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Borrowing guides

  • Unfair Relationships Between Lender and Borrower: Sections 140A to 140C of the Consumer Credit Act 1974 and What a Court Can Order

    A credit agreement can be lawful on its face and still produce an unfair relationship between lender and borrower. Sections 140A to 140C of the Consumer Credit Act 1974 give courts a wide power to look at the terms of an agreement, how the lender has exercised its rights and anything else the lender did or did not do, and to make orders that favour the borrower. The provisions extend across the UK, with different courts hearing applications in England and Wales, Scotland and Northern Ireland.

    What the court asks

    Under section 140A, a court may make an order under section 140B if it determines that the relationship between the creditor and the debtor arising out of the agreement, taken with any related agreement, is unfair to the debtor. The unfairness must arise from one or more of three things: any of the terms of the agreement or of a related agreement, the way in which the creditor has exercised or enforced its rights, or any other thing done or not done by or for the creditor, whether before or after the agreement was made. The court must have regard to all matters it thinks relevant, including matters relating to the creditor and to the debtor.

    Which credit agreements are covered

    Section 140C defines a credit agreement for these purposes as any agreement between an individual and any other person by which credit of any amount is provided. The power is therefore not limited to regulated agreements of a particular size. The section also treats a person to whom the creditor’s rights have passed by assignment or operation of law as the creditor, which matters where a loan has been sold on, as explained in the guide to assignment of debt. Two exclusions are written into section 140A: an order cannot be made in connection with an agreement that is an exempt agreement by virtue of article 60C(2) of the Regulated Activities Order, which covers regulated mortgage contracts and regulated home purchase plans, or in connection with an agreement entered into under the Bounce Back Loan Scheme.

    Related agreements and consolidation

    The court can look beyond a single contract. Section 140C treats as related agreements any credit agreement consolidated by the main agreement, any linked transaction, and any security provided in relation to the main agreement. A later agreement consolidates an earlier one if it was entered into for purposes connected with debts under the earlier agreement. Section 140A(3) also directs the court, except where inappropriate, to treat things done by an associate or former associate of the creditor as if done by the creditor.

    The orders a court can make

    Section 140B lists the orders available. A court may require the creditor or an associate to repay all or part of any sum paid by the debtor or a surety; require the creditor to do, or to stop doing, something specified in the order; reduce or discharge any sum payable by the debtor or a surety; direct the return of property provided as security; set aside a duty imposed on the debtor or surety; alter the terms of the agreement or a related agreement; or direct that accounts be taken. These powers can be used even where the relationship has ended, because section 140A(4) allows a determination notwithstanding that it has ended.

    Who can apply and where

    An order may be made only on an application by the debtor or a surety, at their instance in proceedings where the debtor and creditor are parties to enforce the agreement, or at their instance in other proceedings where the amount paid or payable under the agreement is relevant. A free-standing application is made to the county court in England and Wales, the sheriff court in Scotland and the High Court in Northern Ireland, although in Northern Ireland the county court may hear it where the credit is fixed-sum credit not exceeding £15,000 or running-account credit with a limit not exceeding £15,000. That means a borrower who is sued for a debt can raise unfairness as part of the defence rather than starting a separate claim. A different court power to adjust payments is described in the guide to time orders.

    The burden of proof

    Section 140B(9) provides that if the debtor or a surety alleges in such proceedings that the relationship is unfair to the debtor, it is for the creditor to prove the contrary. That reverses the usual position in which the person making an allegation must prove it.

    Other routes to compare

    A court application is not the only option. Many disputes are resolved through a complaint, covered in the guide to complaining to the Financial Ombudsman Service, and the Act’s wider protections are outlined in the guide to the Consumer Credit Act 1974.

    FAQs

    Does the unfair relationship test apply to loans that are not regulated?

    Section 140C defines a credit agreement as any agreement between an individual and another person providing credit of any amount, so it is not limited to regulated agreements, although the exclusions in section 140A still apply.

    Can a court reduce the amount I owe?

    Yes. Section 140B allows a court to reduce or discharge any sum payable by the debtor or a surety, to require repayment of sums already paid, or to alter the terms of the agreement.

    Does the lender or the borrower have to prove unfairness?

    Where the borrower alleges the relationship is unfair, section 140B(9) puts the burden on the creditor to prove the contrary.

    The bottom line

    Sections 140A to 140C allow a court to find that the terms of a credit agreement, the way a lender used its rights, or other things done or not done made the relationship unfair to the borrower, and to order repayment, reduction of the debt or changes to the agreement. The lender bears the burden of disproving unfairness once it is alleged. Anyone considering a claim should take independent advice. This is general information, not legal advice.

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  • Arrears Notices, Default Sum Notices and Default Notices: What Sections 86B to 88 of the Consumer Credit Act 1974 Require

    When payments on a regulated loan are missed, the Consumer Credit Act 1974 requires the lender to send particular notices at particular times, and failing to send them has financial consequences for the lender. The Act applies across the UK. This guide sets out three kinds of notice, arrears notices (sections 86B and 86C), notices of default sums (section 86E) and default notices (sections 87 and 88), and what happens if a lender fails to send them. It explains the statute’s wording; the FCA’s separate conduct rules are covered in the guide to falling behind on repayments.

    Arrears notices for fixed-sum loans

    Section 86B applies where the borrower under an applicable agreement was required to have made at least two payments, has paid less than the total required, and the shortfall is no less than the last two payments due. When those conditions are satisfied, the lender must give a notice within 14 days and then further notices at intervals of not more than six months. Each notice must include a copy of the current arrears information sheet prepared by the FCA under section 86A, and the borrower has no liability to pay anything for preparing or giving it. The duty ends when the borrower ceases to be in arrears or a judgment is given that requires a sum to be paid. For agreements where payments are due at intervals of a week or less, the section substitutes four payments for two.

    Arrears notices for running-account credit

    Section 86C covers running-account credit such as a credit card. It applies where the borrower was required to have made at least two payments and the last two payments were not made. The lender must give a notice no later than the end of the period within which its next statement is due under section 78(4), and the notice must include the arrears information sheet. It can be built into a statement or other notice, and again the borrower pays nothing for it. Sections 86B and 86C do not apply to non-commercial or small agreements, and section 86B does not apply to a regulated deferred payment credit agreement.

    What happens if the lender does not send an arrears notice

    Section 86D sets out the consequences. During the period of non-compliance the lender is not entitled to enforce the agreement. The borrower also has no liability to pay interest to the extent it is calculated by reference to that period, nor any default sum that would have become payable during it, or that would become payable afterwards in connection with a breach occurring during it. The period starts when the notice was due and ends on the day the notice is given, subject to the further rules in the section.

    Notice of default sums

    Section 86E applies where a default sum becomes payable under a regulated agreement. The lender must give a notice within a prescribed period after the sum becomes payable, and this can be incorporated into a statement. The borrower has no liability to pay interest in connection with the default sum to the extent it is calculated by reference to a period before the 29th day after the notice is given, and if the lender fails to give the notice within the prescribed period it may not enforce the agreement until it does. Regulations can exempt default sums below a prescribed amount, and the section does not apply to non-commercial agreements, small agreements or regulated deferred payment credit agreements.

    The default notice

    Section 87 says that a default notice served in accordance with section 88 is necessary before a lender can, because of a breach, terminate the agreement, demand earlier payment, recover possession of goods or land, treat a right of the borrower as terminated, restricted or deferred, or enforce security. Under section 88 the notice must be in the prescribed form and specify the breach, what is needed to remedy it and the date by which it must be done, or the compensation required if it cannot be remedied. That date must not be less than 14 days after service, and the lender cannot take those steps before it. It must also carry information about the consequences of failing to comply and include the current default information sheet. A borrower who receives one can consider a time order and should seek free advice, as described in the guide to free debt advice.

    Death of a borrower

    Section 86 restricts what a lender may do because of a borrower’s death. If the agreement was fully secured, the lender is not entitled by reason of the death to terminate the agreement, demand earlier payment, recover goods or land, or enforce security. If it is only partly secured or unsecured, the lender may do those things by reason of the death on an order of the court only. The section does not affect payments made from the proceeds of a life assurance policy under an agreement to that effect.

    FAQs

    Is an arrears notice the same as a default notice?

    No. An arrears notice under section 86B or 86C must be sent after missed payments and comes with an information sheet. A default notice under sections 87 and 88 is required before a lender can take enforcement steps because of a breach.

    How long must I be given to remedy a breach?

    Section 88 says the date specified in a default notice must not be less than 14 days after the date of service.

    Can I stop paying interest if the lender forgot the notice?

    Under section 86D, the borrower has no liability for interest calculated by reference to the period of non-compliance, and the lender cannot enforce the agreement in that period; the underlying debt remains.

    The bottom line

    Sections 86B to 88 of the Consumer Credit Act 1974 require lenders to send arrears notices, default sum notices and, before enforcement, a default notice with at least 14 days to remedy the breach. Failure has consequences: the lender cannot enforce and loses interest and default sums for the period of non-compliance. A borrower who receives any of these notices should read the deadlines and get free debt advice promptly. This is general information, not legal advice.

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  • When a Lender Needs a Court Order: Improperly Executed Credit Agreements and Enforcement Orders Under the Consumer Credit Act 1974

    Most people assume that a signed loan agreement can always be enforced. Under the Consumer Credit Act 1974, which applies across the UK, a regulated agreement that was not properly executed, or where required information was not disclosed beforehand, can be enforced against the borrower only if a court makes an order. This guide explains four provisions, sections 55, 61, 65 and 127, and what they do and do not mean for a borrower.

    Disclosure before the agreement is made

    Section 55 allows regulations to require specified information to be disclosed to the debtor or hirer in the prescribed manner before a regulated agreement is made. If those regulations are not complied with, section 55(2) provides that the agreement is enforceable against the debtor or hirer on an order of the court only, and for that purpose a retaking of goods or land to which the agreement relates counts as enforcement. The section as it now stands excludes a regulated deferred payment credit agreement, a category of agreement that arrived with the Buy Now, Pay Later rules discussed in the guide to the 15 July 2026 changes. The FCA’s rules on the explanation that must accompany that information are covered in the guide to adequate explanations under CONC 4.2.

    What proper execution requires

    Under section 61(1), a regulated agreement is not properly executed unless three conditions are met. A document in the prescribed form, containing all the prescribed terms and conforming to regulations, must be signed in the prescribed manner both by the borrower and by or on behalf of the lender. The document must embody all the terms of the agreement other than implied terms. And when presented or sent to the borrower for signature, all its terms must be readily legible. Where the borrower is a partnership or unincorporated body, the signature requirement can be met by someone signing on its behalf.

    Section 61(2) adds extra requirements for agreements to which section 58(1) applies, namely a copy of the unexecuted agreement must have been given first and the executable version sent at least seven days later, with the lender refraining from approaching the borrower during the consideration period except in response to a specific request. Section 61 does not apply to a regulated deferred payment credit agreement.

    The consequence in section 65

    Section 65(1) states that an improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only, and section 65(2) treats retaking goods or land as enforcement. The provision therefore removes the lender’s ability to enforce without a court’s approval; it does not say that the debt disappears, and the sections discussed here do not state otherwise. A lender that wants to rely on the agreement must apply for what the Act calls an enforcement order. How a lender proceeds after a default in practice is covered in the guide to county court claims and CCJs.

    What the court weighs under section 127

    Section 127 governs enforcement orders in these cases, including applications under sections 55(2) and 65(1). The court must dismiss the application if, but only if, it considers it just to do so, having regard to the prejudice caused to any person by the contravention and the degree of culpability for it, and to its powers under section 127(2) and sections 135 and 136. Section 127(2) lets the court, in an enforcement order, reduce or discharge any sum payable by the borrower or a surety so as to compensate for prejudice suffered as a result of the contravention. The result is a discretionary balancing exercise rather than an automatic bar, so a minor technical error may lead to a different outcome than a serious failure to disclose.

    What a borrower can do

    A borrower who suspects a problem with the paperwork can first ask for a copy of the agreement and the statements the lender must supply, as explained in the guide to sections 77 and 78. Any court claim can be responded to within the deadlines set by the court, and the guide to time orders explains a separate power to reduce payments. Free debt advice, described in the guide to free debt advice, can help review whether the agreement is regulated and how to respond. This is a technical area, and the outcome depends on the documents, so advice specific to the agreement is important.

    FAQs

    Does an improperly executed agreement mean I do not have to repay?

    Not according to sections 65 and 127. The agreement is enforceable on an order of the court only, and the court decides whether to make an enforcement order and can reduce or discharge sums to compensate for prejudice.

    Can a lender repossess goods without a court order in this situation?

    Section 65(2) treats a retaking of goods or land as enforcement, so where an agreement is enforceable on a court order only, retaking without one is not available.

    Which agreements do these provisions cover?

    They concern regulated agreements. Sections 55 and 61 also exclude regulated deferred payment credit agreements.

    The bottom line

    Under the Consumer Credit Act 1974, a regulated agreement that was improperly executed or not properly disclosed can be enforced only by court order, and the court then weighs the prejudice and the lender’s culpability under section 127. The rules limit enforcement rather than wiping out debts, so the practical steps are to ask for the paperwork, respond to any claim on time and get advice on the specific agreement. This is general information, not legal advice.

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  • Debt Advisers, Attorneys and Representatives: What FCA Rules CONC 7.10 and 7.12 Require of Lenders Dealing With Someone Acting for You

    A borrower who is struggling often asks a debt adviser, a family member or an attorney to deal with a lender. The Financial Conduct Authority (FCA) has rules on how lenders and their agents must treat those representatives, and on what happens when a borrower may lack the mental capacity to deal with a debt. They are found in sections 7.12 and 7.10 of the consumer credit sourcebook (CONC) and apply across the UK to firms carrying on consumer credit lending. This guide describes them as they stand in the FCA Handbook on 24 September 2026.

    What lenders must not do under CONC 7.12

    CONC 7.12.2R lists unfair business practices. A firm must not refuse to deal with a not-for-profit debt advice body, debt counsellor, debt adjuster or another person acting on behalf of a customer unless there is an objectively justifiable reason. It must not refuse to accept a payment tendered by the customer or on their behalf, unless the agreement requires payment to a third party, and it must not return or refuse to credit a repayment merely because it comes from a debt management firm. It must not refuse to deal with a customer who is developing a repayment plan, or a third party helping with a plan or a debt management plan, without an objectively justifiable reason.

    Policies on freezing interest and negotiating

    The same rule prohibits operating a policy of only negotiating the freezing of interest and charges where the lender already has an arrangement with the person acting for the customer, or a policy of refusing to negotiate with certain third parties or with a customer developing their own repayment plan. In practice, a borrower who writes to a lender on their own behalf, or through a free adviser, is entitled to have the request considered rather than being turned away because of who is asking. The guides to debt management plans and free debt advice explain the routes involved.

    Contacting the customer directly

    Where a person is acting on behalf of a customer, the lender must not contact the customer directly without their consent unless there is an objectively justifiable reason (CONC 7.12.2R(4)). The guidance in CONC 7.12.3G gives examples of when direct contact may be justified: after repeated unsuccessful attempts to reach the representative, or where the firm reasonably believes the representative is acting against the customer’s best interests. Direct contact is treated as justified where the firm is sending a statutory notice and taking the reasonable steps required by CONC 7.9.7R, or where the sole purpose is to signpost the customer to not-for-profit debt advice bodies. It may also be justified to refuse to deal with a representative that has failed to comply with consumer protection legislation or FCA rules.

    Debt collectors acting for the lender

    CONC 7.12.3G points out that the general duty in CONC 1.2.2R, requiring firms to ensure employees and agents comply with CONC, applies where a debt collector acts for a lender. The guidance also says that the FCA does not consider it justified to bypass a representative simply because that person has not agreed to follow the Insolvency Service’s Debt Management Protocol. Where the lender is in dispute with a representative, it should make its position known to both the representative and the customer as soon as practicable. How collectors may contact customers in general is covered in the guide to lender and debt collector contact rules.

    When a customer may lack mental capacity

    CONC 7.10.1R requires a firm to suspend the pursuit of recovery of a debt when it has been notified that the customer might not have the mental capacity to make relevant financial decisions about managing the debt or to engage in the recovery process at the time, or when it understands, or ought reasonably to be aware, that the customer lacks that capacity. The guidance in CONC 7.10.2G says the firm should allow the customer or their representative a reasonable period to provide evidence of the likely impact of any mental capacity limitation. CONC 7.10.3G adds that the rule does not stop a firm pursuing the debt through a responsible third party acting for the customer where the customer has given prior consent, for example under a registered lasting power of attorney.

    Vulnerability policies

    CONC 7.2.1R requires firms to have clear, effective and appropriate policies for customers in or approaching arrears and for the fair treatment of customers the firm understands or reasonably suspects to be vulnerable. The guidance says that customers with mental health difficulties or mental capacity limitations may fall into that category, that firms should have regard to the FCA’s vulnerable customer guidance (FG21/1), and that reviews of these policies should look at the full extent of support given rather than individual interactions in isolation. The wider picture is explained in the guide to the FCA’s vulnerable customer guidance.

    FAQs

    Can a lender refuse a payment sent by a debt management company?

    Not merely because it comes from a debt management firm. CONC 7.12.2R prohibits returning or refusing to credit a repayment for that reason alone.

    Does a lender have to stop chasing a debt if I lack capacity?

    CONC 7.10.1R requires a firm to suspend recovery when it has been notified, or ought reasonably to be aware, that the customer may lack capacity to make relevant financial decisions about the debt or engage in recovery.

    Can a lender still contact me if I have an adviser?

    Direct contact needs consent or an objectively justifiable reason, such as sending a statutory notice or signposting to free debt advice.

    The bottom line

    FCA rules stop lenders turning away legitimate debt advisers, refusing payments merely because a debt management firm sent them, or bypassing a representative without good reason. Where mental capacity is in doubt, recovery must be suspended and the lender may continue only through a responsible third party the customer has authorised. Anyone struggling with a lender can ask a free adviser to act for them. This is general information, not financial or legal advice.

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  • Instant Loan Decisions and the Computer Says No: What the UK GDPR’s Automated Decision-Making Rules Mean for Credit Applications

    Many online lenders decide an application within seconds, with no person looking at it. Where a refusal or the terms offered come from a system alone, the UK GDPR’s provisions on automated decision-making (ADM) can apply. This guide summarises those provisions as the Information Commissioner’s Office (ICO) explains them in its guidance, which the ICO describes as a draft updated on 31 March 2026 to reflect the Data (Use and Access) Act 2025. It applies across the UK to firms processing personal data, and it sits alongside, rather than replaces, the FCA’s affordability rules.

    When the ADM provisions apply

    According to the ICO, the provisions apply only where three factors are present. A system is making a decision about a person, the decision is a significant one, meaning it has a legal or similarly significant effect, and the decision is solely automated, meaning there is no meaningful human involvement. The guidance treats the automatic refusal of an online credit application as an example of a similarly significant effect. It also says ADM does not need advanced technology: a simple system can fall within scope, and producing a credit score using machine learning is given as an example of processing that may be ADM. By contrast, a human merely applying a fixed rule they set in advance may not count as the system making its own decision.

    What counts as meaningful human involvement

    If a person genuinely takes part in the decision, the ADM provisions do not apply even where the decision has significant effects. The ICO says human involvement must be active rather than token: the reviewer should assess the decision at an appropriate point so that it can affect the outcome, have discretion and authority to change it, be suitably trained to understand the system’s outputs and limits, and take account of the relevant data. Occasional spot-checking is not enough, and a human only designing the system, or only entering data for it to process, does not amount to meaningful involvement. This matters for borrowers because a lender’s statement that “a person checks every application” is only relevant if that check has real influence on the result.

    Information a borrower is entitled to

    The guidance identifies three points at which information must be given. Privacy information, at the time data is collected, must cover the existence of ADM including profiling, meaningful information about the logic involved and the significance and expected consequences. A subject access request must provide the same details, including information on ADM already carried out about the requester. When an ADM decision is made, the safeguards apply. The rights to a copy of a credit agreement are separate, but the two can be used together when a decision needs to be understood.

    The four safeguards

    The ICO quotes the UK GDPR’s requirement that safeguards include measures which provide information about decisions, enable representations about them, enable the person to obtain human intervention and enable the person to contest the decision. The information about a decision is specific to the individual case. For a loan, the guidance suggests that a person might need to know what data was processed, what period it covered, what the system decided and which risk factors it identified. Representations give the applicant a chance to put their view and to supply information the system may have missed, and the lender must make clear that this right exists.

    Human intervention and contesting a decision

    Human intervention means a person can ask for a human to review the decision case by case, with the possibility of changing it. The ICO says the reviewer must be able to alter the outcome, must have access to the data and original facts the system used, and must consider any extra evidence the person provides. The organisation should keep a record of how the review was done. People must also be given a way to contest the decision, and the lender must explain how at the point it gives the decision. Requests must be acted on without undue delay and at the latest within one month, extendable by up to two further months for complex requests or several requests, with an explanation.

    How this fits with lending rules

    These provisions are data protection rights and do not, on their own, require a lender to approve an application. Lending decisions must still meet the FCA’s requirements on affordability, explained in the guide to affordability checks and the related guide on Open Banking checks. A borrower who believes a refusal rested on wrong data can also use the routes in the guide to errors on your credit file.

    FAQs

    Does every automated credit check trigger these rules?

    No. According to the ICO, the ADM provisions apply only to decisions that are significant and solely automated, without meaningful human involvement.

    Can I ask for a person to look at my application again?

    Where the provisions apply, the safeguards include the ability to obtain human intervention, meaning a review by someone able to change the decision.

    How long does a lender have to respond?

    The ICO says requests under the ADM provisions must be acted on without undue delay and at the latest within one month, with a possible extension of two further months for complex cases.

    Is the ICO guidance final?

    The ICO describes the guidance as draft, updated on 31 March 2026, so details may change.

    The bottom line

    Where a lender’s decision is significant and solely automated, the UK GDPR requires safeguards, including information about the decision, the chance to make representations, human review and a way to contest the outcome. Whether a particular refusal is in scope depends on how much genuine human involvement there was, and the ICO guidance on the point remains in draft. Borrowers can start by asking the lender directly. This is general information, not legal advice.

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  • Adequate Explanations Before You Sign: What FCA Rule CONC 4.2 Requires Lenders to Tell You About a Credit Agreement

    Signing a credit agreement is not the first point at which the law expects a borrower to understand it. Before a regulated credit agreement is made, the lender or a credit broker must provide an explanation that puts the borrower in a position to judge whether the deal suits their needs and finances. The requirement sits in section CONC 4.2 of the Financial Conduct Authority (FCA) Handbook and applies across the UK; this guide describes it as the Handbook stood on 24 September 2026.

    What the explanation must cover

    Under CONC 4.2.5R, before making a regulated credit agreement the firm must give an adequate explanation of specified matters, advise the customer to consider the information disclosed under section 55 of the Consumer Credit Act 1974 (and that, if given in person, it can be taken away), give an opportunity to ask questions, and explain how to ask for more information. The matters are the features that may make the credit unsuitable for particular uses, how much must be paid periodically and, where it can be worked out, in total, features that could have a significant adverse effect in a way the customer is unlikely to foresee, the principal consequences of missing payments, and the effect of any right to withdraw and how it is exercised.

    The consequences that must be explained

    The rule lists consequences to be covered where applicable, depending on the type of credit and the customer’s circumstances: the total cost of the debt growing, default charges or interest for late, missed or under-payments, an impaired credit rating and its effect on future access to credit, legal proceedings including charging orders and their costs, repossession of the home or other property, and, where an article is taken in pawn, that it might be sold if not redeemed. For pawn agreements the explanation is limited to the consequences and withdrawal matters. The consequences of missing payments are also the subject of the guides to arrears rules and the 14-day right to cancel.

    How much explanation is needed

    CONC 4.2.7G tells firms to consider, to the extent appropriate, the type of credit, its amount and duration, its actual and potential costs, the risk to the customer, which is likely to be greater the higher the total cost relative to the customer’s finances, the purpose of the credit if known, the customer’s level of understanding where that is evident, and the channel used. CONC 4.2.6G says the explanation should enable the customer to make a reasonable assessment of whether they can afford the credit and to understand the key risks. Where there are joint borrowers, the firm should consider whether separate explanations are appropriate.

    Spoken and written explanations

    The explanation and advice may be given orally or in writing, but where the matters about unsuitability, the payments or the right to withdraw are given orally or in person, the explanation of the unforeseeable-effect features and the consequences of missed payments, plus the advice to consider the disclosed information, must be given orally as well (CONC 4.2.5R(3) and (4)). A lender does not have to repeat the explanation if a credit broker has provided it, but the lender must take reasonable steps to be satisfied that the broker did so (CONC 4.2.11R). The role of brokers is covered in the guide to credit brokers and comparison sites.

    Extra rules for short-term loans

    CONC 4.2.8R requires that, for high-cost short-term credit, the lender or broker must explain that the agreement would be unsuitable to support sustained borrowing over long periods and would be expensive as a means of longer-term borrowing. For credit token agreements such as credit cards, CONC 4.2.15R adds further points, including the implications of making only minimum repayments and that interest rates or charges may be increased.

    Protections against waiving the explanation

    A customer saying an explanation is unnecessary does not remove the duty: CONC 4.2.9R says the firm must still comply, and CONC 4.2.10R prohibits encouraging or inducing a customer to waive the right. Firms must let customers request further information without undue cost or delay (CONC 4.2.12R) and cannot require customers to acknowledge that the explanation was adequate, although they can ask for acknowledgement that an explanation was provided and can ask whether the customer has understood (CONC 4.2.13R and 4.2.14G).

    Limits of the rule and what a breach means

    CONC 4.2.1R disapplies the section for agreements above £60,260 unless they are residential renovation agreements, for agreements secured on land, and for some overdraft and deferred payment agreements, although firms should still consider whether explanations are appropriate in those cases. Separately, CONC 4.2.3G notes that failure to comply with the statutory disclosure regulations made under section 55 of the Consumer Credit Act means the agreement is enforceable against the borrower only with a court order. A borrower who thinks they were not given the required information can ask for a copy of the agreement under sections 77 and 78 and consider a complaint.

    FAQs

    Does a lender have to explain a payday loan orally?

    Not always. CONC 4.2.5R allows written or oral explanation, but where certain matters are given orally or in person, the explanation of the risk and default consequences must be oral.

    Can I be asked to confirm I understood everything?

    A firm can ask whether the customer understood and can require acknowledgement that an explanation was provided, but cannot require acknowledgement that it was adequate.

    Does CONC 4.2 apply to every loan?

    No. CONC 4.2.1R excludes certain agreements, including those above £60,260 (unless residential renovation) and those secured on land.

    The bottom line

    CONC 4.2 requires lenders and brokers to explain the payments, risks and consequences of a regulated credit agreement before it is made, orally in some circumstances, with a specific warning for high-cost short-term credit. A borrower cannot be pushed to waive the explanation, and non-compliance with the underlying disclosure rules can make an agreement enforceable only through the courts. This is general information, not financial or legal advice.

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  • Direct Debit or Recurring Card Payment: How the Two Ways of Repaying a Short-Term Loan Differ

    A lender that agrees a short-term loan will normally want repayments collected automatically, and the two common ways of doing it work very differently. A Direct Debit is protected by a guarantee that applies across the banking system, while a recurring card payment, also called a continuous payment authority (CPA), is not covered by that guarantee. Knowing which method a loan uses shows what protection is available if a payment goes wrong. This guide draws on the Financial Conduct Authority (FCA) and the Direct Debit scheme’s published guarantee; the cancellation detail for CPAs is covered separately in our guide to continuous payment authorities.

    How each method works

    The FCA explains that with a Direct Debit the customer gives a business their bank account details and permission to take money from the account, usually on an agreed schedule. A recurring card payment lets a business take payments from a debit or credit card according to what was agreed at sign-up. That can be fixed payments on fixed days, or it can be at any time and for varying amounts, but only if the customer agreed to it. The FCA lists short-term loan repayments among the common uses of recurring card payments, alongside subscriptions and memberships.

    The Direct Debit Guarantee

    The published Direct Debit Guarantee says it is offered by all banks and building societies that accept instructions to pay Direct Debits. Its main terms are that the organisation must normally give 10 working days’ notice of a change to the amount, date or frequency of collection; that a full and immediate refund is due from the bank or building society if an error is made by the organisation or the bank; that an undeserved refund must be repaid when asked; and that the customer can cancel at any time by contacting the bank or building society, which may ask for written confirmation, and should also notify the organisation. The scheme’s own explanation adds that the guarantee does not change the contract with the biller: a customer who is collected the wrong amount can reclaim it but still owes what they agreed to pay.

    What is different with a recurring card payment

    According to the FCA, recurring card payments are not covered by the Direct Debit Guarantee. Protection comes instead through the card issuer. The FCA says a customer can cancel by contacting the business, or by asking the card issuer, and that once asked the card issuer must stop the payments, even if the customer has not contacted the business. The request has to be made by the end of the business day before the next payment is due, or the payment can still be taken. The FCA adds that a card issuer cannot insist that the customer contacts the business first, though it recommends telling the business where possible.

    Payments taken after cancellation

    The FCA states that any further payments taken after a recurring card payment has been cancelled are considered unauthorised transactions, which the card issuer must refund immediately together with related charges. If payments continue, the customer should contact the card issuer and, if there is no refund, make a complaint. Consent must also be clear, specific and informed to be valid: if a customer did not know they were agreeing to a recurring card payment, or an existing arrangement was renewed without their consent, the FCA says the card issuer should stop the payments and return the money.

    Cancelling does not cancel the debt

    Both sources make the same point. The Direct Debit scheme says the guarantee does not affect the contract with the biller, and the FCA says cancelling a recurring card payment does not necessarily end the contract and the customer remains responsible for money owed. Stopping collection is therefore a way to control the account, not a way to escape a repayment obligation. A borrower who cannot afford the repayments should contact the lender promptly, since the FCA’s Handbook requires lenders to treat customers in or approaching arrears with forbearance and due consideration; see our guide to arrears and forbearance.

    Practical points when signing up

    Because the routes differ, it is worth checking in the loan agreement which method is used and whether the lender can vary the amount. The FCA also notes that a new payment card does not always carry recurring payments over, so the card issuer can confirm what will happen to an existing arrangement.

    FAQs

    Does the Direct Debit Guarantee cover a card repayment?

    No. The FCA states that recurring card payments are not covered by the Direct Debit Guarantee.

    Who can I ask to stop a recurring card payment?

    The business taking the payment or the card issuer. Once the card issuer is asked, it must stop the payments.

    How much notice must a Direct Debit change have?

    The guarantee says changes to the amount, date or frequency will normally be notified 10 working days in advance, or as otherwise agreed.

    Does cancelling stop me owing the loan?

    No. Both the Direct Debit scheme and the FCA say the underlying contract and the money owed remain.

    The bottom line

    A Direct Debit carries an industry-wide guarantee of notice, immediate refund for errors and cancellation through the bank, whereas a recurring card payment sits outside that guarantee and relies on card issuer rules under which a stop request must be honoured and later payments treated as unauthorised. Whichever method a lender uses, stopping it does not remove the debt. This is general information, not financial advice.

    Sources

  • Credit Card Persistent Debt: What the FCA Requires When Payments Barely Cover Interest

    Credit cards and store cards can feel like a flexible alternative to a short-term loan, but a balance that is only ever paid down slowly can keep growing in cost. Since 2018 the Financial Conduct Authority (FCA) has required card lenders to step in when a customer’s payments barely touch the borrowing. This guide explains the “persistent debt” rules in the FCA Handbook’s consumer credit sourcebook (CONC 6.7) and what they mean for a borrower. They apply to credit cards and retail revolving credit such as store cards, not to short-term loans, which are covered by separate rules in our guide to payday loan rollovers.

    What counts as persistent debt

    Under CONC 6.7.27R the trigger is a lender’s assessment that, over the immediately preceding 18 months, the customer has paid a lower amount in principal than in interest, fees and charges. The lender must run this check at least once a month. In the FCA’s 2018 announcement, credit card customers in persistent debt were reported to pay on average about £2.50 in interest and charges for every £1 repaid, and about 4 million accounts were in that position. For these rules “principal” means only the credit the customer has drawn down, not interest, fees or charges added to the account (CONC 6.7.28G).

    First stage: the 18-month message

    When the test is met, the lender must send a plain-language communication saying that payments over the past 18 months covered less principal than interest, fees and charges. It has to explain that paying more would cut the cost and the time to repay, encourage the customer to get in touch to discuss whether they can pay more, warn about the consequences if the pattern continues over a second consecutive 18-month period, and give contact details for not-for-profit debt advice bodies. The guidance says the warning should include the possibility that the account may be suspended and the possible effect on the credit file. The rule does not apply where the balance was below £200 at any point in the 18 months, or where the lender has already sent the message in the previous 18 months or is already giving forbearance.

    Second stage: a check after about nine months

    Between nine and ten months after the first message, CONC 6.7.29R requires the lender to review the payment pattern since then and assume it is representative of the whole following 18 months. If that suggests the customer is likely to still be in persistent debt, the message must be repeated.

    Third stage: help to repay faster

    If payments over the 18 months after the first message again amount to less principal than interest, fees and charges, CONC 6.7.30R requires the lender to take reasonable steps to help the customer repay the balance more quickly, in a way that does not adversely affect their financial situation. Under CONC 6.7.31R the lender must explain the benefit of paying more, give debt advice contact details, set out options to increase payments and ask the customer to respond within a reasonable time, and warn that failure to respond will lead to suspension or cancellation of card use. The FCA’s guidance gives examples of options, such as raising monthly payments under a repayment plan or moving the balance to a fixed-sum unsecured personal loan, and says a “reasonable period” to repay is usually between three and four years.

    Suspension and forbearance

    CONC 6.7.35R says that if a customer does not respond, or accepts that an option is sustainable but will not pay the increased amount, the lender must suspend or cancel the customer’s use of the card. Where a customer cannot afford the options offered, the FCA’s announcement says the lender must show forbearance, which may include reducing, waiving or cancelling interest, fees or charges.

    Signs of difficulty before any missed payment

    Separately, CONC 6.7.3AR requires lenders to take appropriate action when there are signs of actual or possible financial difficulty. The guidance says appropriate action can include considering suspending or reducing further interest and charges, accepting token payments for a reasonable time where paying would otherwise mean missing priority debts, and giving details of not-for-profit debt advice. Paying only the minimum is not, by itself, a sign of difficulty, though it can be where a customer who usually paid more drops to the minimum without changing spending.

    How repayments are allocated

    CONC 6.7.4R says lenders must first apply repayments beyond the minimum to the balance with the highest rate of interest. The guidance on fixed instalment plans notes that cash transactions, including cash withdrawals, can carry a higher interest rate than other card spending, which is a reason to check the rate that applies to cash withdrawals on a card. For lender duties once arrears begin, see our guide to the FCA’s arrears rules, and for free help see free debt advice.

    FAQs

    Does this apply to payday loans?

    No. CONC 6.7.27R applies to credit cards and retail revolving credit.

    What if my balance is small?

    The rules do not apply where the balance was below £200 at any point in the 18-month period.

    Can my card be suspended?

    Yes. If a customer does not respond to a repayment request, or refuses a sustainable option, the lender must suspend or cancel use of the card under CONC 6.7.35R.

    Is paying the minimum a sign of financial difficulty?

    Not by itself, according to the FCA’s guidance in CONC 6.7.3BG.

    The bottom line

    The FCA’s persistent debt rules require card and store card lenders to warn, review and then actively help customers whose payments cover less principal than interest and charges over 18 months, with suspension of the card as the consequence of ignoring the process. They do not cover short-term loans, but they show the regulator’s view that long, slow repayment can itself be harmful. This is general information, not financial advice; anyone struggling with card debt can speak to a free adviser.

    Sources

  • Claims Management Companies and Unaffordable Lending Complaints: Fee Caps and Free Alternatives

    Borrowers who think a short-term lender should never have approved their loan are often contacted by claims management companies (CMCs) offering to pursue a complaint for a fee. Whether to use one is a choice with a real cost, because a complaint to the lender and the Financial Ombudsman Service can be made directly. This guide sets out what the Financial Conduct Authority (FCA) and the Ombudsman Service say about CMCs, fee limits and the questions an unaffordable-lending complaint turns on. The FCA’s 2019 announcement on taking over CMC regulation referred to CMCs in England, Scotland and Wales.

    What a CMC does

    The FCA describes CMCs as firms or individuals that can help someone make a claim, and it stresses that they charge a fee. A CMC may investigate a claim, represent the customer, deal with paperwork or put them in touch with lawyers, and should say how likely the claim is to succeed. Some act only as lead generators, identifying possible claims and referring them to other CMCs or lawyers. The FCA’s page states that a claim can be made without a CMC, free of charge, and that organisations such as MoneyHelper can provide free guidance to anyone who is unsure how to start.

    Checking a CMC is authorised

    According to the FCA, CMCs must be authorised by it when they provide services for claims about financial services and products, personal injury, employment matters, criminal injury, housing disrepair and certain industrial injuries benefits. Some claims management services are instead regulated by a legal regulator such as the Solicitors Regulation Authority, the Bar Standards Board, CILEx Regulation or the Law Society of Scotland. The FCA advises checking the FCA Firm Checker or the relevant register before signing up. For lenders, the parallel check is described in our guide to checking the FCA register.

    Fee caps for financial services claims

    For claims started on or after 1 March 2022, the FCA’s page sets maximum CMC fees for financial services claims by the amount awarded, excluding VAT. Where redress is between £1 and £1,499 the maximum is 30% and no more than £420. For £1,500 to £9,999 it is 28% and up to £2,500; for £10,000 to £24,999 it is 25% and up to £5,000; for £25,000 to £49,999 it is 20% and up to £7,500; and from £50,000 it is 15% and up to £10,000. The page says the cap does not apply if a claim is pursued in court with a CMC, and the FCA’s 2022 announcement adds that a customer who complains directly to the Ombudsman Service or the Financial Services Compensation Scheme keeps all of the redress awarded.

    What a CMC must disclose

    The FCA’s 2019 announcement said its rules require CMCs to give clear upfront information on fees and services, provide a summary document before a contract is signed, and tell customers about free alternatives such as the Financial Ombudsman Service and FSCS, including in advertising. The 2022 changes added detail on how fees will be calculated and on the free routes to redress before a contract is entered into.

    What an unaffordable-lending complaint turns on

    The Ombudsman Service’s approach to unaffordable or irresponsible lending is to ask whether the business did everything it was required to do and, if not, whether the customer lost out as a result. For a regulated credit agreement, it asks whether the lender made reasonable and proportionate checks that the borrower could repay in a sustainable way, whether a fair lending decision followed, what proportionate checks would more likely than not have shown if none were carried out, and whether the lender should have realised at some point that additional credit was increasing indebtedness in an unsustainable way. Its guidance says it will typically look at the application form, the credit file results obtained at approval, income information and verification documents, income and expenditure checks and the account history. These are the same themes as in our guides to affordability checks and to complaining to the Financial Ombudsman Service.

    Complaining about a CMC

    The FCA says the Financial Ombudsman Service is responsible for resolving disputes about CMCs, and the Ombudsman Service took over that role from the Legal Ombudsman when FCA regulation began.

    FAQs

    Do I need a CMC to complain about a loan?

    No. The FCA says it is free and simple to make a claim yourself, and MoneyHelper can offer guidance.

    What is the most a CMC can charge?

    For financial services claims started on or after 1 March 2022, the FCA cap ranges from 30% (maximum £420) on awards below £1,500 down to 15% (maximum £10,000) on awards of £50,000 or more, excluding VAT.

    Does the cap apply in court?

    The FCA says it does not apply if a claim is pursued in court with a CMC.

    How do I check whether a CMC is authorised?

    Search the FCA Firm Checker or the register of the relevant legal regulator, as the FCA advises.

    The bottom line

    A CMC can help with an unaffordable-lending complaint, but the borrower pays for it and the FCA states the same claim can be made directly and free. Fees for financial services claims are capped in bands, and an authorised firm must explain free alternatives before a contract is signed. This is general information, not financial or legal advice on a specific complaint.

    Sources

  • Priority and Non-Priority Debts: Where a Cash Advance Sits When Money Is Short (England)

    When money is short, the order in which debts are dealt with matters as much as the amounts. A short-term loan or cash advance is usually not the debt with the most serious immediate consequences, even though its interest can feel urgent. This guide follows Citizens Advice guidance for England; the same organisation publishes separate advice for Scotland, Wales and Northern Ireland, where some consequences and procedures differ.

    What makes a debt a priority

    Citizens Advice describes priority debts as debts that can cause particularly serious problems if nothing is done about them. Not paying them could mean losing a home, having an energy supply cut off, losing essential goods or, in some cases, going to prison. The advice is to identify and deal with priority debts first, and only then to look at the rest.

    Debts that are usually priorities

    The Citizens Advice list for England includes:

    • Rent arrears, because a landlord can seek a possession order from a court before eviction.
    • Mortgage or secured loan arrears, because a lender can also seek possession through the court.
    • Council tax arrears, because the council can take a person to the magistrates’ court. Prison is possible only where someone has the money but chooses not to pay, and not where they can show they cannot pay.
    • Gas or electricity bills owed to a current supplier, because the supply could be cut off.
    • Phone or internet bills, but only where the service is really important, for example for work, a job search or a disability.
    • TV licence payments and court fines.
    • Overpaid tax credits, unpaid income tax, National Insurance or VAT, and unpaid child maintenance, where the relevant body can take money from wages, benefits or accounts without going to court first.
    • Hire purchase or conditional sale payments where the goods are really important, such as a car needed to get around or a fridge for medicine.

    Where a cash advance fits

    Citizens Advice lists non-priority debts as credit card and store card debts, catalogue debts, unsecured loans including payday loans, benefit overpayments other than tax credits, unpaid parking charges, water bills (where the supplier cannot cut off the water supply) and money owed to family and friends. A short-term cash advance or payday loan falls in that group. The description “non-priority” does not mean the debt disappears: the guidance says creditors can still take a person to court to get them to pay, so a borrower needs a plan for it once priority debts are under control.

    Asking a lender for lower payments

    For non-priority debts, Citizens Advice suggests working out a budget to find the available income left after essential bills and priority debts, and then offering each creditor a share of that money in proportion to what is owed, known as a pro rata offer. In its worked example, someone owing twice as much on a credit card as on a store card, with £90 a month available, offers £60 to one and £30 to the other. The borrower writes to each creditor, explains the reason for the debt, states what can be afforded and asks them to freeze interest and charges for as long as payments are kept up.

    Limits to bear in mind

    Creditors do not have to freeze interest. The guidance says they can refuse, or reduce interest instead of stopping it, and can still take court action after a repayment plan is agreed. Paying less than a credit agreement requires might also make future credit harder to get. Anyone offered a repayment they cannot afford is told not to agree to it, and if a creditor refuses an offer the guidance says to start paying the offered amount anyway and let the creditor know. For a lender’s own duties, see our guide to what the FCA requires of lenders in arrears, and for a formal pause see Breathing Space.

    Getting help

    Citizens Advice recommends contacting a local office if someone is struggling with priority debts or has more than one and needs help deciding which comes first, and an adviser can negotiate with creditors or explore other solutions. Options such as a debt management plan are covered elsewhere on this site.

    FAQs

    Is a payday loan a priority debt?

    Citizens Advice classes unsecured loans including payday loans as non-priority debts.

    Can I ignore a non-priority debt?

    No. Creditors can still take court action, according to the guidance, so each debt needs a plan even if it is dealt with second.

    Is water a priority debt?

    Citizens Advice lists unpaid water bills as non-priority because the supplier cannot cut off the water supply.

    Do lenders have to accept my offer?

    No. They may refuse or ask for more, but the guidance says a person should not agree to more than they can afford and should start paying the offered amount anyway.

    The bottom line

    Priority debts such as rent, mortgage arrears, council tax, energy and court fines come first because their consequences are the most serious. A cash advance is normally treated as a non-priority debt, which is a reason to handle it second, not to ignore it. This is general information for England, not financial advice; a free debt adviser can review individual circumstances.

    Sources