When someone needs a small loan to fix a car, cover an unexpected bill, or keep up with essentials, the information they’re given matters. It shapes not just what they choose, but whether they feel confident choosing at all. That’s why Responsible Finance has responded to the FCA’s latest consultation on consumer credit promotions. At its heart is a simple question: are we helping people understand the real cost of borrowing or making it harder?
For the 16–17 million people in the UK underserved by mainstream credit, facing around £2 billion of unmet but potentially commercially viable credit need, this is a daily reality. One that limits opportunities for financial growth and shapes people’s ability to manage costs, build financial resilience, and move towards a more stable, secure life.
When “standard” doesn’t work for everyone
Much of the current framework is built around standardised ways of presenting credit information. But for many people, these formats don’t always work.
Over 5 million people are “credit invisible”, meaning they have little or no credit history and are automatically excluded by many lenders. For Community Development Finance Institutions (CDFIs) – which lend fairly to hundreds of thousands of people underserved or excluded by mainstream credit – flexibility is essential.
Overly rigid rules can unintentionally exclude people with fluctuating incomes, thin credit files, or who’ve experienced a financial shock in the past but long since recovered, making information harder to engage with. That’s why we’re calling for a balanced approach: keep strong protections through the Consumer Duty, but pair them with clear guidance and flexibility so firms can meet customers where they are.
The problem with APR
If there’s one issue that came through strongly from our members when engaging with them on this issue, it’s this: Annual Percentage Rate (APR) isn’t working. It’s meant to help people compare credit products. But in practice, it often does the opposite. Research from Plain Numbers and ClearScore found that including APR and representative examples can actually reduce understanding of loan costs. Removing them nearly tripled comprehension.
There’s also a more fundamental problem. APR doesn’t reflect how people think about borrowing. Most people ask two simple questions:
- How much will this cost me overall?
- Can I afford the repayments each month?
APR answers neither clearly, particularly for short-term loans, where it can make cheaper options look more expensive. For example, a £1,000 loan repaid over 18 months at 89% APR would cost around £102 per month, with total repayments of about £1,844. The same amount borrowed over six months at 95% APR would cost around £216 per month, but total repayments of only about £1,295. So a short-term loan may appear to have a high APR even where the actual monetary cost is modest and cheaper than alternatives.
For CDFIs, this creates a real challenge. Their loans can appear costly on paper, even when they are significantly more affordable than high-cost alternatives. In 2025 alone, CDFIs helped borrowers save a total of up to £52 million compared to high-cost lenders.
What better information looks like
If APR isn’t enough, what should replace it? From our members’ experience, the answer is simple: clearer, more relevant information, shown earlier in the process. Too often, key cost information is unclear and only appears once someone is already deep into an application. When they’ve already invested time and energy into it, it’s harder to walk away.
Relevant, understandable, upfront information means:
- Total cost of credit (how much the borrower will repay in pounds)
- Repayments (what they’ll pay each week or month)
- Fees and charges (clearly explained, not hidden)
These are the figures people actually use to decide if they can afford a loan.
Communicating this information would mean that – sticking to our earlier example – someone comparing options to afford a car so they can keep working would be able to see upfront that a CDFI loan has manageable monthly repayments and a lower overall cost than high-cost alternatives, helping them choose a more affordable option and avoid taking on a less suitable product and repaying much more.
For shorter-term products, there is also potential in alternatives like a Monthly Percentage Rate (MPR), which better reflects real borrowing costs over the time people are focused on.
The role of comparison sites
For many borrowers, the journey doesn’t start with a lender – it starts with a search engine or comparison site. But these platforms don’t always present information clearly or consistently. Consumers risk making decisions based on partial or misleading information.
If we want to improve outcomes, transparency needs to apply across the whole journey – not just at the point of lending.
Why this matters for customers and investors
For customers, better credit information means better choices. It means understanding the real cost of borrowing, avoiding unnecessarily expensive products, and feeling more confident in financial decisions.
For investors, funders, and the broader community of stakeholders and partners, it’s about something bigger: increasing access to affordable credit as part of a fairer, more inclusive credit system.
APR can create a reputational risk for investors and stakeholders, often obscuring the affordability and wraparound support offered by CDFIs. Showing the full picture of credit costs – through clearer, understandable disclosures – helps to rebalance that narrative, level the playing field, and reduce the risk to all involved.
Allowing responsible lenders to demonstrate their value to customers more clearly would give stakeholders greater confidence in what they’re supporting. This could unlock crucial investment and long-term partnerships for the sector so it can, in turn, support more customers in need.
Clarity over complexity
The FCA’s review is an opportunity to reset how we communicate credit. The goal shouldn’t just be consistency – it should be clarity. For this to be achieved, consumer understanding must be the priority. That means ensuring rules reflect how people actually think and behave, and recognising that good outcomes depend on whether information is truly understood.
We strongly believe people should see clear, meaningful cost information upfront. If we get this right, we don’t just improve disclosures – we open up access to fair finance for millions of people, which is a goal worth getting right.
If you are interested in hearing more, please contact Sophie Bennett, Policy & Research Manager.