Lenders in the UK are subject to strict rules about how they assess, approve and manage consumer credit. When those rules are broken – whether through inadequate affordability checks, hidden charges, or aggressive sales practices – borrowers can end up trapped in debt they should never have been offered in the first place.

In this guide, our consumer credit specialist Mark Montaldo explains the regulations lenders must comply with, how to spot the signs of unfair lending, common mistakes to avoid, and the steps you can take if you believe you've been treated unfairly.

What rules do lenders in the UK have to follow?

Consumer credit in the UK is regulated by a combination of legislation and FCA rules. Understanding what lenders are required to do helps you recognise when something has gone wrong.

Affordability and creditworthiness

We often think of a credit check as the main requirement for getting a loan or a credit card approved. But the FCA demands that lenders go further than that. As well as reviewing your credit score, they are obliged to carry out an affordability assessment to ensure that the repayments won’t cause you financial hardship. That involves looking at your income, outgoings and existing debts to get a clearer picture of your ability to repay. 

Pre-contract information

There are strict rules in place to ensure that borrowers fully understand the terms of a credit agreement before signing. Lenders have to provide clear and complete information (not complicated small print) on the total amount of credit, the interest rate (expressed as an APR), any fees or charges, the total amount you'll repay, and any conditions such as early repayment penalties. And they must give you time to read and understand it: pressuring you to review the terms in a couple of minutes before signing doesn’t meet the standard.

Commission disclosure

Sometimes, a broker or other third party is involved in arranging a loan or credit agreement. They will often receive an incentive from the lender for doing so, such as a commission or bonus. You’re entitled to know if any such incentive forms part of the loan or credit you’re signing up for. If this isn’t clearly disclosed to you before you sign, it may render the entire credit agreement unfair.

Fair treatment

If you fall behind on payments, the lender is required to treat you with “forbearance” – essentially, they should not seek to punish you excessively. The FCA's rules are specific: lenders should consider reducing or waiving interest, agreeing a realistic repayment plan, or suspending enforcement action while they work with you to find a solution. If a lender immediately escalates to default notices, aggressive collections, or legal threats, then you may have a claim for unfair lending.

5 red flags that indicate unfair lending

Not every bad financial experience involves unfair lending. But there are clear warning signs that suggest a lender may not have followed the rules. If any of the following apply to your situation, it's worth investigating further.

• You were approved quickly with minimal checks on your income, outgoings, or existing debts
• Your credit limit was raised without asking whether you wanted or could afford a higher balance
• Important information on charges, fees, or commissions was missing or unclear when you signed
• You felt pressured into signing by a lender, broker or salesperson
• You were treated harshly when you missed payments with threats, excessive charges, or escalation

What steps should I take if I think I've been treated unfairly?

• Gather your documents: Pull together your credit agreement, statements, and any letters, emails or messages between you and the lender, and, if it’s relevant, download your credit report from a credit reference agency to show defaults or markers applied to your credit file.

• Make a formal complaint: Write to the lender's complaints department, setting out clearly what happened and why you believe the lending was unfair. For example, mention if affordability checks were missed, hidden fees or charges arose that you weren’t aware of, or you were pressured into signing without being fully informed.
  
  
• Don't accept a first rejection: Lenders often reject valid complaints, so receiving a “no” doesn’t mean that you’re wrong about the lending being unfair. Remember, you have other avenues for escalating the matter.
  
  
• Seek legal support: If your complaint to the lender hasn’t got you anywhere, then working with a specialist like Complex Law can help you navigate the process of escalation to the Financial Ombudsman Service, or if necessary, issuing court proceedings.

Common mistakes to avoid when dealing with unfair lending

Most borrowers aren’t familiar with the laws and regulations around unfair lending, so even when they realise something's gone wrong, they may make choices that weaken their legal position without realising it. Here are some of the more common errors we see people make, and what you should do instead.

Mistake: Being put off by a “no”

When you make a formal complaint, the initial response is often a rejection, perhaps with a goodwill gesture thrown in. Many borrowers stop at this point, assuming it’s the best outcome they’re likely to get. But you shouldn’t let a standard rejection letter put you off: many claims are won despite an initial “no” from the lender.

Instead: You can escalate the matter to the Financial Ombudsman Service and potentially issue court proceedings if you’re unhappy with the FOS ruling.

Mistake: Stopping making payments  

Borrowers who feel they’ve been treated unfairly sometimes stop making payments on a loan or credit card. But this can make matters worse. You may end up with defaults, additional charges, and damage to your credit rating – as well as being in a weaker position to make a claim. 

Instead: Keep making payments on any active loans or credit while your complaint is processed by the lender, or while you seek specialist legal advice. 

Mistake: Waiting too long to bring a claim

Unfair lending claims are subject to strict limitation periods, so if you miss the deadline, you may no longer have the right to claim, even if the evidence proves that you were treated unfairly. As soon as you suspect you’ve been affected by unfair lending, you should make a formal complaint or seek legal advice.

Instead: Even if you're unsure whether you have a valid case, it costs nothing to find out: speak to Complex Law, and we'll assess your position.

Mistake: Assuming small amounts aren't worth pursuing

You may assume that because you only took out a small loan or had a modest credit card balance, it’s not worth the effort to pursue a lender for acting unfairly. But it’s not just about the initial loan – if you have a successful claim, you may be eligible for a refund of interest and charges paid over many years. You could also have incorrectly applied credit markers removed, which helps with future applications for loans or mortgages.

Instead: You should carefully review any loans or credit agreements you’ve been party to. If you’ve been treated unfairly, you may be able to recover significant interest or charges even if the original amount was low.

What does UK law say about unfair lending?

The Consumer Credit Act 1974 is the primary legislation governing consumer credit agreements in the UK. Section 140A gives the courts broad powers to intervene where the relationship between a lender and borrower is "unfair" to the borrower. The court can consider everything: the terms of the agreement, how the lender exercised its rights, and anything the lender did (or failed to do) before, during, or after the agreement was made.

The Consumer Rights Act 2015 provides additional protections, allowing borrowers to challenge terms in credit agreements that are unfair – for example, terms that allow the lender to change interest rates or charges without proper notice.