The FCA high-cost credit review: payday caps, rent-to-own and overdraft pricing

The FCA's high-cost credit review was a wide-ranging look at the most expensive ways people borrow small amounts of money. The products it examined were overdrafts, store cards and catalogue credit, home-collected loans and rent-to-own services¹. It followed earlier work on payday lending, where the FCA introduced a price cap on short-term high-cost credit in 2015². The review led to price caps, rollover limits, new overdraft pricing rules and stronger duties on banks and lenders to help customers who get into difficulty.

The changes matter to anyone who borrows on a high-cost product, not only to people in trouble. Before the review, rent-to-own customers could pay up to 4 times the average retail price of an appliance once add-on insurance and warranties were included³, and overdraft charges were made up of fixed fees and different rates that were hard to compare. The rules that came out of the review still shape how these products work today, and this page explains each change in turn.

What the FCA high-cost credit review covered

The review was not a single investigation but a programme of work across several markets. The products within its scope were overdrafts, store cards and catalogue credit, home-collected loans and rent-to-own services¹. These are all forms of credit used disproportionately by people on low incomes, and the FCA was concerned that the cost of borrowing, and the way charges were structured, could cause real harm.

The starting point was the payday loan market. The FCA introduced a price cap on short-term high-cost credit in 2015, which set limits on what payday lenders could charge². But the cap's reach was deliberately narrow. Rent-to-own, home-collected credit, catalogue credit and unarranged overdraft fees were not covered by the price cap², which meant some of the most expensive forms of borrowing sat outside it. The National Audit Office, reviewing the government's approach to problem debt, noted this gap explicitly².

The FCA then extended its work to the products the cap had missed. In February 2018 it set out its intention to publish, in May 2018, its conclusions and proposals for consultation for rent-to-own products, home-collected credit and catalogue credit⁹. Overdrafts were tackled separately, through changes to how banks could price them, which took effect in April 2020. The common thread across all of them was the same: high charges, often on small balances, paid by the people least able to afford them.

If you want the wider background on how the FCA makes rules like these, see the Financial Conduct Authority and how new rules are made through consultations.

Payday loans: risk warnings, rollovers and refinancing limits

The payday rules that came out of this era of FCA work still govern the market. Payday lenders must be authorised by the Financial Conduct Authority, which publishes a list of licensed lenders on the FCA register⁴. That matters in practice: borrowing from an unauthorised lender means none of the protections on this page apply, and there is no route to the Financial Ombudsman if something goes wrong.

The core protections are:

• A payday loan must not be extended, or rolled over, more than twice⁴.
• The lender must check your creditworthiness before it gives you a loan, rolls a loan over, or increases the amount of credit⁴.
• Advertisements for high-cost short-term credit must carry a risk warning¹⁰.
• Borrowers must be informed about sources of debt advice before a loan is refinanced¹⁰.

The creditworthiness rules have a specific shape. When a firm assesses whether you can afford the borrowing, it must consider two distinct risks: the credit risk, meaning the risk that you will not make repayments by their due dates, and the affordability risk, meaning the risk to you of not being able to make repayments¹¹. The FCA's Handbook sets out these two limbs of the assessment as separate things a firm must weigh¹².

There is also a wider refinancing limit that sits alongside the rollover rule. A firm must not refinance high-cost short-term credit on more than two occasions, other than by exercising forbearance with a struggling customer⁵. Refinancing, in this context, means replacing an existing high-cost short-term credit agreement with a new one, and the limit stops a lender from repeatedly rolling one loan into another.

One boundary is worth knowing. The FCA clarified that the provisions on creditworthiness and affordability do not apply to overrunning, that is, unauthorised overdrafts¹⁰. A bank does not run an affordability check before you go into the red without permission; instead, that situation is governed by the overdraft pricing and repeat use rules covered later on this page. Payday loans remain an expensive way to borrow: the Bank of England notes that certain types of borrowing, including overdrafts, revolving credit on a credit card and payday loans, charge higher interest than other forms of debt¹³.

Rent-to-own: paying up to 4 times the retail price

Rent-to-own lets people buy household goods, typically appliances like washing machines and fridges, by paying weekly or monthly, with the cost of credit added on top. The goods are often rented until the final payment, and the agreements usually bundle in insurance, warranties and other add-ons.

The review found serious problems with what customers ended up paying. Evidence given to the Treasury Committee set out the picture: some rent-to-own customers could pay up to 4 times the average retail price of the product once add-on insurance and warranties were included³. Even without the add-ons, the Commons Library reported that consumers were paying almost three times as much for an appliance compared to buying it outright from a mainstream retailer¹.

The customer base made this worse. Research cited to the Treasury Committee found that only a third of rent-to-own customers are in work³. That means the sector's charges fell most heavily on people with the least capacity to absorb them, many of whom had no access to mainstream credit and turned to rent-to-own because they needed an essential appliance they could not otherwise afford.

The FCA's response was to propose a bespoke price cap for the rent-to-own market, limiting both the cost of the product and the charge for credit³. That proposal became a rule, and the next section explains how it works.

A bespoke price cap for rent-to-own

The cap the FCA introduced for rent-to-own limited the cost of interest charged on a product to 100% of the cost of the good¹. In plain terms, a customer can never be charged more in interest than the item itself costs. Whatever the price of the appliance being bought, the interest on the credit cannot exceed that price.

This is a different design from the payday loan cap. The payday cap applies to a market of short-term cash loans, while the rent-to-own cap is, as the FCA described it, bespoke: built around the structure of a market where the borrowing is tied to a physical product and where add-ons had been driving the total cost up³. By limiting both the cost of the product and the charge for credit, the cap addresses the two ways the sector's charges had grown.

The cap appears to have done what it was intended to do. The FCA's evaluation of the rent-to-own price cap, published in December 2020, showed it had reduced prices¹⁴. For anyone considering rent-to-own today, the cap sets the outer boundary of what can be charged, but the total cost of buying on rent-to-own can still be far higher than buying outright, and the earlier findings on how the costs build up remain the reason to compare the total payable against the cash price before signing.

Overdraft pricing: one simple interest rate for arranged and unarranged borrowing

Before April 2020, overdraft charging was a patchwork. Banks charged a monthly fee and a setting-up fee for arranged overdrafts, and going into an unarranged overdraft could bring a penalty charge and a high rate of interest, plus charges for reminder letters and for direct debits or cheques put through the account¹⁵. The Commons Library's summary of the change is blunt about the effect: overdrafts could be an expensive way to borrow money¹⁵.

The FCA's reform, which took effect on 6 April 2020, replaced all of that with a single structure. Interest on all overdrafts is now charged at a single annual interest rate (APR), making it easier to compare charges between accounts⁶. The rule in the FCA's own Handbook instrument requires that the charge must be a rate of interest expressed as a percentage, applied on an annual basis to the relevant balance of an arranged overdraft or unarranged overdraft¹⁶. Fixed daily and monthly fees, and the separate penalty charges for unarranged borrowing, were swept away.

Two details of the rules matter to how this works in practice:

• Where a customer has an arranged overdraft on a personal current account bearing interest above zero, the charge for unarranged overdraft use must be computed, structured and presented in an identical manner, although the level of the rate of interest that applies to the unarranged overdraft may be lower¹⁷.
• A firm is not prevented from charging a customer who borrows using an unarranged overdraft less than it charges for using an arranged overdraft facility, or from not charging for such borrowing at all¹⁸.

So the same rate structure must be used for both, and banks may charge less, or nothing, for unarranged borrowing, but not more. The aim was to end the position where an unarranged overdraft was charged at a much higher effective cost than an arranged one.

The change was not without controversy. The FCA wrote to the banks to seek clarification about how they determined the new interest rate¹. For customers, the practical effect was that many banks set their arranged and unarranged overdraft rates at the same level, and the old fixed fees disappeared. Whether an overdraft is now cheaper for a particular person depends on their bank's rate and how they use the facility, which is why comparing the single APR between accounts has become the way to judge cost⁶. MoneyHelper's explanation of overdrafts sets out how the single rate works⁶, and the rules themselves sit in the FCA's Consumer Credit sourcebook, which you can read about in the guide to the FCA Handbook.

Repeat overdraft use: what your bank must do

Pricing was only half of the overdraft reform. The other half is about what banks must do when a customer keeps using their overdraft in a way that suggests trouble. The FCA's rules define repeat use as a pattern of overdraft use where the frequency and depth of use may result in high cumulative charges that are harmful to the customer, or indicate that the customer is experiencing or at risk of financial difficulties¹⁹.

The obligations on firms are set out in CONC 5D of the FCA Handbook. A firm must establish, implement and maintain clear and effective policies, procedures and systems to monitor and review periodically the pattern of drawings and repayments under an arranged or unarranged overdraft, and to identify repeat users, subdividing them into those with signs of actual or potential financial difficulties and all other repeat users²⁰. The FCA has also stated, in its guidance on areas of concern, that under CONC 5D.2.1 it requires firms to establish, implement and maintain these systems, and that it assessed the policies and procedures firms had in place for their overdraft repeat use borrowers at the start of 2023.

Once a repeat user shows signs of actual or potential financial difficulties, the firm must promptly communicate with the customer, encourage them to contact the firm, explore the reasons for the pattern of use, identify and set out suitable options to reduce overdraft use and provide support, and warn that failure to engage may lead to suspension or removal of the overdraft facility or a reduction in the credit limit¹⁹. The firm must also explain that if the customer fails to engage or take appropriate action, one possible consequence is that the firm may need to consider the suspension or removal of the overdraft facility or a reduction in the credit limit²⁰.

There are two important limits on what a bank can then do. First, where a firm assesses income and expenditure, it must do so in an objective manner, informed by sufficiently detailed information, and may have regard to the spending guidelines in the Standard Financial Statement or an equivalent tool¹⁹. Second, and most importantly for customers, the rules on suspension, removal and credit limit reduction do not apply if those steps would cause financial hardship to the customer²⁰. A customer is likely to experience financial hardship if they are unable to pay priority debts or essential living expenses²⁰. So a bank cannot pull an overdraft away from someone who would be left unable to pay their rent or food bills as a result. If your bank is threatening to remove your overdraft, the narrow guide to overdraft removal covers the position in detail.

Catalogue credit and store cards: new protections

Catalogue credit and store cards were among the products the review covered, alongside overdrafts and home-collected loans¹. Catalogue credit lets people buy goods from a catalogue or online shop and pay in weekly or monthly instalments, often with interest-free periods that convert to interest-bearing balances if not cleared. Store cards work like credit cards but can only be used at one retailer or group.

The review's work on these products fed into the May 2018 conclusions and proposals for rent-to-own, home-collected credit and catalogue credit⁹. The protections that matter most to someone carrying a balance are the persistent debt rules, which apply across revolving credit. The FCA's guidance for consumers defines persistent debt plainly: if you have paid more in interest, fees and charges than you have repaid on your credit card balance over an 18-month period, you are in persistent debt⁷.

When a customer is in persistent debt, the firm must take action: it has to contact the customer and set out options for repaying the balance faster, because the customer is paying the cost of the credit without reducing what they owe. A firm must assess whether the persistent debt condition is met at least once a month⁵, so this is not a one-off check but a continuing duty to spot customers who are treading water.

For catalogue credit and store cards specifically, the review brought these products within the same framework of protections as other high-cost credit: creditworthiness checks before credit is increased, and duties to help customers in difficulty. If a lender raises a credit limit without asking, the narrow guide to unrequested limit increases covers the rules on when that can happen.

Buy now pay later offers and backdated interest

Buy now pay later offers share a family resemblance with catalogue credit: buy goods now, pay later, often with an interest-free period. The review addressed one of the sharpest problems in this market. The FCA banned interest charges on credit that customers had already paid off during interest-free loan periods¹.

What this stopped was backdated interest. Under the old practice, a customer who cleared part of a balance during the interest-free window could still be charged interest as if that repayment had not been made, or interest could be applied to amounts already repaid once the promotional period ended. The ban means interest can only be charged on credit that is genuinely still outstanding when the interest-free period finishes.

The regulatory position has since moved on considerably. The FCA started regulating Deferred Payment Credit, often known as Buy Now Pay Later, on 15 July 2026⁸. That brought buy now pay later firms within the FCA's full regulatory perimeter, with the consumer protections that follow, including access to the Financial Ombudsman. The full rules are explained in the guide to Deferred Payment Credit, and what happens if a payment is missed is covered in buy now pay later missed payments.

If you are struggling: financial difficulty and persistent debt

The rules described on this page are designed to catch people before debt becomes unmanageable, but they work best when the customer engages with the lender. The overdraft repeat use rules require banks to reach out to repeat users¹⁹, and the persistent debt rules require firms to offer options to customers who are paying more in charges than they are repaying⁷. Neither can force a customer to respond, and the bank's warning that failure to engage may lead to suspension or removal of the overdraft is part of the rules²⁰.

Free, independent help is available. The FSCS's cost of living debt support page points to free debt advice from Stepchange, Which? and Citizens Advice²¹. Debt advice is free, and the firms that provide it are regulated, as explained in the guide to debt advice firms. The wider options for dealing with problem debt are set out in the debt section of this site.

If you feel you were lent money you could not afford, there is a formal route to challenge it. The Financial Ombudsman can look at complaints about unaffordable lending, and its guidance explains what it can consider²². A lender should have checked your creditworthiness before lending, rolling over or increasing credit⁴, and if it did not, a complaint to the firm, and then to the ombudsman, is the route to redress. How to choose between the ombudsman and the courts is covered in Financial Ombudsman or court.

Where the rules do not apply

The protections on this page have boundaries, and it is worth knowing where they stop.

The FCA's Consumer Credit sourcebook, CONC, does not apply to most of the loans credit unions provide²². Credit unions are also limited by law in how much interest they can charge¹, and their loans and savings are protected by the Financial Services Compensation Scheme²³. So credit union borrowing sits largely outside the high-cost credit framework not because it is unprotected, but because it is treated differently. The guide to credit union supervision covers this in full.

Other boundaries come from the way the FCA's rules interact. To the extent that the Consumer Duty applies, Principles 6 and 7 of the FCA's Principles for Businesses do not apply²⁴, which means the older general principles have been superseded for firms within the Duty's scope. The FCA's creditworthiness rules do not apply to consumer hire²⁵, which covers arrangements where goods are rented rather than bought, such as some rent-to-own style agreements where ownership never passes.

Finally, the ombudsman applies the rules that were in force at the time of the events complained about, not today's rules, so there can be no retrospective application of contemporary FCA rules to older lending. If you are complaining about a loan from before these changes took effect, the ombudsman will judge the lender against the rules of that period. For the wider picture of what the FCA does and does not cover, see regulated and unregulated products.