Borrowing guides

Adverts for cash advances and other consumer credit are not free-for-all marketing. The FCA’s Consumer Credit sourcebook (CONC), chapter 3, sets rules for financial promotions and communications by authorised lenders and credit brokers. FCA rules apply across the UK to firms it authorises, while court enforcement of credit agreements differs between the UK nations. Anyone advertising credit without FCA authorisation is outside these protections altogether.

The core rule: clear, fair and not misleading

CONC 3.3.1R requires a firm to ensure that a communication or financial promotion is clear, fair and not misleading. The rule adds detail: each promotion must be clearly identifiable as such, accurate and balanced, and must not emphasise potential benefits without a fair and prominent indication of relevant risks. It must be understandable to the average member of the group it targets and must not disguise, omit, diminish or obscure important information, statements or warnings. Comparisons must be fair, balanced and meaningful.

CONC 3.3.2R adds general requirements: plain and intelligible language, easy legibility (or clear audibility in speech), and the name of the person making the promotion or on whose behalf it is made. A credit broker’s promotion must also name the lender where it is known.

Claims that credit is available regardless of circumstances

CONC 3.3.3R says a firm must not, in a financial promotion or communication to a customer, state or imply that credit is available regardless of the customer’s financial circumstances or status. The FCA’s guidance at CONC 3.3.4G adds that a firm’s trading name, internet address or logo could fall within that rule, and that stating or implying credit is guaranteed, pre-approved or not subject to credit checks or other assessment of creditworthiness may contravene it. The guidance reminds firms of the responsible lending rules in CONC 5.

CONC 3.8.2R separately bars lenders from providing an application with a pre-completed amount of credit that is not based on a creditworthiness assessment, and from promoting credit they know, or have reason to believe, would be unsuitable in light of the customer’s circumstances. Guidance at CONC 3.8.3G gives one example of unsuitable promotion: suggesting high-cost short-term credit, which would be expensive as a means of longer-term borrowing, is suitable for sustained borrowing.

Misleading practices the FCA lists

CONC 3.3.10G lists practices likely to breach the clear, fair and not misleading rule. They include stating or implying that a firm is a lender when it is not, misleading a customer about the availability of a particular credit product, concealing or misrepresenting the firm’s identity, using false testimonials, endorsements or case studies, and making false or unsubstantiated claims about size, experience or pre-eminence. CONC 3.3.11G gives a specific example of misleading a customer about availability: implying the firm will introduce a standard instalment loan, an overdraft or a credit card, but instead introducing the customer to a provider of high-cost short-term credit.

CONC 3.3.11AG applies the same reasoning to “buy now pay later” offers. A promotion referring to a zero or low interest promotional offer is likely to be misleading by omission if it does not also include, in a fair and prominent way, material information about relevant risks, such as when interest or charges could become payable and how they would be calculated.

The representative example

Under CONC 3.5.3R, where a promotion for credit not secured on land indicates an interest rate or an amount relating to the cost of credit, it must also include a representative example and a postal address at which the advertiser can be contacted. Some exceptions exist, such as broadcast promotions for the address requirement, and promotions for 0% APR agreements are not required to include the example. CONC 3.5.5R lists what the example must contain: the interest rate and whether it is fixed or variable, the nature and amount of other charges in the total charge for credit, the total amount of credit, the representative APR, the duration of the agreement, the total amount payable and the amount of each repayment.

The information must be clear, concise and prominent, accompanied by the words “representative example”, and each item must be given equal prominence. It must also be given no less prominence than other cost-of-credit information in the promotion. Guidance in CONC 3.5.6G says an example is unlikely to be representative if most customers who respond are likely to borrow less, or pay higher rates or charges, than shown.

Doorstep and unsolicited approaches

CONC 3.10.2R restricts spoken promotions made to a customer outside the firm’s premises: they may only be communicated at an appropriate time of day, and the person must identify themselves and the firm at the outset and make the purpose clear. Section 50 of the Consumer Credit Act 1974, which the legislation marks as applying UK-wide, also makes it an offence to send a document to a minor with a view to financial gain inviting the minor to borrow money or obtain credit, with a defence if the sender did not know, and had no reasonable cause to suspect, that the recipient was a minor.

FAQs

Can a lender say a loan is guaranteed?

The FCA’s guidance says stating or implying that credit is guaranteed or pre-approved, or is not subject to any credit checks, may contravene the rule against implying credit is available regardless of circumstances.

Does every credit advert need a representative example?

Not every one. The example is required where a promotion states an interest rate or a cost-of-credit amount, with exceptions such as promotions for 0% APR agreements.

Who do these rules apply to?

CONC sets rules for FCA-authorised firms. CONC 3.5.1R applies the promotion rules in that section to consumer credit lending and to credit broking for regulated credit agreements.

Bottom line

Credit promotions must be honest about risks and costs, must not imply that credit is available regardless of circumstances and must carry a representative example whenever they quote a rate or cost. An advert that promises certainty, hides charges or promotes expensive short-term credit for long-term needs is a warning sign. This is general information about FCA rules, not financial or legal advice.

Sources

• FCA Handbook, “CONC 3.3 The clear fair and not misleading rule and general requirements”
• FCA Handbook, “CONC 3.5 Financial promotions about credit agreements not secured on land”
• FCA Handbook, “CONC 3.8 Financial promotions and communications: lenders”
• FCA Handbook, “CONC 3.10 Financial promotions not in writing”
• legislation.gov.uk, “Consumer Credit Act 1974, section 50: Circulars to minors”

Rent-to-own (RTO) products let people take home household goods, such as a washing machine or a fridge, and pay for them over time. In the FCA’s rules, an RTO agreement is a regulated hire-purchase or conditional sale agreement supplying household goods. Since April 2019 the FCA has capped how much RTO firms can charge, in chapter 5B of its Consumer Credit sourcebook. The rules apply UK-wide to FCA-authorised RTO firms.

What counts as rent-to-own

CONC 5B.7.1R defines an RTO agreement as a regulated credit agreement that is a hire-purchase or conditional sale agreement supplying one or more items of household goods, excluding goods acquired mainly for business. Household goods include furniture, kitchen appliances such as cookers, washing machines and fridges, and electronic goods such as televisions, games consoles, computers and phones. The cap applies to firms that enter into such agreements in relation to more than one category of household goods.

The total cost of credit cap

Under CONC 5B.2.11R an RTO firm must not enter into an agreement providing for charges that, alone or in combination with other charges under it or a connected agreement, exceed or are capable of exceeding the cash price of the goods plus, where relevant, the cash prices of delivery, installation and goods or services supplied under a connected agreement. The FCA’s worked example (CONC 5B.2.12G) has a washing machine at £200, a dryer at £250, delivery at £30 and installation at £20: the sum of the cash prices is £500, so the charges on top must not exceed £500. In effect the total repayable cannot go above twice the sum of the cash prices, so the cap limits the cost of credit rather than making rent-to-own cheap.

Benchmarking the cash price

The cap also restricts the cash price used as its starting point. For new goods an RTO firm must not enter into an agreement where the cash price exceeds a benchmarked price (CONC 5B.2.1R). The firm must find three benchmarking cash prices at which the goods are currently available to UK consumers, not from another RTO firm or its associate, and the benchmarked price is generally the highest of the three, or the median where one comes from a retail revolving credit business (CONC 5B.2.2R). For delivery or installation the benchmark is the median of three other retailers’ prices (CONC 5B.2.8R), and benchmarks must be refreshed when prices rise and at least every 12 months.

What happens if the cap is breached

CONC 5B.6.1R says that where a firm breaches the total cost of credit cap, the obligation to pay charges that in total would exceed the cap is unenforceable in its entirety, and the borrower is entitled to recover any charges paid. If you ask, orally or in writing, the firm must repay charges as soon as reasonably practicable and in any case within 7 days of the request. Under the FCA’s example, if an agreement provided for £600 of charges against £500 of cash prices, the obligation to pay the whole £600 would be unenforceable.

Anti-avoidance rules, and what the FCA found

CONC 5B.3.1R prohibits firms from recouping revenue lost to the cap through the price of other goods or services connected with the agreement; guidance says that includes raising the price of theft or accidental damage insurance or extended warranties. In December 2020 the FCA published an evaluation of the cap. It reported that prices charged by the two largest firms then in the market fell by an average 19 per cent, that the highest financing price for the longest term (plus delivery and installation) fell from 3.6 times the average retail price before the cap to a highest observed ratio of 2.3, and that it found no evidence firms had raised other prices to compensate. That evaluation is specific to rent-to-own and does not show whether other forms of credit are cheaper.

FAQs

Does the cap make rent-to-own the same price as buying outright?

No. The rule allows charges up to the total of the cash prices, so the total repayable can be well above the price of buying the goods for cash.

Does the cap apply to second-hand goods?

The benchmarking rule in CONC 5B.2.1R applies to goods which are not second-hand, while the total cost of credit cap applies to charges under an RTO agreement for goods more generally. Check the agreement and ask the firm which rules it applies.

Where can I check my agreement is compliant?

Ask the firm for the cash prices used and check the firm is authorised on the FCA Firm Checker, then take free advice if the total charges look higher than the cash prices allow.

Bottom line

The FCA’s rent-to-own cap stops charges exceeding the cash price of the goods, delivery and installation, requires cash prices to be benchmarked against other UK retailers and makes excess charges unenforceable and refundable within 7 days of a request. Before signing any agreement, compare the total repayable with the cash price and with your other options. This is general information, not financial advice.

Sources

• FCA Handbook, “CONC 5B Cost cap for rent-to-own agreements”
• Financial Conduct Authority, “FCA publishes evaluation of rent-to-own price cap”

Loan fee fraud, also called advance-fee fraud, is a scam in which someone is persuaded to pay a fee for a loan that never arrives. The FCA says it receives hundreds of reports every year, that fraudsters typically ask for between £25 and £450, and that victims report an average loss of £255. The FCA’s guidance applies UK-wide.

How the scam works

According to the FCA, scammers often target people who have applied for loans online and may contact them unexpectedly, offering the money they need. Before releasing the loan they ask for an upfront payment described as a deposit, administrative fee or insurance, and may claim it is needed because of a bad credit history. They put pressure on the victim to pay quickly by bank transfer, ask them to buy vouchers such as Google Play, Amazon or eBay, or, more recently, to pay through crypto exchanges. The fee may be described as refundable, but the FCA says that even after paying you never receive the loan or a refund.

General warning signs

The FCA’s wider scam guidance asks a series of questions: is the contact unexpected; do you feel pressured to act quickly; does the offer sound too good to be true; are they claiming special authority or trying to flatter you; are you feeling worried or excited? Answering yes to any of them, or being unsure, is a prompt to stop and check. It also advises hanging up or ignoring messages if you feel pressured, saying a genuine bank or business will not mind waiting while you think.

Check the firm before you pay

The FCA says to use the FCA Firm Checker to confirm a firm is authorised and has permission for the service offered, to check that the firm reference number and contact details match the Firm Checker, and to use the contact details listed there rather than a number or email you were given. It warns that some firms pretend to be authorised, and advises using the official web address for the Firm Checker rather than clicking links in emails or on a company’s site. If no contact details are listed, or the firm says they are out of date, the FCA says to call it on 0800 111 6768.

Practical do’s and don’ts

The FCA advises treating all unexpected calls, emails and texts with caution even if the person knows some basic information about you, and checking bank and credit card statements regularly. It says not to give out bank account or card details unless you are certain who you are dealing with, not to share passwords, and not to give anyone access to your device by downloading software or an app from a source you do not trust, because scammers may then be able to control the device and reach your bank account.

How genuine loan fees differ

Not every upfront fee is fraud, but the rules for genuine ones are specific. The FCA says that where an authorised firm asks for an upfront fee before providing a loan, it must send you a notice, and you must reply saying you understand and agree with it before you get the loan. The notice should give the firm’s name as it appears on the Firm Checker, state that it is acting as a credit broker, say whether you must pay a charge for its services, and give the amount (or how it is calculated) and when and how payment will be taken. A request for an urgent transfer or a voucher code with none of this is a red flag.

If you have been targeted or lose money

The FCA says to report suspected scams to it on 0800 111 6768 or through its contact form. If you have lost money, it says to contact Report Fraud, and adds that people who have already been scammed should be extra careful because fraudsters may target them again, for example by offering to recover the money for a fee. Recovery offers of that kind are known as recovery room scams. If you are struggling with money, the FCA points to MoneyHelper and the Debt Advice Locator for free guidance.

The FCA’s scam guidance gives Report Fraud’s telephone number as 0300 123 2040.

FAQs

Is every advance fee a scam?

No. The FCA says genuine authorised firms sometimes ask for an upfront fee, but they must send the specific notice described above and you must agree to it before the loan is provided.

Why is a voucher or crypto payment a warning sign?

The FCA says scammers have asked victims to buy vouchers and, more recently, to pay through crypto exchanges. Treat any request to pay a fee that way as a reason to stop and verify the firm.

What if the firm is on the register but the phone number is different?

The FCA says to check that contact details match the Firm Checker and to use the details listed there. Mismatched details are a warning sign, because the FCA notes that some firms pretend to be authorised.

Bottom line

The pattern is consistent: an unexpected offer, pressure to pay a fee first and a payment route that is hard to reverse. Check the lender on the FCA Firm Checker using its own listed contact details, never pay an upfront fee you did not expect and cannot verify, and report anything suspicious. This article is general information, not financial or legal advice.

Sources

• Financial Conduct Authority, “Loan fee fraud”
• Financial Conduct Authority, “Protect yourself from scams”

A Debt Relief Order (DRO) is a formal insolvency solution for people in England and Wales who cannot repay their debts and have little income or assets. GOV.UK says it normally lasts 12 months, after which the debts listed in it no longer have to be repaid. It is not available in Scotland or Northern Ireland, where different solutions apply. It is one of several options, and free debt advice is the place to compare them.

How you apply

GOV.UK says you must apply through an approved debt adviser, who checks your eligibility free of charge and completes the online application for the Insolvency Service; you cannot complete it yourself and you do not go to court. There is no application fee. The adviser will look at your income, debts and belongings, payments made to creditors over the past two years, and anything sold or given away in that period.

If a DRO is not suitable, GOV.UK says the adviser will help you find other ways of dealing with your debts, and it points to MoneyHelper for organisations that offer free debt advice.

Who is eligible

According to GOV.UK you qualify if you owe less than £50,000 in total; have savings or valuable items worth less than £2,000 in total; own a vehicle worth less than £4,000; do not have enough money left at the end of the month to make your debt repayments; have lived or worked in England and Wales in the last three years; are not currently bankrupt or in an interim order or individual voluntary arrangement; and have not had a DRO in the last six years. You also must not have favoured some creditors (preferential payments) or sold or given away valuables for less than they were worth (undervalue transactions), both of which can affect eligibility.

Which debts are included

GOV.UK lists “qualifying debts” as including credit cards, overdrafts and loans, rent arrears and utilities, council and income tax, buy now pay later agreements, benefit overpayments and debts to friends and family. Debts you must still pay include child maintenance, student loans, Social Fund budgeting and crisis loans, debts secured against your possessions, court-ordered damages for personal injury or death, and unpaid TV licence fees. A creditor can still recover a debt from a guarantor or joint debtor.

Restrictions and the effect on your credit file

During the DRO period GOV.UK says you must tell a lender before borrowing more than £500, tell banks about the DRO if you apply for an overdraft or new account, and follow restrictions such as not acting as a company director or forming or managing a company without the court’s permission. You cannot apply for another DRO for six years. The DRO stays on your credit reference file for six years from approval and appears on the Individual Insolvency Register, from which it is removed three months after it ends. You still pay regular commitments such as rent and bills.

If your situation changes or creditors keep asking

You must tell the Insolvency Service about an increase in regular income or valuables you receive. It can cancel a DRO if you no longer qualify or were never eligible; if that happens, the debts you owed are payable again with interest accrued, and creditors can add penalties, even after the DRO has ended. Listed creditors should stop demanding payment; if one continues, GOV.UK says to send a copy of your DRO and use its complaints process. Creditors may still send balance statements for 12 to 18 months as the law requires, and debts sold to collection agencies remain covered if they were listed.

The Insolvency Service says it will not submit a complaint on your behalf and has no power to make a creditor stop asking for repayment, so the creditor’s own complaints process, and where relevant its regulator, is the route if demands continue.

FAQs

Can I add a forgotten debt to my DRO?

No. GOV.UK says that after a DRO is approved no other debts can be added, and you must keep paying any debt not listed.

Does a DRO mean I can never borrow again?

No. GOV.UK lists restrictions during the DRO period and says the DRO shows on your credit file for six years, which may make borrowing harder, but it does not impose a lifetime ban.

Can I apply if I live in Scotland?

GOV.UK says you cannot apply for a DRO if you live in Scotland or Northern Ireland, and a debt adviser can explain what is available there.

Bottom line

A DRO can clear qualifying debts, including loans and credit, for people in England and Wales with low income and few assets, but it comes with restrictions and a six-year credit file entry. Ask an approved debt adviser, free of charge, whether it beats alternatives such as a debt management plan. This article is general information, not financial or legal advice.

Sources

• GOV.UK, “How to get a Debt Relief Order (DRO)”
• GOV.UK, “Once you have a Debt Relief Order (DRO)”

Getting letters, calls or visits about a debt can feel overwhelming, but FCA-authorised firms are bound by conduct rules in the Consumer Credit sourcebook (CONC), chapter 7. These apply UK-wide to authorised lenders, debt collectors and others acting for them. Some entries in the sourcebook are rules (marked R) and others are guidance (marked G), and the sourcebook makes separate reference to procedures in Scotland and Northern Ireland.

Saying who they are and why they are calling

CONC 7.9.1R requires a firm to ensure anyone contacting you on its behalf explains who they work for, their role or relationship with the firm and the purpose of the contact. CONC 7.9.2R says a firm must not make a statement that may induce you to contact it while misunderstanding the reason. Guidance gives an example: a calling card left at your address that implies you missed a delivery.

When and how contact can be made

Firms must not contact customers at unreasonable times and must pay due regard to reasonable requests about when, where and how to contact them, for example from people who work shifts (CONC 7.9.4R). They must not require you to call a premium-rate or special-rate number that costs more than a standard geographic number (CONC 7.9.5R).

Keeping your debt private

CONC 7.9.6R says a firm must not unfairly disclose, or threaten to disclose, information about your debt to a third party. CONC 7.9.7R requires a firm to avoid acting in a way likely to be publicly embarrassing and to take reasonable steps so third parties do not learn you are being pursued. Guidance (CONC 7.9.8G) suggests, for example, marking post “private and confidential” and not showing a debt-collection name on an envelope. CONC 7.9.10R says a firm must not disclose details of a debt to someone without first establishing that they are, or act for, the borrower, and guidance (CONC 7.9.11G) says threatening action against the “occupier” of premises or sending demands to everyone sharing a name and date of birth or address is likely to breach that rule.

Guidance (CONC 7.9.9G) adds that the privacy rule would not stop a firm sending a statutory notice to your last known address, provided it takes reasonable steps such as those above to avoid third parties finding out.

Visits to your home

Unless it is not practicable, a firm must ensure a person visiting explains the purpose and intended outcome and gives adequate notice of the date and likely time at a reasonable time of day (CONC 7.9.12R). CONC 7.9.14R says visitors must not act in a threatening manner, visit when they know or suspect you may be particularly vulnerable, visit an inappropriate location without your consent, enter your property without consent or an appropriate court order, refuse to leave when reasonably asked, or visit or threaten to visit without your agreement when a debt is deadlocked or reasonably queried or disputed. Guidance (CONC 7.9.15G) says it would normally be inappropriate to visit someone at work or in hospital as a patient.

False claims about authority and legal powers

CONC 7.11.1R says a firm must not misrepresent its authority or its legal position on the debt or recovery process. Guidance gives the example of claiming to be a bailiff acting on court instructions when that is untrue. Other rules prohibit official-looking documents likely to mislead about the firm’s status (7.11.3R), falsely claiming trade-body membership or accreditation (7.11.4R), suggesting action can be taken when legally it cannot (7.11.6R), claiming proceedings for a warrant of execution or attachment of earnings before a court judgment has been obtained (7.11.8R) and claiming an action has been taken when it has not (7.11.9R). Guidance examples include implying bankruptcy proceedings where the debt is too low to qualify, and claiming a right of entry without a court order.

Guidance (CONC 7.11.5G) also reminds firms that it is an offence under section 17 of the Legal Services Act 2007 to falsely imply that someone is entitled to carry on a reserved legal activity, such as conducting litigation or appearing before a court, or to use a title such as “solicitor” without entitlement.

FAQs

Can a collector visit me at work?

CONC 7.9.15G says it would normally be inappropriate to visit a customer at their place of work, or at a hospital where they are a patient.

What if I dispute the debt?

CONC 7.9.14R(7) says a visitor must not visit or threaten to visit without your prior agreement when the debt is deadlocked or reasonably queried or disputed, and points to CONC 7.14 on settlements and disputed debt.

Where can I get help?

CONC 7.3.7AG says firms should point customers in arrears to free, impartial debt advice from not-for-profit bodies, such as through MoneyHelper. Independent advice is a sensible step whatever the collector says.

Bottom line

The FCA’s rules require debt collectors and lenders to identify themselves, avoid misleading or embarrassing tactics, respect reasonable contact requests and never overstate their legal powers. If contact you receive does not fit these rules, keep a record of dates, names and wording and take free debt advice before responding. This is general information, not legal or financial advice.

Sources

• FCA Handbook, “CONC 7.9 Contact with customers”
• FCA Handbook, “CONC 7.11 Disclosures relating to authority or status”
• FCA Handbook, “CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions)”

If you are behind, or about to fall behind, on a regulated credit agreement, the FCA’s Consumer Credit sourcebook (CONC) sets out how an authorised lender, credit owner or debt collector must treat you. The rules in CONC 7.3 are FCA rules and so apply UK-wide to firms the FCA authorises; how debts are enforced through the courts differs between the UK nations, and the sourcebook itself refers to separate Scottish procedures. A loan from an unauthorised lender is outside this protection.

The core duty: forbearance and due consideration

CONC 7.3.4R says a firm must treat customers in or approaching arrears or in default with forbearance and due consideration, and CONC 7.3.4BR says it must take account of the customer’s individual circumstances that it is, or should be, aware of. Guidance (CONC 7.3.4AG) says a firm should treat a customer as approaching arrears when they indicate they are at risk of missing one or more repayments, so you do not have to wait until you have defaulted to ask for help.

What forbearance can look like

CONC 7.3.5G gives examples of the steps a firm might take, depending on the customer’s circumstances. They include suspending, reducing, waiving or cancelling further interest or charges where a customer shows evidence of financial difficulty; allowing arrears to be paid later; accepting no, reduced or token payments for a reasonable period from someone who could not otherwise meet priority debts or essential living expenses; agreeing a repayment arrangement over a reasonable period; and refinancing that does not adversely affect the customer’s finances. The examples are not exhaustive and are guidance rather than a menu you can demand from.

Where a firm sets up a repayment arrangement as forbearance and you are keeping to it, CONC 7.3.5GR requires it to reduce, waive or cancel further interest or charges to the extent needed so that the debt does not rise during the arrangement.

Repayment plans must be sustainable

Under CONC 7.3.5BR a firm must take all reasonable steps to make sure any repayment arrangement it agrees is sustainable. Guidance says an arrangement is unlikely to be sustainable if it stops you meeting priority debts and essential living expenses, including payments such as mortgage, rent, council tax, food and utility bills. Any income and expenditure assessment must be objective (CONC 7.3.5DR), and firms must take reasonable steps to check that forbearance remains appropriate over time (CONC 7.3.5IR).

Pressure a firm must not apply

CONC 7.3.9R says a firm must not operate a policy of refusing to negotiate with a customer developing a repayment plan. CONC 7.3.10R says it must not pressurise you to pay in one or very few payments or unreasonably large amounts where that would harm your finances, to pay within an unreasonably short time, or to raise money by selling property, borrowing or increasing existing borrowing. CONC 7.3.11R requires a firm to suspend active pursuit of recovery for a reasonable period when you or a debt counsellor tell it you are developing a repayment plan; guidance (CONC 7.3.12G) says that period should generally be thirty days where there is evidence of a genuine intention to develop a plan, with a further thirty days considered where progress is shown.

Free debt advice and limits on enforcement

CONC 7.3.7AG says that, where appropriate, a firm should tell customers in or approaching arrears that free, impartial money guidance and debt advice is available from not-for-profit bodies and may refer them, for example to MoneyHelper. On enforcement, CONC 7.3.14R prohibits disproportionate action and says a firm must not apply for an order for sale or submit a bankruptcy petition without first fully exploring more proportionate options. Under CONC 7.3.17R repossession of a home, goods or vehicle may only be a last resort, and CONC 7.3.18R bars threatening court action to pressurise you into paying more than you can reasonably afford. Guidance (CONC 7.3.16G) says a firm should not take enforcement steps if it knows you are subject to a bankruptcy order, debt relief order or individual voluntary arrangement, with Scottish equivalents named in the sourcebook.

FAQs

Does forbearance mean my debt is written off?

No. The examples in CONC 7.3.5G include pausing or waiving interest, deferring arrears and reduced payments, which are ways of managing the debt rather than cancelling it. Forbearance can also affect how the account is reported, and firms should explain that to you (CONC 7.3.13AG).

Are the rules mandatory or just guidance?

Both appear in CONC. Entries marked R are rules that firms must follow, while entries marked G are guidance on how the FCA expects rules to be applied. Some examples in this article come from guidance.

What if my lender is not FCA-authorised?

These rules apply to authorised firms. If a lender is not on the FCA register, you should treat that as a serious warning sign and seek free debt advice.

Bottom line

The FCA does not oblige a lender to forgive a debt, but it does require lenders in the UK to treat borrowers who are struggling with forbearance, to agree sustainable plans, to pause pursuit while a plan is developed and to avoid disproportionate enforcement. If you are falling behind, contact the lender early, say clearly that you are struggling, and get free debt advice. This article is general information, not financial or legal advice.

Sources

• FCA Handbook, “CONC 7.3 Treatment of customers in or approaching arrears or in default (including repossessions)”

Every legitimate short-term lender operating in the UK, however high its interest rate, has to be authorised by the Financial Conduct Authority. A loan shark simply isn’t — and that single distinction is what separates a regulated (if expensive) form of credit from something GOV.UK describes as breaking the law, with none of the protections that come with FCA regulation attached.

What actually makes a lender a “loan shark”

GOV.UK guidance is direct on this point: money lenders who aren’t authorised by the FCA are breaking the law, and this is what makes them loan sharks. It isn’t about how the loan is marketed, how it’s arranged, or even necessarily how high the interest rate is — the defining legal issue is the absence of FCA authorisation. Because they operate entirely outside the regulatory system, none of the protections that apply to regulated lenders — affordability checks, a price cap on certain products, Consumer Duty obligations, or a right to complain to the Financial Ombudsman Service — apply to a loan from a loan shark.

How small debts can spiral so fast

GOV.UK’s guidance gives a concrete illustration of the scale of the problem: a loan of £300, because of the extortionate interest rates loan sharks apply with no regulatory cap holding them in check, can spiral into a debt of many thousands of pounds. Because there’s no FCA-authorised structure behind the loan, there’s also no equivalent of the affordability assessment a regulated lender is required to carry out, and no independent complaints route if the terms are punishing or the collection tactics cross into intimidation.

Warning signs worth checking before you borrow

Before taking any loan, checking the lender against the FCA’s Financial Services Register is the single most reliable way to confirm it’s operating legally — GOV.UK specifically points borrowers to this register as the way to verify a lender’s legitimacy. Other signs commonly associated with illegal lending include a lender who offers cash in hand with no paperwork or written agreement, collects loan books or bank cards as security, refuses to give clear written terms, or applies pressure or threats over repayment — none of which a regulated lender is permitted to do.

How to report a loan shark, confidentially

In England, GOV.UK directs reports to the Illegal Money Lending Team, reachable through several confidential channels: the Illegal Money Lending Hotline on 0300 555 2222, by email to [email protected], or by text. GOV.UK is explicit that reports can be made anonymously, which matters given how often illegal lending involves an existing personal or community relationship with the borrower, making people understandably reluctant to come forward under their own name. Separate contact routes exist for Wales, Scotland and Northern Ireland, each run by their respective enforcement teams.

What happens after a report, and getting help with existing debt

Reports to the Illegal Money Lending Team can lead to investigation and prosecution of the lender, and the team also provides direct support to people who’ve borrowed from a loan shark, including help dealing with the debt itself and connecting borrowers with wider debt advice. GOV.UK is clear that if a lender has threatened you or been violent, that’s a matter for the police immediately, separate from and alongside any report to the Illegal Money Lending Team.

FAQs

Will I get in trouble for borrowing from a loan shark?

No — the lender is the one breaking the law by lending without FCA authorisation, not the borrower. The Illegal Money Lending Team’s role includes supporting borrowers, not penalising them for having taken the loan.

How do I check the Financial Services Register myself?

The FCA’s Financial Services Register is a free, public, searchable database of every firm and individual authorised to carry out regulated financial activity in the UK — searching a lender’s name or reference number there before borrowing is a quick way to confirm legitimacy.

What if the loan started out feeling legitimate?

Illegal lending doesn’t always look obviously dodgy at the outset — some loan sharks operate within communities and present themselves informally as helpful. The authorisation check matters regardless of how the arrangement was first presented or who introduced you to the lender.

Bottom line

The line between a regulated short-term lender and a loan shark isn’t the interest rate charged — it’s FCA authorisation, checkable for free before you borrow. If you’re already dealing with an unauthorised lender, reporting it confidentially to the Illegal Money Lending Team brings both enforcement action against the lender and direct support for you.

Sources

• GOV.UK: Report a loan shark

Being asked to connect your bank account, or upload months of statements, before a short-term loan or cash advance is approved isn’t extra hassle for its own sake — it’s how lenders meet a specific FCA requirement that’s existed for over a decade. Understanding what that requirement actually is helps explain why lenders ask the questions they do, and why simply stating your income on a form usually isn’t enough on its own.

The underlying FCA rule: affordability has to be checked, not assumed

FCA responsible lending rules have required lenders to assess affordability before agreeing credit since 2014, covering personal loans, credit cards, short-term credit and mortgages alike. The core standard is that a lender must reasonably assess whether the credit is affordable and sustainable for that specific customer before the agreement is entered into — not just whether the lender is likely to get repaid, but whether repaying is realistically achievable for the borrower without hardship.

Why “the customer told us their income” generally isn’t sufficient

FCA guidance makes clear it’s generally not enough for a lender to rely solely on what a customer states about their income and outgoings on an application form. That’s precisely why documentary evidence — bank statements, payslips, or a direct open banking connection — has become standard practice: it lets a lender verify what’s actually happening in someone’s account, rather than relying on a self-reported figure that may be optimistic, out of date, or simply wrong.

How open banking fits into that verification

Open banking allows a borrower to securely share their transaction history directly from their bank with an FCA-authorised provider, which the lender then uses as part of its assessment, instead of (or alongside) manually reviewing uploaded statements. Because the data comes directly from the bank via a regulated connection, rather than a document the customer has provided themselves, it gives the lender a more complete and harder-to-misrepresent picture of income, existing commitments and spending patterns — which is also why some lenders now offer faster decisions specifically to applicants who use it.

What lenders are actually looking for in that data

Beyond simply confirming income arrives as stated, lenders reviewing open banking or statement data are generally checking for existing debt repayments and other short-term credit commitments, signs of regular overdraft use or bounced payments, gambling transactions, and any pattern suggesting the applicant is already under financial strain. None of this is about judging how someone spends their money in general — it’s specifically about whether taking on this additional repayment is sustainable on top of what’s already committed.

How this connects to the wider Consumer Duty

Affordability checks don’t exist in isolation — they now sit alongside the FCA’s Consumer Duty, which requires firms to focus on genuinely good outcomes for customers, not just technical compliance with a checklist. In practice, that means a lender using open banking data is expected to actually act on what it shows, rather than collecting the data and approving the loan regardless — a thin or borderline affordability picture is meant to lead to a decline, a lower amount, or a referral for further checks, not automatic approval.

FAQs

Do I have to use open banking, or can I just upload statements?

Most lenders offering open banking present it as the faster option but still accept uploaded bank statements or payslips as an alternative — the underlying legal requirement is that affordability is verified, not that any one specific method is used.

Is my data safe if I connect my bank account through open banking?

Open banking connections are made through providers authorised and regulated for this purpose, using bank-level security standards, and you control what’s shared and for how long — it’s a different, regulated channel from simply handing over your online banking login details to someone.

Can a lender approve me without checking affordability at all?

No — skipping affordability assessment altogether would put the lender in breach of FCA responsible lending rules. If you’re approved with little or no apparent verification, that’s a warning sign worth treating with real caution, including checking the lender is genuinely FCA-authorised.

Bottom line

Affordability checks, including the open banking step many lenders now use, exist because FCA rules require lenders to verify — not just ask about — your ability to repay before lending to you. It can feel intrusive, but it’s a consumer protection requirement working as intended, not an optional extra a lender has added on top.

Sources

• FCA Handbook: MCOB 11.6, responsible lending and financing

Short-term credit regulation didn’t arrive fully formed — it’s been shaped by a series of FCA reviews responding to how people were actually borrowing and getting into difficulty. One of the most significant was the Woolard Review, commissioned by the FCA in 2020 and published in February 2021, which looked specifically at change and innovation across the unsecured credit market, including the products that sit alongside, and sometimes substitute for, traditional short-term loans.

Why the FCA commissioned the review

The FCA’s own summary explains that in September 2020, its Board asked Christopher Woolard to review change and innovation in the unsecured credit market and report back in early 2021. The brief covered how regulation could better support a healthy unsecured lending market, against a backdrop that included the financial impact of the coronavirus pandemic, rapidly changing lending business models, and the rise of new, largely unregulated products — most notably Buy Now, Pay Later (BNPL).

What the review actually recommended

The published Woolard Review set out 26 recommendations directed at the FCA, government and other bodies. Among the most significant was an urgent recommendation to bring BNPL products — then operating largely outside FCA regulation — within its regulatory remit. The review also examined alternatives to high-cost credit more broadly, considering how regulation and the market could reduce reliance on high-cost products while still recognising that mainstream lenders have a role serving customers who wouldn’t otherwise qualify for cheaper mainstream credit.

Why BNPL specifically was flagged as a gap

At the time of the review, a specific type of BNPL agreement — short, interest-free, fixed-instalment credit arranged directly with a retailer — fell outside the FCA’s regulatory perimeter entirely, meaning providers didn’t need FCA authorisation and standard protections like affordability checks and Consumer Duty obligations didn’t automatically apply in the way they do for other regulated credit, including most short-term loans and cash advances. The review’s concern was that this gap allowed a fast-growing form of credit to operate with materially less oversight than comparable regulated products.

What actually followed, years later

Bringing BNPL into regulation took considerably longer than the review’s urgent recommendation implied, working through consultation, draft legislation and rule-making. The FCA has now confirmed that new rules regulating this type of BNPL agreement, formally termed Deferred Payment Credit, take effect from 15 July 2026 — meaning by the time you’re reading this, that regime is live. Under the new rules, the FCA’s press release confirms lenders must carry out proportionate affordability checks before lending, and BNPL agreements become subject to the Consumer Duty, the same overarching standard that already applies to regulated short-term lenders, requiring clear upfront information about repayment schedules and the consequences of missed payments.

Why this matters if you’re comparing a short-term loan against BNPL

Before mid-2026, one of the genuine practical differences between a regulated short-term loan or cash advance and a BNPL agreement was that only the former came with mandatory affordability checks, a price cap on certain product types, and Consumer Duty protections as standard. With Deferred Payment Credit now inside FCA regulation, that gap has narrowed considerably — both routes now sit within a broadly similar consumer protection framework, even though the products themselves (interest-bearing short-term credit versus interest-free instalments) remain structurally different.

FAQs

Did the Woolard Review change the price cap on short-term loans?

The Woolard Review’s focus was primarily on unsecured credit more broadly and the regulatory gap around BNPL; the separate price cap on high-cost short-term credit was introduced earlier, by the FCA, and wasn’t a direct product of this review.

Does BNPL regulation from July 2026 apply to all “pay later” products?

The FCA’s new regime specifically targets Deferred Payment Credit as defined in its rules — interest-free credit repayable in 12 or fewer instalments over 12 months or less. Other credit products, including longer-term retail finance, were generally already regulated before this change.

What happens to BNPL providers that don’t get authorised in time?

The FCA has set out a Temporary Permissions Regime allowing existing providers to register and continue operating while their full authorisation application is considered, rather than having to stop trading immediately once the new rules take effect.

Bottom line

The Woolard Review’s most consequential recommendation — closing the regulatory gap around Buy Now, Pay Later — took roughly five years to become binding law, but it has now landed: BNPL is FCA-regulated from July 2026, with affordability checks and Consumer Duty protections that put it on a more comparable footing with regulated short-term credit than it’s ever been before.

Sources

• FCA: Review into change and innovation in the unsecured credit market (the Woolard Review)
• FCA: New protections confirmed for Buy Now Pay Later borrowers

Most short-term credit or cash advance debts never come close to court, let alone bankruptcy. But where a debt has grown large enough, and enforcement through normal means has failed, a creditor in England and Wales does have a formal legal route available: a statutory demand, followed potentially by a bankruptcy petition. Understanding the actual legal mechanics matters, because the deadlines involved are short and largely non-negotiable.

What a statutory demand actually is

A statutory demand is a formal written demand for payment, served under the Insolvency Act 1986, requiring a debtor to pay a debt, or to secure or compound for it to the creditor’s satisfaction. Section 268 of the Act specifies that once a statutory demand has been properly served, and at least three weeks (21 days) have passed without the debt being paid, secured, or the demand being set aside by the court, the debtor is treated in law as unable to pay that debt — a formal legal trigger, not just a strongly worded letter.

The £5,000 threshold that has to be met first

Section 267 of the Insolvency Act 1986 sets what’s called the “bankruptcy level” — currently £5,000 — as the minimum debt a creditor must be owed before they can petition for the debtor’s bankruptcy. This can be a single debt or several debts added together that reach that combined total; it doesn’t have to come from one lender. A cash advance or short-term loan debt on its own, below that threshold, generally can’t found a bankruptcy petition, though it can still be pursued through other means such as a County Court judgment.

The 21-day window, and what you can do within it

Once served with a statutory demand, the legislation gives the debtor three options within the 21-day period: pay the debt in full, secure or compound it to the creditor’s satisfaction (for example by agreeing a settlement), or apply to the court to have the statutory demand set aside. An application to set aside is specifically available where the debt is genuinely disputed on reasonable grounds, or where the debtor has a counterclaim, set-off, or cross-demand that equals or exceeds the amount claimed. If the court agrees there’s a genuine dispute, it will set the demand aside, and the creditor cannot then proceed straight to a bankruptcy petition on the strength of it.

What happens if the 21 days pass without action

If none of those three things happen within the 21-day period, the creditor becomes entitled, as a matter of law, to petition the court for the debtor’s bankruptcy on the basis that the debtor is unable to pay their debts. A bankruptcy petition is a serious step with far-reaching consequences — including potential loss of control over assets and restrictions on obtaining further credit — and it’s not the automatic first step a short-term lender takes over an ordinary missed payment; it tends to follow a debt that’s gone substantially unaddressed over a longer period.

Why ignoring a statutory demand is the worst option

Because the 21-day clock starts running from service of the demand, not from when you happen to open the post, ignoring it doesn’t make it go away — it simply uses up the window in which you could have disputed it, negotiated, or sought advice. If you genuinely believe the debt is wrong, disputed, or already settled, applying promptly to set the demand aside, or getting free debt advice immediately, protects your position far better than waiting to see what happens next.

FAQs

Can several smaller cash advance debts be combined to reach £5,000?

Yes — the bankruptcy level under the Insolvency Act can be met by one or more debts owed to one or more creditors that together total at least £5,000, it doesn’t need to come from a single agreement.

Does a statutory demand automatically mean I’m bankrupt?

No. It’s a precursor step. Bankruptcy itself only follows if a petition is subsequently presented to, and made by, the court — a statutory demand alone doesn’t make you bankrupt.

What if I can’t afford to pay within 21 days?

Contact the creditor to try to negotiate, and get free advice from a debt charity as soon as possible — options like a payment arrangement, a DMP or an IVA may be available even at this late stage, and specialist advisers can also help assess whether an application to set the demand aside might apply.

Bottom line

A statutory demand is a specific, time-limited legal mechanism under the Insolvency Act 1986, not just a threatening letter — it starts a 21-day clock that can end in a bankruptcy petition if the debt (at least £5,000) goes unpaid, unsecured and unchallenged. Acting within the 21 days, whether by paying, negotiating or disputing it through the court, is the only way to control what happens next.

Sources

• legislation.gov.uk: Insolvency Act 1986, Section 267 – the bankruptcy level
• legislation.gov.uk: Insolvency Act 1986, Section 268 – statutory demand and inability to pay
• GOV.UK: Bankruptcy