FCA Updates Responsible Lending Rules for Short Term Lenders in 2026

The Financial Conduct Authority has published its consumer finance regulatory priorities for 2025/26, with short term and high-cost credit featuring prominently. The overarching shift is from implementation to active enforcement of Consumer Duty outcomes — and for borrowers, that means lenders are now under greater scrutiny than at any point since the 2015 price cap was introduced.

Consumer Duty: From Implementation to Enforcement

Consumer Duty has been in force since July 2023, and the FCA allowed firms a reasonable period to adapt their processes. In 2026, that grace period is over. The FCA has confirmed it is moving into active supervision mode — meaning it expects to see evidence that firms are delivering good outcomes for customers, not just policies and procedures that claim they will.

For short term lenders, the specific Consumer Duty obligations the FCA is scrutinising include:

• Fair value — the price charged must be proportionate to the benefit the customer receives
• Consumer understanding — the total cost must be communicated clearly before the borrower commits
• Consumer support — borrowers in difficulty must receive timely, appropriate help without unreasonable barriers
• Products and services — loan products must be designed for the needs of the customers they are sold to

The FCA has indicated it will conduct thematic reviews across the consumer credit sector in 2026, and has not ruled out enforcement action where Consumer Duty failures are identified.

Affordability: Tighter Requirements for 2026

The FCA’s expectations around affordability assessment have tightened in two key respects. First, lenders must now satisfy themselves that a loan is sustainable — not merely that a borrower can make one repayment, but that they can do so without creating a new financial shortfall that leads to further borrowing.

Second, the FCA has been critical of lenders whose affordability checks are not sufficiently granular for higher-risk applicants. Blanket income-versus-outgoings assessments are no longer considered adequate. Lenders are expected to investigate income volatility, existing debt obligations, and the likelihood of borrowers needing to roll over or refinance.

CONC 3 — Financial Promotions Overhaul

The FCA is also reviewing CONC Chapter 3, which governs financial promotions for consumer credit. The direction of travel is away from highly prescriptive rules towards an outcomes-focused approach — aligned with Consumer Duty — that asks whether the communication serves borrowers’ interests rather than whether it ticks specific boxes.

In practice, this may reduce the number of mandatory risk warnings and boilerplate text in loan advertising — but increase requirements for clarity around total cost and eligibility. The consultation on CONC 3 changes is expected in 2026 with any rule changes taking effect in 2027 at the earliest.

The HCSTC Price Cap Review: Where It Stands

The FCA’s review of the high-cost short-term credit price cap — introduced in January 2015 and unchanged since — is the most consequential piece of regulatory activity for the short term lending market in 2026. The review is examining whether the 0.8%/day cap, £15 default fee limit, and 100% total cost cap continue to deliver the right balance.

The FCA’s concern is not that the cap is too low — it is that the cap may have contributed to a significant reduction in available credit for higher-risk borrowers, potentially pushing some people towards unregulated lenders or other harmful alternatives. Findings are expected in Q3 2026. No changes are in force as of April 2026.

What to Do Now If You’re Applying for a Short Term Loan

The practical implications for borrowers are straightforward:

1. Only apply to FCA-authorised lenders — check the register at register.fca.org.uk
2. Expect more thorough affordability checks and provide accurate income and expenditure information
3. If declined, do not immediately apply elsewhere — investigate why and address the underlying issue first
4. If you are in difficulty, lenders are required under Consumer Duty to support you — contact them proactively
5. Use our lender reviews to identify which lenders have a track record of fair customer treatment