The UK’s payday loan industry operates under strict regulation designed to protect consumers from unfair, misleading, or exploitative lending practices. The Financial Conduct Authority (FCA) oversees this regulation through a detailed framework known as the FCA Handbook—a comprehensive guide that outlines how all authorised lenders must conduct business.
This article explores the key payday loan provider requirements set out in the FCA Handbook, explaining how these rules safeguard borrowers and ensure responsible best payday loans uk across the UK.
The FCA’s Role in Payday Lending
The Financial Conduct Authority became the regulator of consumer credit in April 2014, taking over from the Office of Fair Trading (OFT). One of its first major priorities was addressing the problems within the payday lending sector—an industry known for excessive interest rates, poor affordability checks, and aggressive collection practices.
The FCA introduced a series of measures to reshape the market, improve transparency, and prevent consumer harm. These measures are now codified within the FCA Handbook, which applies to all firms offering high-cost short-term credit (HCSTC)—the official term for payday loans.
Overview of the FCA Handbook
The FCA Handbook is a collection of rules and guidance that covers every aspect of authorised financial services in the UK. For payday lenders, the most relevant sections include:
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CONC (Consumer Credit Sourcebook) – The main rulebook for consumer credit, including payday loans.
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SYSC (Senior Management Arrangements, Systems and Controls) – Governs internal processes and management accountability.
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PRIN (Principles for Businesses) – Sets out the fundamental standards all regulated firms must follow.
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DISP (Dispute Resolution) – Covers complaint handling and communication with the Financial Ombudsman Service.
Each section plays a crucial role in ensuring payday lenders act responsibly, treat customers fairly, and operate within the boundaries of UK financial law.
Key Payday Loan Provider Requirements
1. Affordability and Creditworthiness Assessments (CONC 5.2A)
Lenders must carry out robust affordability checks before approving a payday loan. This means evaluating whether a borrower can repay the loan without undue difficulty while still covering essential living costs such as rent, food, and utilities.
Checks typically include:
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Income verification
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Expenditure analysis
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Reviewing outstanding credit commitments
Failure to perform proper checks can lead to regulatory action, fines, and customer redress.
2. Fair and Transparent Advertising (CONC 3)
The FCA strictly controls how payday loans are advertised. Marketing materials must be clear, fair, and not misleading. Lenders cannot exaggerate benefits, downplay risks, or promote payday loans as suitable for long-term financial management.
For example, phrases such as “instant cash” or “guaranteed approval” are prohibited unless they can be factually substantiated. APRs and repayment examples must also be displayed clearly in all advertising.
3. Interest Rate and Fee Cap (CONC 5A.2)
In 2015, the FCA introduced a price cap on high-cost short-term credit. Payday lenders must not charge more than:
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0.8% per day in interest and fees,
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A £15 maximum default fee, and
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A total cost exceeding 100% of the amount borrowed.
This rule ensures borrowers never pay more than double the amount they initially borrowed, regardless of delays or missed payments.
4. Continuous Payment Authority (CPA) Restrictions (CONC 6.7)
Many payday lenders previously used Continuous Payment Authorities to collect repayments directly from borrowers’ bank accounts—often multiple times without consent.
The FCA Handbook now restricts this practice. Lenders may attempt to collect payment no more than twice, and only for the full or partial agreed amount. This gives borrowers greater control over their accounts and prevents repeated unauthorised withdrawals.
5. Treatment of Customers in Arrears (CONC 7)
When borrowers fall behind on payments, lenders must treat them fairly and sympathetically. Harassment, intimidation, or excessive contact is strictly forbidden.
Lenders must:
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Provide clear information about arrears and outstanding balances.
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Offer repayment plans based on affordability.
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Signpost borrowers to free debt advice organisations such as StepChange or National Debtline.
The emphasis is on helping customers recover financially, not pushing them further into debt.
6. Complaint Handling and Redress (DISP 1)
Under the FCA Handbook, payday lenders must have an effective complaints procedure. Borrowers who feel mistreated can file a complaint, and lenders must respond within eight weeks.
If the issue remains unresolved, customers can escalate their complaint to the Financial Ombudsman Service (FOS), which has the authority to order compensation or refunds.
7. Reporting and Compliance Obligations (SUP 15)
Payday lenders are required to report key data to the FCA regularly, including lending volumes, default rates, and consumer complaints. This helps the FCA monitor the market and identify potential breaches.
Firms must also maintain detailed records of lending decisions, ensuring transparency in how they assess affordability and risk.
