Consumer credit: UK FCA proposes simplifications to financial promotions rules

Consultation on simplification of CONC 3

Chapter 3 of CP26/15 sets out proposals to remove several rules and some guidance in CONC 3 where there is overlap with the Consumer Duty or where the FCA believes there is unnecessary prescription.

The draft Handbook text for the proposals is in Appendix 1 in the form of a draft Consumer Credit (Financial Promotions and Communications with Customers) Instrument 2026.

Key points on the proposals include:

Scope

All sections of CONC 3 are in scope of the consultation apart from:

• CONC 3.4 – Risk warnings for high-cost short-term credit;
• CONC 3.7 – Financial Promotions and Communications: credit brokers;
• CONC 3.7A – Financial promotions and communications: P2P agreements;
• CONC 3.9 – Financial promotions and communications: debt counsellors and debt adjusters (except for the proposal to relocate some parts of CONC 3.3.10G – see below); and
• those in relation to APR and other price disclosures, which are the subject of the discussion paper in Chapter 4 (see ‘Discussion on cost disclosure’ below).

The excluded provisions include requirements which the FCA considers it would be more appropriate to look at as part of other ongoing or future policy work, for example in relation to the high-cost short-term credit price cap review (the findings from which the FCA currently plans to publish in Q3 this year).

CONC 3.2 and 3.3 general guidance on the FCA’s financial promotions’ requirements

The FCA has decided to:

• Remove some provisions where it considers the consumer understanding outcome rules and guidance provide sufficient detail for firms to meet its expectations. This includes the meaning of ‘prominent’ in CONC 3.2.3G. A table at paragraph 3.24 sets out the other provisions that the FCA intends to remove, along with analysis of how they currently overlap with the Duty; and
• Keep some provisions where it thinks it is important to preserve a consumer’s ability to bring a private action for breaches – something that is not available for Duty breaches. This includes the clear, fair and not misleading requirement in CONC 3.3.1R which, although reflected in the Duty, is a ‘key consumer protection’ and should be retained so that the private right of action remains (subject to its existing restriction in CONC Schedule 5).

CONC 3.3.10G guidance on practices likely to contravene the clear, fair and not misleading rule

The FCA proposes to:

• Remove CONC 3.3.10G(1) to (5) because the consumer understanding outcome under the Duty captures the issues addressed;
• Move CONC 3.3.10G (6) to (8) containing examples relating to communications about debt solutions to CONC 3.9, which covers financial promotions and communications by debt counsellors and debt adjusters. The FCA considers that this guidance remains necessary to reduce the harms from products or services explicitly targeted at consumers in financial difficulties; and
• Keep the guidance in CONC 3.3.10(9)G relating to refinancing of credit agreements where debt consolidation occurs.

CONC 3.3.11AG on “buy now pay later” or similar offers

The FCA is proposing to amend CONC 3.3.11AG to reflect both introduction of the Duty and changes introduced by the Digital Markets, Competition and Consumers Act (DMCCA), which included repealing the Consumer Protection from Unfair Trading Regulations and restating and updating the unfair commercial practices rules.

CONC 3.5.11R on requirements where advertising a product which may require a security

To avoid firms being required to include unnecessary information, the FCA proposes to amend CONC 3.5.11R so that only products that require a security or guarantor as an inherent and integral part of the product design (eg logbook lending or guarantor personal loans) must include reference to this in the relevant promotion. Where the security element is dependent on consumer circumstances, it will no longer be a requirement. However, firms should still consider whether there might be instances where additional information might be provided, where helpful. It proposes to make a small change to its rules to reflect this.

CONC 3.5.12R restricted expressions

The FCA is proposing to remove CONC 3.5.12R, which sets out a number of ‘restricted expressions’ that firms must not use in financial promotions unless specific conditions are met. Its view is that these restrictions are unnecessarily prescriptive and no longer required in an outcomes-focused regime.

CONC 3.6 on financial promotions about credit agreements on land

The FCA proposes to remove CONC 3.6 as it is prescriptive, including elements from the Consumer Credit (Advertisements) Regulations 2004 which have now been repealed. While some of the provisions of CONC 3.6 are not replicated by the Duty, namely the consumer warnings, this type of lending is extremely rare because loans secured on land will generally fall under the regulated mortgages regime. The FCA therefore takes the view that it would be sufficient to rely on the high-level principles (including CONC 3.3.1R and the Duty outcomes) but is interested in stakeholder views on the extent of this type of lending and the impact of its proposal.

Removal of other outdated requirements

There is another table at paragraph 3.26 setting out two outdated CONC 3 guidance provisions which the FCA also proposes to remove, namely:

• a provision which unnecessarily signposts the application of the Privacy and Electronic Communications Regulations; and
• a provision relating to the use of premium rate phone numbers for customer service calls which is generally prohibited under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

Discussion on cost disclosure

Since the rules on cost disclosure were recast into FCA rules in 2014, there have been a number of changes in the consumer credit market. This includes a significant increase in the variety of credit products available, and innovation in types of advertising channel and the way consumers access credit. There have also been specific calls from stakeholders to review the rules, which are in many respects viewed as overly complex.

The FCA itself gives the example of how, as a result of CONC 3.5.3R (2)(a), voluntary inclusion of a Representative APR by firms to give consumers a sense of the price of the product will then trigger the requirement to include a Representative example.

In Chapter 4 of the paper, the FCA discusses 3 key areas in the financial promotion rules for cost disclosure on which it is seeking views. These are supported by two research papers:

• A behavioural experiment conducted by the FCA’s behavioural economics team with consumers, which examines how different types of cost-of-credit information affect consumers’ ability to both understand and compare the cost of credit products.
• PwC’s consumer research commissioned by the FCA examines how credit consumers engage with information communicated to them across the consumer journey and consumer credit products. The research explores consumers’ understanding of APRs and how consumers use APRs to compare and choose different credit products.

The FCA encourages stakeholders to engage with both papers as part of their consideration of the discussion points.

Representative APR disclosure

The FCA is looking at the extent to which disclosure of the Representative APR (and its triggers under CONC 3.5) supports consumer understanding of the cost of the credit and what alternatives might be considered. Research indicates that consumers do not fully understand APRs as a measure of cost. Other difficulties include:

• the risk that the APR can be misleading and hard to understand for small, short-term loans – a point affecting financial inclusion where potential borrowers are given the impression of a very high-cost loan; and
• distortion of APRs on some credit card products due to high annual fees for a range of services such as rewards, or additional features and benefits such as access to airport lounges and travel insurance.

However, some of the suggested alternatives create complexities and raise other issues, in particular in relation to comparability.

Areas that the FCA is looking for input on include:

• Whether the 3 triggers for disclosure of a Representative APR in CONC 3.5.7R are appropriate, or in need of amendment or removal;
• If the triggers are removed, whether the Duty’s principles-based good consumer outcomes-led approach to disclosing the APR (or alternative cost information) would suffice;
• Whether using alternative cost disclosures to APRs would increase competition and supply of higher cost credit;
• The following alternatives to APRs:
  • Pounds and pence disclosures for loans with terms of less than 12 months (as set out in this ClearScore and EY report);
  • The Plain Numbers approach, which would replace the Representative APR and the Representative example with alternative cost metrics such as monthly repayments, total interest and total amount repayable (as set out in this Plain Numbers and ClearScore research).
• Whether there are other suggestions for alternatives to APRs;
• If firms are permitted to use alternative cost disclosures to APRs, how this might impact on consumers’ ability to compare products and shop around;
• How firms might adjust their practices under a less prescriptive regime – the FCA is especially focused on whether flexibility could lead to divergence between mainstream lenders and high-cost providers, and whether additional guardrails may be needed to support transparency and effective competition.

Evidence from the FCA’s behavioural experiment suggests that APRs are a useful comparator metric, and that a flexible disclosure regime that allows some firms to remove APR and replace it with a different metric could cause consumer harm. However, supplementing APR with a total repayment metric may benefit consumer understanding - particularly where term durations differ and APRs can be misleading.

Requirement for Representative example

The paper explores whether the mandatory inclusion of a Representative example, when triggered, supports consumer understanding. Stakeholder feedback has highlighted a number of concerns with the current requirements, including that they distract from clearer, more meaningful explanations of cost or risk and add cognitive load in restricted formats (eg small screens, social media, banner advertising, TV, radio and audio formats, short videos). Among others, the Department for Digital, Culture, Media & Sport previously recommended that the FCA considers simplifying its requirements.

The FCA is asking for views on whether Representative examples should continue to be required in financial promotions based on the current triggers, or should be removed. It points out that, if the current requirement was removed, it would still expect firms to consider what information to provide at the appropriate time in the customer journey to meet their obligations under the Duty (including, for example, more personalised illustrations). This is to ensure that customers are equipped with what they need to make effective and properly informed decisions in line with PRIN 2A.5.3(2).

Threshold for Representative APR

The FCA is considering whether the current 51% threshold for determining a Representative APR - ie the requirement that a firm needs to reasonably expect that at least 51% of customers will get the APR provided in its financial promotion or better as a result of that promotion - remains appropriate. This threshold has been criticised as unhelpful where lenders have a ‘rate for risk’ model, according to which the interest rate is based on the customer’s risk profile rather than a flat rate for all customers. The criticism stems from the fact that, where this model is used, up to 49% of consumers may not receive the advertised rate once their application has been approved.

The paper sets out a number of potential policy options on the threshold as follows:

1. A firm could set out its range of APRs. Firms could indicate the proportion of customers likely to get each APR or set out the range of APRs a ‘typical’ customer could receive, based on ‘reasonable expectations’.
2. Firms could (alongside 1 above) briefly explain the basis that customers might be assigned a rate (e.g. ‘good credit’, ‘poor credit’ rating etc).
3. Firms could, as well as the Representative APR (at the 51% threshold or some other threshold), disclose the maximum rate that could be offered. There is some suggestion that this could be the FCA’s preferred option, as it says it ‘might be the simplest and least burdensome for firms while giving consumers additional information’.
4. The 51% threshold could be increased to 66% (the pre-CCD 2008 level) or some other percentage.

The FCA also suggests it could provide guidance under the Duty laying out its expectation for firms to:

• better explain what the Representative APR means and that consumers might be offered a higher (or even lower) APR, so consumers do not have a false expectation; and
• explain to the consumer before they apply at what point in the journey they will be told of the actual APR they will be given, and any adverse impact this might have if they then decide not to proceed (eg the impact on their credit file).

The FCA also proposes/asks for feedback on the following in relation to Representative APRs:

• Omission of the term ‘representative’ where the firm only offers a single APR in respect of the financial promotion;
• Following feedback that the term ‘representative’ (where the rates offered vary) alongside the APR is unhelpful and too technical, whether other terms such as ‘typical’ or ‘illustrative’ might be more appropriate.

Interaction with CCA 1974 reform

The FCA acknowledges the ongoing work by the government to review the retained provisions of the Consumer Credit Act (CCA) 1974.

This includes the government's proposed approach to information requirements (as to which, see this Our Thinking article). The FCA makes it clear that it will consider the impact of any changes it makes to the financial promotion rules when developing its policy approach to the wider credit regime.

What's next?

The consultation proposals and discussion paper questions are open for comments until 17 June 2026.

The FCA will consider feedback to the CP proposals and aims to publish the outcome later in the year. The new rules would take effect 3 months after they have been made.

The FCA will also consider feedback to the DP and then decide on its next steps. It will consult on any proposed changes in the normal way.

Some food for thought for firms

Where it is proposing the removal of existing provisions, the FCA is at pains to emphasise that this doesn't mean the conduct they address is now acceptable or is no longer important. In fact, it states that in many cases the Duty sets a higher standard in relation to that conduct.

When engaging with the FCA on the proposed changes and discussion points in CP26/15, firms will need to bear in mind the cost-benefit of having less prescriptive rules. While this may provide more flexibility – making it easier for firms to make the most of new and evolving advertising channels – it will also require a careful exercise of judgement, strong governance frameworks and an eye to potential supervisory/enforcement risk further down the line.

If you would like to discuss the potential impact for your business of any aspect of the FCA's consultation proposals or discussion paper, please feel free to get in touch with one of the listed people or your usual Hogan Lovells contact.

Authored by Virginia Montgomery.