page.

CONC 7.7.1G links the rules to wider duties. When levying charges for debt recovery on a customer in default or arrears difficulties, firms should consider their obligations under Principle 6 to pay due regard to the interests of customers and treat them fairly and, as applicable, the requirement to act to deliver good outcomes for retail customers under the Consumer Duty. That wording was updated on 26 June 2026 according to the FCA Handbook. The wider conduct rules for firms dealing with borrowers in arrears are in the guide to falling behind on repayments.

Default interest under section 93

Section 93 of the Consumer Credit Act 1974 deals with interest on unpaid sums. It says the debtor under a regulated consumer credit agreement shall not be obliged to pay interest on sums that are unpaid in breach of the agreement at a rate exceeding the rate of the interest included in the total charge for credit. Where the total charge does not include an item for interest, it says the rate must not exceed what the rate of the total charge for credit would be, disregarding certain items included by the FCA’s rules. In plain terms, missing a payment cannot lawfully be used to raise the interest rate on the overdue sums above the rate the borrower was already paying. The related rules on rate rises during an agreement are covered in the guide to when a lender raises your interest rate.

The Act text records that section 93 has been excluded for Green Deal agreements and applied for some purposes to mortgage credit agreements, so the position for those products should be checked separately.

Information a borrower can ask for

CONC 7.4.1R requires a firm to provide the customer, or another person acting on the customer’s behalf, with information on the amount of any arrears and the balance owing. A written breakdown makes it possible to see which part is the loan balance, which is interest and which is a fee, and to compare each item with the agreement. The separate price cap on high-cost short-term credit is explained in the guide to the FCA price cap on high-cost short-term credit. Where a debt is going to court, the guide to county court claims and CCJs explains the process.

FAQs

Can a debt collector add its own fee to what I owe?

Not unless there is a contractual right to those costs. CONC 7.7.2R prohibits claiming recovery costs without one, and CONC 7.7.3R prohibits making the customer believe they are liable where they are not.

Is there a limit on default charges?

CONC 7.7.5R says charges on customers in default or arrears difficulties must be no higher than necessary to cover the firm’s reasonable costs.

Can interest be raised on the overdue amount?

Section 93 says the borrower is not obliged to pay interest on unpaid sums at a rate exceeding that in the agreement, as the section describes.

The bottom line

Under CONC 7.7, a lender or collector must not claim recovery costs it has no contractual right to, must not make a customer believe they owe them, and must keep default charges to its reasonable costs. Section 93 of the Consumer Credit Act 1974 stops default interest on a regulated agreement exceeding the contract rate. Checking every added item against the agreement is the practical first step. This is general information, not legal advice.

Sources

• FCA Handbook, “CONC 7.7 Application of interest and charges”
• FCA Handbook, “CONC 7.4 Information on status of debts”
• legislation.gov.uk, “Consumer Credit Act 1974, section 93: Interest not to be increased on default”

A demand for money is not always right. The borrower may not be the person who took the loan, the debt may not exist or the figure may be wrong, and a repayment offer may be turned down. The FCA’s Consumer Credit sourcebook sets rules for these situations in CONC 7.14 and CONC 7.4, and they apply across the UK to firms lending to consumers and to those collecting consumer credit debts.

When a debt is disputed on valid grounds

CONC 7.14.1R says a firm must suspend any steps it takes, or its agent takes, in the recovery of a debt where the customer disputes the debt on valid grounds or what may be valid grounds. The guidance in CONC 7.14.2G gives three examples of valid grounds: the person pursued is not the true borrower or hirer under the agreement, the debt does not exist, or the amount being pursued is incorrect. CONC 7.14.3R also requires the firm to investigate the dispute and to provide details of the debt to the customer in a timely manner. CONC 7.14.5R adds that the firm must give the customer information on the outcome of its investigation.

Who has to prove the debt

CONC 7.14.4R deals with the burden of proof for two kinds of dispute. Where there is a dispute as to the identity of the borrower or hirer, or as to the amount of the debt, it is for the firm, and not the customer, to establish that the customer is the correct person or that the amount is the correct amount owed under the agreement. A customer who thinks a loan was taken out in their name can therefore ask the firm to show the agreement and the sums claimed, and can also check the credit file, as explained in the guide to errors on your credit file.

Disputes about debts held by a collector

A disputed debt may be held by a firm other than the original lender, and CONC 7.14.6R covers that case. Where a customer disputes a debt and the firm seeking to recover it is not the lender or the owner, the firm must either pass the information the customer provided to the lender or owner, or, if it has authority to investigate a dispute, notify the lender or owner of the outcome of its investigation. How a debt changes hands is explained in the guide to assignment of debt.

What counts as deadlocked debt

CONC 7.14.7G says a debt repayment is deadlocked where the customer or the customer’s representative has acknowledged liability for the debt and proposed a repayment plan, but the firm seeking to recover the debt does not find the proposed plan acceptable. Acknowledging a debt and offering to pay it is a different step from disputing it.

How a firm must treat a repayment offer

CONC 7.14.8R requires a firm to give due consideration to a reasonable offer of repayment made by the customer or the customer’s representative. If a firm rejects a proposal from a customer in default or in arrears difficulties, CONC 7.14.9R says its response must include a clear explanation of the reason for the rejection.

CONC 7.14.10R goes further. If a firm rejects an offer because it is unacceptable, it must not engage in any conduct intended to, or likely to, have the effect of intimidating the customer into increasing the offer. The guidance in CONC 7.14.11G says that, depending on the circumstances, examples that may contravene the rule include immediately sending field agents to visit the customer, or communicating that it will do so, and substantially increasing the rate of interest or imposing a substantial charge, or communicating that it will do so. CONC 7.14.13G says that merely making a counter-offer, or merely taking steps to enforce an agreement, would not contravene the rule.

Settling for less than the full amount

CONC 7.14.14R says that if a firm accepts a customer’s offer to settle a debt, it must communicate formally and unequivocally that the offer, accompanied by the relevant payment, has been accepted as settlement of the customer’s liability. CONC 7.4.2R adds a further duty. Where a customer offers a settlement payment lower than the total owing, or a lender decides to stop pursuing the customer, and the debt or part of it continues to exist despite that, the lender or owner must explain in clear terms that the debt continues to exist and that the customer could be pursued by another firm that buys it.

Practical steps

A customer disputing a debt can write to the firm setting out the ground, such as the debt not existing or the amount being wrong, and keep a copy. The guide to complaining to the Financial Ombudsman Service describes the complaint route. Free help preparing an offer is covered in the guide to free debt advice.

FAQs

Must a collector stop chasing me if I dispute the debt?

CONC 7.14.1R says a firm must suspend steps to recover a debt where the customer disputes it on valid grounds or what may be valid grounds.

Who has to prove a debt is mine?

Under CONC 7.14.4R, where identity or the amount is disputed, it is for the firm, not the customer, to establish that the customer is the correct person or that the amount is correct.

Can a firm refuse my repayment offer?

Yes, but under CONC 7.14.8R it must give due consideration to a reasonable offer, and under CONC 7.14.9R it must explain the reason for rejection clearly.

The bottom line

FCA rules in CONC 7.14 require firms to suspend recovery, investigate and report back when a debt is disputed on valid grounds, to prove identity and amount, to consider reasonable repayment offers and explain a rejection, and not to intimidate customers into increasing an offer. An accepted settlement must be confirmed formally, and any remaining debt must be explained. This is general information, not legal advice.

Sources

• FCA Handbook, “CONC 7.14 Settlements, disputed and deadlocked debt”
• FCA Handbook, “CONC 7.4 Information on status of debts”

A borrower who owes the same lender money under more than one credit agreement, or who has different balances on one credit card, may not know which debt a part-payment reduces. That can affect how much interest builds up and whether a particular agreement stays in arrears. The FCA’s Consumer Credit sourcebook sets rules on allocation for regulated agreements, and they apply across the UK to firms lending to consumers.

The right to choose between agreements

CONC 6.4.2R applies where a firm is entitled to payments from the same customer under two or more regulated agreements. If the customer makes a payment that is not enough to discharge the total then due under all of them, the firm must allow the customer to appropriate the sum paid towards any one agreement, or towards two or more in whatever proportions the customer thinks fit. The rule reflects section 81(1) of the Consumer Credit Act 1974. In practice this means a borrower with, for example, a short-term loan and a separate overdraft or card with the same firm can direct a payment where it helps most, if they say so when paying.

What happens if the customer gives no instruction

The default is not left to the lender’s discretion in every case. Under CONC 6.4.2R(2), if the customer does not appropriate the payment and one or more of the agreements is a hire-purchase or conditional sale agreement, a consumer hire agreement, or an agreement for which security is provided, the firm must appropriate the payment towards the sums due under the agreements in the proportions those sums bear to one another. That is what the rule says the firm must do, and the notes to the rule attribute it to section 81(2) of the Act. The position for other combinations of agreements is not set out in that rule, so the agreement terms and the customer’s instruction matter.

Different balances on one card: highest interest first

CONC 6.7.4R deals with a single credit card or store card that carries balances at different rates, such as purchases and cash withdrawals. A firm must first allocate a repayment to the debt subject to the highest rate of interest, then to the next highest, and so on. This applies to the outstanding balance on a credit card, the outstanding balance on a store card, and, where a card has a fixed-sum element or a fixed instalment plan, to repayments beyond those required to satisfy the fixed instalments. The rule benefits borrowers, because payments above the minimum reduce the most expensive debt first.

Fixed instalment plans

Some card agreements let customers move purchases or other transactions into a plan repayable in fixed instalments over a fixed period. CONC 6.7.4BR says a firm must not offer such a plan unless, acting reasonably, it has concluded that it is likely to be in the customer’s best interests and has taken reasonable steps to ensure the customer can make an informed decision. The guidance gives examples where it would not be reasonable to reach that conclusion, including where cash transactions carry a higher rate than other transactions and the customer has, or recently had, a significant cash balance that the plan leaves out, or where the customer is likely to be worse off with the plan. It also says reasonable steps include explaining clearly the features, costs and implications, and what happens, including any credit file reporting, if a plan payment is missed.

Minimum payments and paying more

Allocation matters most when a borrower pays little. CONC 6.7.5R requires a firm to set the minimum required repayment on a credit card or store card at no less than the interest, fees and charges applied to the account plus one percent of the amount outstanding, for agreements made on or after 1 April 2011. CONC 6.7.6R also requires the firm to offer customers the option, when making automated repayments, to pay any amount they choose that is at least the minimum but less than the full balance. The related persistent debt rules are in the guide to credit card persistent debt.

Practical steps

A borrower with several debts with one firm can say in writing which agreement a payment is for and keep a record of it. The overall priority between different creditors is a separate question, addressed in the guide to priority and non-priority debts. If payments seem to have been applied contrary to the rules, the lender can be asked to explain and the borrower can complain, as described in the guide to complaining to the Financial Ombudsman Service. Free advice is available to work out the best use of limited money, as covered in the guide to free debt advice.

FAQs

Can I choose which loan my payment goes towards?

Under CONC 6.4.2R(1), where a firm is owed payments under two or more regulated agreements and the payment is not enough to clear everything due, the customer may appropriate it to one agreement or split it between them.

Which card balance is paid off first?

CONC 6.7.4R requires the firm to allocate repayments first to the debt with the highest rate of interest, then the next highest, for credit card and store card balances.

Do these rules apply to every kind of loan?

CONC 6.4 applies to regulated agreements and consumer hiring, while the highest-rate rule in CONC 6.7.4R applies to credit cards and store cards.

The bottom line

Where a customer owes a firm money under several regulated agreements, CONC 6.4 lets the customer decide where a part-payment goes, and the firm must split it in proportion if the customer does not choose and certain agreement types are involved. On credit and store cards, CONC 6.7.4R requires repayments to go first to the highest-rate debt. Anyone unsure how payments were applied can ask the lender to explain. This is general information, not legal advice.

Sources

• FCA Handbook, “CONC 6.4 Appropriation of payments”
• FCA Handbook, “CONC 6.7 Post contract: business practices”

An interest rate that changes after a borrower has signed can transform the cost of credit, so both the Consumer Credit Act 1974 and the FCA’s rules limit how and why a lender may vary it. The Act requires written notice of a change, and the FCA’s Consumer Credit sourcebook requires a valid reason and, for credit and store cards, gives extra rights to leave. The rules apply across the UK to regulated consumer credit agreements.

Written notice under section 78A

Section 78A applies where the rate of interest charged under a regulated consumer credit agreement, other than an excluded agreement, is to be varied. The creditor must inform the debtor in writing before the variation can take effect. The notice must give the variation in the rate, the amount of any payments to be made after the variation if different (expressed as a sum of money where practicable), and any change in the number or frequency of payments. Agreements secured on land, and overdrafts arising where a current account holder overdraws without a pre-arranged overdraft, are excluded from this section, and the rules for overdrafts under an authorised arrangement apply only where the rate increases.

Exceptions for reference rates and periodic information

Section 78A(2) removes the duty to give advance notice in two cases. The first is where the agreement provides that the creditor will inform the debtor in writing periodically of the same matters after any variation. The second is where the agreement says the rate varies with a reference rate, that reference rate is publicly available, information about it is available at the creditor’s premises, and the variation results from a change to that reference rate. The borrower should therefore read the agreement to see which mechanism applies, and the guide to asking for a copy of a credit agreement explains how to obtain one.

The FCA’s valid reason rule

CONC 6.7.14R says that where a firm has a right to increase the interest rate under a regulated credit agreement, it must not do so unless there is a valid reason. CONC 6.7.15G gives examples of valid reasons: recovering the genuine increased costs of funding the credit, and a change in the risk the customer presents that justifies the change in the rate. The guidance adds that a change in risk would not generally include missing a single repayment or failing to repay in full on one or two occasions. Under CONC 6.7.16R, where the increase is based on a change in the risk presented by the customer, the firm must tell the customer that this is the reason and, if asked, provide a suitable explanation, which may be a generic one.

Credit cards and store cards: the 60-day right

CONC 6.7.13R adds protections for credit cards and store cards. Where a firm proposes to use a power under the agreement to increase the interest rate, it must give the customer sixty days from the date of its notice during which the customer may require the account to be closed. It must also allow the customer to pay off the outstanding balance at the rate that applied before the proposed increase, over a reasonable period, and it must tell the customer about both rights in the notice. A borrower who receives such a notice can therefore compare the new rate with the option of closing the account and repaying the existing balance at the old rate.

Other rules that interact with a rate increase

A higher rate can push a borrower towards trouble, so the FCA’s arrears and affordability rules remain relevant. A lender that increases rates on a borrower already in difficulty must still treat the borrower fairly under the rules described in the guide to falling behind on repayments, and the guidance on persistent debt in the guide to credit card persistent debt applies where balances are not falling.

If the rate rise looks wrong

A borrower who thinks the lender lacked a valid reason, or did not give proper notice, can raise the point with the lender and, if the response is unsatisfactory, complain to the Financial Ombudsman Service, as explained in the guide to complaining to the Financial Ombudsman Service. Where the terms of the agreement or the lender’s conduct are said to make the relationship unfair, a court can also consider the question, as explained in the guide to unfair relationships. Free help is available from debt advisers before any decision is made.

FAQs

Can a lender raise the rate without telling me?

Section 78A generally requires the creditor to inform the debtor in writing before a variation takes effect, subject to the exceptions in the section, including certain reference-rate arrangements.

Is one missed payment a valid reason for a higher rate?

CONC 6.7.15G says a change in risk that justifies a rate rise would not generally include missing a single repayment or failing to repay in full on one or two occasions.

Can I leave if my credit card rate is going up?

Under CONC 6.7.13R the firm must allow sixty days from its notice to close the account and must permit the balance to be paid off at the pre-increase rate over a reasonable period.

The bottom line

A lender that varies the interest rate on a regulated consumer credit agreement must generally give written notice under section 78A, must have a valid reason under CONC 6.7.14R, and, for credit and store cards, must allow sixty days to close the account and repay the balance at the old rate. Borrowers who think a rise was unjustified can complain to the lender and the Financial Ombudsman Service. This is general information, not legal advice.

Sources

• legislation.gov.uk, “Consumer Credit Act 1974, section 78A: Duty to give information to debtor on change of rate of interest”
• FCA Handbook, “CONC 6.7 Post contract: business practices”

Goods bought on hire purchase or conditional sale stay in the lender’s ownership until the agreement is paid, which can make repossession seem simple. The Consumer Credit Act 1974 places limits on it. Once a borrower has paid a set share of the price, the goods become "protected goods" and the lender needs a court order, and the Act separately restricts entering premises to take goods. The Act applies across the UK, and the FCA’s conduct rules add a further layer for regulated firms.

The one-third rule

Section 90 applies where three conditions are met at the same time: the borrower is in breach of a regulated hire-purchase or regulated conditional sale agreement relating to goods, the borrower has paid one-third or more of the total price of the goods, and the property in the goods remains with the creditor. In that situation the creditor is not entitled to recover possession of the goods from the debtor except on an order of the court. Goods in that position are described in the Act as protected goods. If the creditor is required to carry out an installation and the agreement specifies the installation charge as part of the total price, the calculation is adjusted: the threshold becomes the installation charge plus one-third of the remainder of the total price.

Earlier agreements and other rules

The protection can carry over. Under section 90(3), where a borrower is in breach of a later regulated hire-purchase or conditional sale agreement between the same parties relating to any of the same goods, and had previously paid one-third or more under an earlier agreement, the requirement for a court order applies to the later agreement without the one-third condition. Section 90(5) provides that the protection does not apply, or ceases to apply, if the borrower has terminated the agreement, which is why the voluntary termination right described in the guide to ending a hire-purchase agreement is relevant. If the borrower dies while section 90 applies, the protection continues until probate or administration is granted, or confirmation in Scotland.

What happens if the lender ignores the rule

Section 91 sets out the consequences of recovering protected goods in breach of section 90. The regulated agreement, if not already terminated, terminates, and the borrower is released from all liability under it. The borrower is also entitled to recover from the lender all sums paid under the agreement. The consequences are therefore far more severe for the lender than a simple procedural error, and they apply in the same way whether the goods are a vehicle or household equipment.

Entering premises to take goods

Section 92 contains a separate restriction that does not depend on how much has been paid. Except under a court order, the creditor or owner is not entitled to enter any premises to take possession of goods subject to a regulated hire-purchase agreement, a regulated conditional sale agreement or a regulated consumer hire agreement. An entry in contravention is actionable as a breach of statutory duty. Section 92(2) adds that where a borrower is in breach of a regulated conditional sale agreement relating to land, the creditor can recover possession only on a court order.

The FCA’s rules on repossession

The FCA’s Consumer Credit sourcebook adds conduct requirements. CONC 7.3.17R says a firm must not take steps to repossess a customer’s home, goods or vehicles other than as a last resort, having explored all other possible options. CONC 7.3.17AR says a firm must not commence or continue repossession action while a forbearance arrangement is in place, for as long as the customer is meeting its terms. Guidance in CONC 7.3.20G says a firm should give a customer who says they intend to seek debt help or money guidance reasonable time to do so before considering repossession, may act as a last resort where it has made reasonable attempts to engage and the customer has not, and should consider the financial impact on the customer, including asset depreciation if repossession is delayed.

What a borrower can do

A borrower who has fallen behind should look at the notices that must precede enforcement, explained in the guide to arrears and default notices, and at the lender’s duties in the guide to falling behind on repayments. The court can also adjust payments through a time order, described in the guide to time orders. A complaint about how repossession was handled can go to the lender and then to the Financial Ombudsman Service.

FAQs

Does the one-third rule apply to every finance agreement?

No. Section 90 applies to regulated hire-purchase and regulated conditional sale agreements where the property in the goods remains with the creditor. Other types of credit have different rules.

Does the protection end if the borrower dies?

Not immediately. Under section 90(6), where the protection applies at the borrower’s death it continues until probate or administration is granted, or confirmation in Scotland.

What if the lender recovers protected goods without an order?

Section 91 says the agreement terminates, the borrower is released from all liability, and the borrower can recover all sums paid under it.

The bottom line

Under sections 90 to 92 of the Consumer Credit Act 1974, a lender needs a court order to retake goods on a regulated hire-purchase or conditional sale agreement once one-third of the total price has been paid, and cannot enter premises to take such goods without one. Breaching section 90 ends the agreement and releases the borrower from liability. The FCA also requires repossession to be a last resort. This is general information, not legal advice.

Sources

• legislation.gov.uk, “Consumer Credit Act 1974, section 90: Retaking of protected hire-purchase etc. goods”
• legislation.gov.uk, “Consumer Credit Act 1974, section 91: Consequences of breach of s. 90”
• legislation.gov.uk, “Consumer Credit Act 1974, section 92: Recovery of possession of goods or land”
• FCA Handbook, “CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions)”

A borrower who can no longer afford goods bought on regulated hire purchase or conditional sale is not always locked in until the final payment. Section 99 of the Consumer Credit Act 1974 gives a right to end the agreement by notice, and section 100 sets out what the borrower must pay when doing so. The provisions apply across the UK, and the FCA has published guidance telling lenders to make borrowers aware of the right where it may help them.

The right to terminate

Under section 99(1), at any time before the final payment falls due under a regulated hire-purchase or regulated conditional sale agreement, the debtor is entitled to terminate the agreement by giving notice to any person entitled or authorised to receive the sums payable under it. Termination does not affect any liability under the agreement that accrued before the termination, so arrears already owed remain due. The right is not available for a conditional sale agreement relating to land once title to the land has passed to the debtor, and it is lost for a conditional sale of goods where property in the goods has vested in the debtor and is then transferred to someone who does not become the debtor.

What the borrower must pay: the half rule

Section 100(1) says that where an agreement is terminated under section 99, the debtor is liable, unless the agreement provides for a smaller payment or none at all, to pay the amount, if any, by which one-half of the total price exceeds the sums already paid plus the sums due immediately before termination. As an illustration, if the total price were £10,000 and £3,000 had been paid or was due, the amount payable would be up to £2,000, while a borrower who had already paid or owed £5,000 or more would owe nothing further under that rule. Where the creditor has to carry out an installation and the agreement specifies an installation charge within the total price, the figure becomes the installation charge plus one-half of the remainder of the total price.

Court adjustments and care of the goods

The half rule is a default rather than a fixed cost. Section 100(3) allows a court that is satisfied that a lower sum would equal the loss the creditor sustained because of the termination to order payment of that lower sum instead. A borrower who has failed to take reasonable care of the goods, however, can be made to pay more: section 100(4) increases the amount by the sum needed to recompense the creditor for that breach. Anyone considering termination should therefore keep the goods in good condition until they are handed back.

Handing the goods back

Section 100(5) deals with a debtor who wrongfully retains the goods after termination. In an action by the creditor to recover possession, the court must, unless it would not be just in the circumstances, order the goods to be delivered to the creditor without giving the debtor the option of paying their value. For a conditional sale of goods where property had already passed to the debtor, section 99(5) provides that on termination the property vests again in the person who held it immediately before it passed to the debtor. Termination therefore ends the borrower’s claim to the goods as well as the payment obligation.

The FCA’s expectations of lenders

The FCA’s Consumer Credit sourcebook contains guidance on the right. CONC 7.3.21G says that where it may be in the customer’s interests to exercise the right to terminate a hire purchase or conditional sale agreement under section 99 or 100, a firm should make the customer aware of it in good time, in a way that is clear, fair and not misleading. CONC 7.3.22G adds that where a customer intends to exercise those rights, a firm should consider deferring legal liabilities associated with voluntary termination. Both provisions took effect on 4 November 2024. The wider arrears rules are covered in the guide to falling behind on repayments.

Weighing termination against the alternatives

Termination is not automatically the best choice. It ends the agreement but leaves the borrower without the goods and possibly with a balance to pay, whereas other routes may keep the goods. A court can reduce payments through a time order, as explained in the guide to time orders, and the position on early repayment is described in the guide to repaying a regulated loan early. Free debt advice, described in the guide to free debt advice, can help compare the figures before notice is given.

FAQs

Do I need my lender’s permission to terminate?

No. Section 99(1) entitles the debtor to terminate by giving notice to any person entitled or authorised to receive the sums payable under the agreement.

Will I still owe money after I terminate?

Possibly. Accrued liability remains, and section 100(1) requires payment of any shortfall between what has been paid or is due and one-half of the total price, unless the agreement provides for less.

Does the right apply to every finance agreement?

No. Sections 99 and 100 apply to regulated hire-purchase and regulated conditional sale agreements.

The bottom line

Sections 99 and 100 of the Consumer Credit Act 1974 let a borrower end a regulated hire-purchase or conditional sale agreement by notice, subject to paying accrued liabilities and, unless the agreement provides for less, enough to bring payments up to one-half of the total price. The FCA expects lenders to explain the right when it may help and to consider deferring liabilities. This is general information, not legal advice.

Sources

• legislation.gov.uk, “Consumer Credit Act 1974, section 99: Right to terminate hire-purchase etc. agreements”
• legislation.gov.uk, “Consumer Credit Act 1974, section 100: Liability of debtor on termination of hire-purchase etc. agreement”
• FCA Handbook, “CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions)”