Consumer Credit — FCA Authorisation Guide for UK Lenders and Brokers

What Is Consumer Credit Regulation?

Consumer credit regulation in the UK encompasses a broad range of financial activities involving the provision of credit to individuals (and some small businesses). Since 1 April 2014, regulatory responsibility for consumer credit transferred from the Office of Fair Trading (OFT) to the Financial Conduct Authority (FCA), bringing it within the scope of the Financial Services and Markets Act 2000 (FSMA).

Any firm conducting regulated consumer credit activities in the UK must hold the appropriate Part 4A permission from the FCA. Operating without authorisation is a criminal offence and renders credit agreements unenforceable.

Which Activities Are Regulated?

The range of regulated consumer credit activities is broad. The following require FCA authorisation:

• Consumer lending — entering into regulated credit agreements as lender (including personal loans, credit cards, buy now pay later, point of sale finance and overdrafts)
• Credit broking — introducing or arranging credit agreements between lenders and borrowers (common in motor finance, retail finance and mortgage intermediation)
• Hire purchase and conditional sale — providing goods on credit through hire purchase or conditional sale agreements
• Debt adjusting — negotiating with creditors on behalf of debtors regarding the terms of debt repayment
• Debt counselling — advising debtors on the liquidation of their debts
• Debt collecting — collecting payments due under consumer credit or consumer hire agreements
• Debt administration — performing duties under consumer credit agreements on behalf of the lender
• Credit information services — providing advice or assistance to individuals regarding information held about them by credit reference agencies
• Credit reference services — operating a credit reference agency

The Authorisation Process

Step 1 — Determine your permissions. The first step is identifying exactly which regulated activities your business will conduct. The FCA's permissions regime is granular — you must apply for each specific activity. Common errors include failing to apply for ancillary activities (e.g., a lender that also brokers other lenders' products needs both lending and broking permissions).

Step 2 — Prepare your regulatory business plan. The FCA requires a detailed business plan covering your target market, product range, distribution channels, pricing model, expected volumes and growth projections. This must demonstrate a viable and sustainable business model that does not depend on practices likely to cause customer harm.

Step 3 — Design your compliance framework. Before applying, you must establish compliance monitoring arrangements, complaints handling procedures, a financial promotions approval process and record-keeping systems. For consumer credit firms, the FCA places particular emphasis on affordability assessment processes and responsible lending practices.

Step 4 — Demonstrate financial resources. Consumer credit firms must hold adequate financial resources at all times. The minimum capital requirements vary by activity type — lenders typically face higher requirements than brokers. You must provide financial projections demonstrating solvency and adequate liquidity for at least the first three years of operation.

Step 5 — Fit-and-proper assessments. All senior managers and certified persons must satisfy the FCA's fit-and-proper requirements. This includes competence, honesty, integrity and financial soundness. The FCA will assess individuals' qualifications, experience, regulatory track record and any adverse disclosures.

Step 6 — Submit the application. Applications are submitted through the FCA's Connect system. The FCA aims to determine complete applications within six months, but complex applications may take longer. The FCA fee for a consumer credit application varies based on the activities and expected revenue.

Key Regulatory Requirements

Affordability assessments: Under CONC 5.2A, lenders must conduct a reasonable assessment of a borrower's creditworthiness before entering into a regulated credit agreement. This assessment must consider the borrower's ability to make repayments sustainably — without undue difficulty and without having to borrow further. The FCA has brought multiple enforcement actions against lenders with inadequate affordability processes.

Financial promotions: All financial promotions for consumer credit must be fair, clear and not misleading (CONC 3). Specific rules apply to representative APR calculations, risk warnings and the prominence of key information. Promotions must not emphasise benefits without also clearly presenting costs and risks.

Pre-contractual information: The Consumer Credit Act 1974 and associated regulations require lenders to provide standardised pre-contractual information (the Standard European Consumer Credit Information or SECCI form) before the borrower enters into a credit agreement. This must include the total amount of credit, the duration, the borrowing rate, the APR, the total amount payable and any fees or charges.

Right of withdrawal: Borrowers have a 14-day right of withdrawal from most regulated credit agreements. Firms must inform borrowers of this right and process withdrawals promptly when exercised.

Complaints handling: All FCA-authorised firms must have internal complaints handling procedures that comply with the Dispute Resolution sourcebook (DISP). Firms must respond to complaints within eight weeks and inform complainants of their right to refer the matter to the Financial Ombudsman Service (FOS).

Consumer Duty Obligations

Since July 2023, the Consumer Duty (Principle 12) applies to all consumer credit firms. This requires firms to deliver good outcomes for retail customers across four areas:

• Products and services — products must be designed to meet the needs of a target market and distributed appropriately
• Price and value — the total cost of credit must represent fair value, taking into account the benefits provided, the costs to the firm and the characteristics of the target market
• Consumer understanding — communications must support customers in making informed decisions. Jargon, complex terms and small print that obscures material information are unacceptable
• Consumer support — firms must provide support that meets customers' needs, including when they experience financial difficulty. Barriers to switching, cancelling or complaining must be removed

Ongoing Supervision

Authorised consumer credit firms are subject to ongoing FCA supervision including:

• Annual regulatory returns (REP-CREDS for credit firms)
• Periodic supervisory reviews — particularly for firms in the fixed portfolio (higher-risk firms receiving dedicated FCA supervision)
• Thematic reviews — the FCA regularly conducts sector-wide reviews of specific consumer credit issues (recent themes include motor finance commissions, BNPL practices and high-cost credit pricing)
• Section 166 skilled person reports where the FCA has specific concerns

Common Compliance Pitfalls

Based on FCA enforcement activity and supervisory communications, common pitfalls include:

• Inadequate affordability assessments — relying solely on credit scores without assessing income and expenditure
• Misleading financial promotions — especially in digital marketing where character limits may lead to incomplete disclosure
• Poor arrears management — failing to treat customers in financial difficulty with forbearance and understanding
• Weak governance — absence of board-level oversight of conduct risk and customer outcomes
• Incomplete record-keeping — inability to demonstrate compliance with CCA 1974 requirements, potentially rendering agreements unenforceable

Practical Recommendations

Map your permissions accurately. Review every activity in your business model against the FCA's permissions matrix. Missing a required permission — even an ancillary one — can result in unenforceable agreements and regulatory action.

Build affordability into your product design. The most effective way to manage affordability risk is to design products with built-in safeguards — such as maximum loan-to-income ratios, cooling-off periods and automatic affordability checks at renewal or top-up.

Invest in complaints handling. The FOS publishes complaints data by firm. High complaint volumes or upheld rates are a reputational and supervisory risk. Invest in root-cause analysis to identify and resolve systemic issues rather than treating complaints as isolated events.

Prepare for the FCA's ongoing Consumer Duty focus. The FCA has signalled that consumer credit is a priority sector for Consumer Duty supervision. Expect detailed questions about fair value assessments, vulnerable customer identification and outcome monitoring.