I see this as a conversation that comes up a lot for OSPs, coaches, and online experts, especially those who follow business models or pricing strategies from the US. Over there, it’s super common to see offers priced at, say, “£2,000 pay in full or 3x £750,” with the payment plan costing more overall.
And while that’s totally normal in the US, over here in the UK? That setup can have legal implications if it’s not done right.
Let’s break it down.
Payment Plans as Credit Agreements (Consumer Credit Act 1974)
Charging more for a payment plan usually amounts to providing credit, which brings the arrangement under the Consumer Credit Act 1974 (CCA) and FCA rules. In the UK, any business offering credit to consumers (including deferred payment or instalment plans with extra charges) generally must be authorised by the FCA and follow consumer credit regulations.
There is a narrow exemption for short-term, interest-free instalment arrangements, but if a business charges any extra amount for the instalment option, that typically makes it a regulated credit agreement:
- FCA Authorisation: Businesses need FCA authorisation to offer consumer credit (including instalment payment plans), unless an exemption applies. Offering credit without authorisation can be a criminal offence.
- 12‑Month Interest-Free Exemption: The law exempts certain short-term, interest-free instalment agreements from regulation. To remain exempt, the credit must be repaid in 12 or fewer instalments within 12 months, and must not include any charges or interest. In other words, if a business lets a consumer pay over (for example) 6 or 10 months and does not add any fee or interest (aside from perhaps genuine default charges), that plan can be unregulated. The moment interest or an admin fee is added, or the schedule exceeds 12 months, the plan no longer qualifies for this exemption. The FCA explicitly notes that an instalment agreement cannot have an admin fee or other charge if it is to remain outside regulated credit.
- Regulated Credit Agreements: If the payment plan includes interest or surcharges (or runs longer than 12 months), it becomes a regulated credit agreement under the CCA. The business must then provide a compliant credit agreement to the consumer and meet specific requirements (e.g. pre-contract disclosures, documentation, and credit checks). The Consumer Credit (Total Charge for Credit) Regulations require that any cost of credit (interest or fees) be clearly disclosed as part of the Total Charge for Credit and expressed via an Annual Percentage Rate (APR). For example, if a retailer offers a product for £1000 upfront or on a “12-month payment plan” totalling £1,100, that £100 extra is a charge for credit which should be reflected in an APR and credit agreement.
- Justification of Charges: The CCA does not fix interest rates or credit charges, but credit charges must be communicated clearly and not be grossly unfair. The CCA (as amended) includes an “unfair relationships” test (s.140A) allowing courts to intervene if the credit terms (including excessive interest or fees) create an unfair relationship to the consumer. In practice, this means businesses should ensure any instalment surcharges reflect reasonable costs or interest for the credit period. Extremely high surcharges could be challenged as unfair or even as an extortionate credit bargain under older provisions of the Act.
In summary, businesses can charge more for payment by instalments only if they comply with consumer credit laws. If they are not FCA-authorised, they must stick to interest-free, fee-free plans under 12 months to stay legal. Authorised lenders can charge interest or fees, but they then have an obligation to issue proper credit agreements and abide by all CCA and FCA rules on responsible lending and disclosure.
Fairness and Transparency of Terms (Consumer Rights Act 2015)
The Consumer Rights Act 2015 (CRA) requires that contract terms (including pricing terms) are fair and transparent when dealing with consumers. If a business includes an extra charge for using a payment plan, that term must be communicated clearly and prominently to the consumer upfront. Under the CRA:
- Transparency – All terms must be expressed in plain and intelligible language and not hidden in the “small print.” In particular, any term relating to the price or payment schedule should be transparent and prominent enough that the average consumer would notice and understand it. The CRA even states that a price term is exempt from being assessed for unfairness only if it is transparent and prominent. This means if the surcharge for paying in instalments is buried or unclear, the business cannot later argue it was a “core term” – it could be challenged as unfair.
- Fairness – Even if transparent, terms can’t create a “significant imbalance” to the detriment of the consumer (contrary to good faith). If a payment plan surcharge is excessive or not reasonably justified, it might be deemed unfair under CRA 2015 (Section 62). For instance, a small administrative cost for instalments may be justifiable, but a very large surcharge unrelated to actual costs or interest rates might fail the fairness test. Schedule 2 of the CRA (the “grey list” of potentially unfair terms) includes terms that require a consumer to pay disproportionately high compensation or charges. While this typically covers breach-of-contract penalties, a disproportionate fee for choosing instalments could similarly be seen as unfair if it’s out of line with the cost of providing the plan.
- Prominence of Price Differences – If a business offers two prices – e.g. £500 if paid upfront vs £550 if paid via instalments – both options should be made clear. The instalment contract should clearly state the total payable and any interest or fees. A common best practice is to present something like: “Pay £X per month for 6 months (total payable £Y, includes £Z interest).” This ensures the consumer understands the cost of credit. A failure to mention that paying monthly costs more until after the consumer has committed could be considered a sneaky or unfair practice under the CRA and other laws.
In essence, the CRA 2015 obliges businesses to make any payment-plan surcharges obvious and fair. If the extra charge for instalments is not adequately disclosed, or if it’s arbitrarily high, the term could be unenforceable as an unfair term. The Competition and Markets Authority (CMA) – which enforces unfair contract terms – has emphasised that price terms only escape fairness scrutiny if they are transparent and prominent in the contract. Hidden or misleading instalment fees are likely to breach the CRA.
Unfair Trading and Pricing Practices (CPRs 2008)
The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) make it unlawful for businesses to mislead consumers or omit key information in a way that causes the consumer to take a different decision. Charging more for a payment plan is not illegal in itself, but how the charge is presented must not be unfair or deceptive. The CPRs impose specific transparency requirements for pricing:
- No Misleading Omissions – If an instalment option incurs an extra cost, traders must not hide or omit that information when advertising or discussing the price. It would be a misleading omission (Regulation 6 CPRs) to advertise a product as “£500” without any hint that, for example, paying monthly would actually cost £550 in total. The law requires that if a price is given as part of an “invitation to purchase”, all applicable charges should be disclosed or at least flagged to the consumer. Under the CPRs, material information (such as the existence of an additional fee for certain payment methods or schedules) cannot be concealed. Businesses must use no less than professional diligence in communicating prices.
- No Misleading Actions – It’s also prohibited to present information in a way that deceives. For instance, calling a charge an “administrative fee” to disguise what is essentially interest on a payment plan could be viewed as a misleading action if it deceives the consumer about the true nature of the cost. Traders should be forthright that an instalment plan involves a higher overall price (or interest rate), rather than implying the price is the same and sneaking in the charge later.
- Upfront Disclosure of Surcharges – Both the CMA and Trading Standards have stressed that price surcharges must be disclosed up front. Guidance for businesses states that information about any payment surcharge “should be made available to the consumer up front, alongside the main price”, and not sprung at the checkout stage. If a charge is unusual or likely to surprise (for example, most sellers might not charge extra for instalments, but this one does), special attention should be drawn to it early. This principle was enforced in the OFT’s action against airlines (2011–2012): the OFT found that many airlines advertised low headline fares then added card payment fees at the final stage, which “concealed the true price” and made it hard for consumers to compare options. This was deemed a misleading commercial practice under the CPRs. The enforcement resulted in airlines agreeing to include mandatory debit card fees in their upfront prices and to be transparent about any credit card fees. The same logic applies to payment plan fees – they must not be a “drip fee” that only becomes apparent after the consumer has mentally committed or comparison-shopped on the base price.
Transparency is legally required. If a business fails to clearly communicate an instalment surcharge, it risks regulatory action. For example, the OFT (now CMA) has taken action where consumers “were being misled about the level and/or existence of payment surcharges” – such charges were not in the headline price and not presented clearly. Such practices breach the CPRs’ ban on misleading consumers.
FCA Guidance on Credit and Pricing (Payment Plan Charges)
The Financial Conduct Authority, as the regulator for consumer credit, provides guidance and rules to ensure firms treat customers fairly when offering credit or related services. FCA guidance relevant to payment plans highlights a few key expectations:
- Authorisation and Compliance: The FCA’s guidance reiterates that any form of consumer credit, including instalment payment plans with charges, generally requires authorisation and compliance with the Consumer Credit Sourcebook (CONC) rules. Firms offering instalment credit under the exemption (no interest/fees, ≤12 months) should be careful not to stray outside it, or they must seek authorisation. The FCA warns businesses to “check and check again” that they qualify for an exemption, as getting it wrong could mean operating illegally without a licence.
- Clear Communication of Costs: FCA’s consumer credit rules emphasize transparency of the cost of credit. For instance, if an instalment option is offered, the firm should make sure the customer understands any additional cost. The FCA’s advertising rules (reflecting the Consumer Credit (Advertisements) Regulations) require that if an advert mentions an instalment price or implies credit, and there is any charge, a representative example including the APR must be shown. This ensures consumers can gauge the true cost of the payment plan. Even outside formal ads, under the FCA’s Treating Customers Fairly principle, a firm should not mislead customers about how much more they will pay on a plan.
- Justifying Charges – Treating Customers Fairly: The FCA expects that any fees or interest charged are fair and proportionate. For example, many insurance and utility companies allow monthly payments but charge interest – the FCA requires that these arrangements be set out in a credit agreement with an APR. If a firm were to impose an “administrative fee” for paying monthly, the FCA would consider that a part of the cost of credit (not a separate innocuous fee) and would expect it to be reasonable. A token fee purely to cover actual admin costs might be acceptable if disclosed, but a large fee would effectively be interest by another name. Notably, the FCA has discouraged creative attempts to circumvent interest rate disclosure. In one FCA notice, it was observed that some credit card providers introduced instalment plans with no interest but a fixed fee, which “the equivalent interest rate of the fee” turned out lower than the card’s normal APR. In other words, rather than charge 18% APR, a card issuer might offer a plan with a 5% one-off fee – benefiting consumers with a lower cost. The FCA allowed this structure but ensured rules were adjusted so that payments could be allocated appropriately. The key is that the fee was clearly disclosed and indeed functioned as a lower interest alternative. Any fee that effectively covers the cost of lending is treated like interest by the FCA, so firms must be transparent about it.
- No Excessive Surcharges: Where charges are allowed (for example, certain payment processing fees), regulators have imposed limits. The FCA supported the ban on excessive payment method surcharges that came via the Payment Services and Consumer Rights regulations (discussed below). In the context of credit, while the FCA doesn’t cap interest for most credit products (except high-cost short-term credit), it does require responsible lending. Charging a vastly higher total price for instalments versus upfront could raise questions of unfairness or irresponsible lending, especially if vulnerable consumers are steered into expensive credit.
Overall, FCA guidance reinforces that businesses can charge for payment plans only within the framework of consumer credit law and treating customers fairly. If instalment charges are hidden or unjustified, the business risks breaching FCA principles and rules, in addition to general consumer law.
CMA Guidance and Surcharges (CMA and Regulatory Actions)
The Competition and Markets Authority (and previously the Office of Fair Trading) has actively worked to ensure pricing practices are fair. Notable regulatory actions and guidance related to surcharges include:
- Ban on Payment Method Surcharges: The CMA enforced the rules that ban certain payment surcharges. Under the Consumer Rights (Payment Surcharges) Regulations 2012 (as amended by an EU directive and UK law in 2018), traders cannot charge consumers extra for paying by most common payment methods. Since 13 January 2018, surcharges for consumer credit cards, debit cards, or payment services like PayPal are banned entirely. This ban was a result of concerns that such fees were often hidden and unfair (for example, the airline cases above). Now, a business cannot add, say, 2% extra just because the customer chooses to pay by credit card – that’s illegal. For other payment methods not covered by the ban (cash, checks, direct debits, etc.), any surcharge must be limited to the actual cost of processing that payment. While this rule is about payment methods rather than instalment schedules, it underscores regulators’ stance that adding surcharges needs strong justification. A parallel can be drawn: just as a firm must not profit excessively from a payment-method fee, it shouldn’t use a payment-plan fee purely as an extra profit centre unrelated to cost or risk.
- Transparency Guidance: The CMA, through published guidance and its enforcement actions, insists on transparent pricing. Its guidance on unfair terms echoes that unexpected fees are prone to be unfair. CMA’s consumer enforcement cases (like the airline one) and guidelines make clear that drip pricing (where the final price ends up higher than the initial advertised price due to added fees) is an unfair practice. The CMA has recently been granted stronger powers (under anticipated reforms in the Digital Markets, Competition and Consumers Act) to directly fine companies for such unfair commercial practices. This means businesses face greater risk if they hide or misrepresent instalment costs.
- Notable Case – OFT v. Airlines: As mentioned, one landmark enforcement was the OFT’s action against 14 airlines for card surcharges. The outcome was undertakings to include unavoidable fees in headline prices and clarity on optional fees. This led into the legal ban on card surcharges. This case set a precedent that any surcharge that is not optional or that most customers must pay should be included in the up-front price. In context of payment plans: if a product is only available via a financing plan (no cash price), the full cost including any interest must be the price shown – one cannot advertise the “cash price” in big numbers and then reveal the mandatory finance charge later. If both cash and finance prices are options, each must be clear and not misleadingly presented.
- Other Cases and Sectors: The CMA and Trading Standards have also scrutinised sectors like gym memberships and timeshares for unfair contract terms, some of which involved credit or instalment payments. For example, in OFT v Ashbourne Management Services (2011), a case about gym contracts, the High Court struck down terms that locked consumers into long payment plans as unreasonable and unenforceable. While that case centred on length and cancellation, it reinforces that the structure of payment plans (length, cost, cancellation terms) must treat consumers fairly.
- CMA on Justification of Charges: If challenged, a business should be able to justify an instalment surcharge – typically by pointing to the additional cost or risk it incurs by letting the consumer pay over time. For instance, if a product costs £1000, the business might justify a 5% increase for a 6-month payment plan because it involves financing costs or administrative handling. But if the same business tried to charge 50% more for 6 months of credit, that would likely draw allegations of unfairness or exploitative pricing. The CMA’s stance is that competition and fair dealing should drive pricing; any surcharge should not distort the consumer’s ability to compare total costs.
In summary, CMA guidance and enforcement history emphasise transparency and proportionality. Surcharges – whether for payment method or payment timing – must be made clear and kept within reasonable bounds. Regulators have shown willingness to act against companies that use surcharges in a way that misleads consumers or skews the true price of a product.
Interest vs. Administrative Fees: Any Legal Difference?
Businesses sometimes distinguish interest-bearing credit from an “administrative” surcharge or fee for paying in instalments. Legally, however, both are treated as part of the cost of credit to the consumer. The label matters less than the effect:
- Interest: This is a percentage charge on the credit amount over time (often expressed as APR). If a payment plan includes interest, it is clearly a credit agreement. The CCA and FCA require disclosure of the rate, the total amount payable, and an agreement outlining the terms. For example, a 12-month instalment plan at 10% APR on £1200 means the consumer pays roughly £60 in interest over the year, for a total of £1260. This interest must be transparently stated.
- Admin or Instalment Fees: An administrative fee (say, a fixed £30 charge to pay monthly) might be presented as a one-off convenience fee instead of “interest.” From the consumer’s perspective, however, it increases the total cost of purchase – functioning like interest. UK law does not allow businesses to evade credit regulation by calling interest a “fee.” The FCA specifically notes that an instalment agreement which “contains charges or interest (for example, an admin fee)” does not qualify for the interest-free exemption and is treated as a credit agreement. So a £30 fee for instalments on that £1200 purchase would likewise make it a regulated agreement, and the effective APR of that fee would need to be calculated and disclosed to the consumer.
- Disclosure and APR: Whether it’s interest or a flat fee, the total extra cost must be disclosed. UK credit regulations require that any mandatory charge linked to credit is included in the APR calculation (unless truly optional and avoidable). A flat fee can yield an “equivalent interest rate.” For instance, credit card companies have offered 0% interest instalment plans but with a fixed fee; the FCA observed that “the equivalent interest rate of the fee” is usually lower than the standard interest rate. In other words, a fee can be converted to an implied annual rate. Consumers should be given that information to compare.
- Consumer Perception: Some businesses might think an “admin fee” sounds more palatable than “interest.” But from a regulatory standpoint, what matters is that the consumer is not misled. If a plan is advertised as “0% interest,” the business should not then add a hefty fee that contradicts the spirit of “interest-free.” The CMA or ASA (Advertising Standards Authority) would likely view a “0% interest (fee applies)” claim as potentially misleading if the fee is significant and not clearly equivalent to a cost of borrowing. The correct approach is to advertise it as “interest-free, with a one-time £X set-up fee”, including that in the total cost.
- Justification: Interest is typically seen as the lender’s charge for the time value of money and credit risk. A small admin fee might be justified as covering actual administrative costs (paperwork, payment processing over multiple months). However, if challenged, a business should be prepared to show that an admin fee isn’t simply a disguised interest or penalty. If, for example, the “admin fee” on a short plan works out to an APR of 40%, regulators or courts might ask what administrative tasks possibly justify that cost, and it could fall foul of unfair terms or unfair trading rules.
In practice, there is little legal difference between charging interest and charging a flat fee for instalments – both are “credit charges” that increase the consumer’s cost and thus must comply with the same laws. The safest course for businesses is to be upfront: if they charge more for a payment plan, state the extra amount clearly, whether labeled as interest or a fee, and ensure all relevant consumer credit regulations are followed.
Recent Developments and Updates
The landscape of payment plans and consumer credit is evolving, and regulators have been paying close attention, especially with the rise of “Buy Now, Pay Later” services:
- Buy Now, Pay Later (BNPL) Regulation: BNPL products (like Klarna or Clearpay in the UK) often allow instalment payments with no interest and no fees to consumers, making them fall under the 12-month, interest-free credit exemption. They have thus far operated outside FCA regulation. However, concerns about consumer harm (e.g. people over-extending on multiple BNPL plans) led the government to announce plans to bring BNPL within regulation. In February 2023, HM Treasury published a consultation on draft legislation to regulate interest-free BNPL agreements. This will likely require BNPL providers to be FCA-authorised and to comply with disclosure and affordability rules similar to other credit products. For businesses, this means if they partner with BNPL services or offer similar in-house “no interest, no fee” deferred payment options, these too may soon require regulatory compliance. This is a significant update ensuring even currently “free” instalment plans are overseen for consumer protection.
- Digital Markets, Competition and Consumers Bill: At the time of writing, legislation is in progress (often referred to as the DMCC Bill) to strengthen consumer law enforcement. It is expected to give the CMA enhanced powers to directly fine companies for breaches of consumer protection laws (like the CPRs or CRA) without going through court. If passed, this will make it even more crucial for businesses to get pricing practices right, as the cost of non-compliance will be higher. A company that hides a payment plan surcharge or uses unfair contract terms could face hefty fines quickly.
- COVID-19 and Fair Treatment: The FCA during the COVID-19 pandemic issued guidance for consumer credit firms to support customers in financial difficulty (payment deferrals, etc.). While not directly about surcharges, it underlines the expectation that firms be flexible and fair with consumers on payment plans – for instance, waiving certain fees or interest when customers were in temporary hardship. This ethos of fair treatment is now embedded in FCA rules (and the upcoming Consumer Duty), reinforcing that transparency and reasonableness in all charges is key to compliance.
- Enforcement Trends: Recent enforcement actions continue to target lack of transparency. For example, the ASA has banned ads that failed to clearly disclose the true costs of deals (though often in telecom or subscription contexts). Businesses should anticipate that “hidden” costs in instalment plans will draw similar scrutiny. Additionally, the FCA has been reviewing the Consumer Credit Act 1974 with an eye to modernisation; while this is ongoing, any changes will aim to simplify consumer credit rules but not to weaken consumer protections around transparency of costs.
Ethics, Accessibility & Equity: Who Gets to Choose “Pay in Full”?
Let’s zoom out for a second.
Yes, there are legal requirements to follow. But we also need to talk about the ethics of payment plans, because this is where a lot of UK-based service providers miss the mark even when they’re technically compliant.
Not everyone has access to capital, credit, or generational wealth. Many of your dream clients, especially women, neurodivergent folks, people of colour, and working-class entrepreneurs, don’t have the upfront liquidity to drop £2k on the spot, even if they deeply want the transformation you offer. Payment plans aren’t just a sales strategy. They’re a financial accessibility tool. But when you penalise someone for needing flexibility, by tacking on a £200+ admin fee or a 20% premium, you’re unintentionally reinforcing the same structural issues we say we’re here to dismantle.
What if instead, we saw payment plans as an inclusive default, not a costly upgrade? What if your payment structures reflected your values around equity, transparency, and accessibility?
Now, this doesn’t mean you should risk your cashflow to be “nice.” But it does mean being thoughtful about how your business model can support both you and the people you most want to serve.
Inside Cashflow Confident, I help you design scalable, ethical payment systems that balance protection and inclusion, so you’re not absorbing risk or pricing people out.
So… Should You Charge More for Payment Plans?
Legally?
Yes, in the UK, you can charge more, as long as you follow the rules (see earlier section for the compliance checklist).
Ethically + strategically?
You may not want to.
Here’s why:
Payment plans allow more people to say yes, especially those who’ve historically been excluded from wealth access.
Adding fees often creates confusion or tension at the point of sale, undermining trust.
If you’re worried about cashflow, there are other ways to protect your income without passing the burden onto your client (e.g., deposits, automated billing, risk forecasting, yep, we cover all this in Cashflow Confident).
A transparent, flat-fee structure with equal monthly payments is easier to manage, sell, and market.
So if you don’t have to charge more, why would you?
There are rare cases where extra costs make sense (like high admin workloads or longer-term financing), and that’s okay if you explain it clearly and ethically. But for most online service providers? A flat payment plan that mirrors your pay-in-full rate is not only legal, it’s aligned, inclusive, and wildly effective.
TL;DR — Your Legal + Ethical Cheat Sheet
You can charge more for payment plans in the UK if:
- The extra cost is clearly disclosed
- You’re FCA-authorised (unless you qualify for the short-term, interest-free exemption)
- You follow all rules around credit, fairness, and transparency
But that doesn’t mean you should.
Your pricing is part of your brand values.
When we talk about creating freedom and financial empowerment, especially for women and marginalised business owners—your payment plans are a huge piece of that puzzle.
So if you’re looking for a bold, strategic way to stay compliant and build a values-aligned business that supports your dream clients and your bank balance?
Come join Cashflow Confident where we build cashflow systems that don’t punish people for needing flexibility.
Sources: Relevant provisions and guidance have been drawn from the Consumer Credit Act 1974, Consumer Rights Act 2015, Consumer Protection from Unfair Trading Regulations 2008, FCA handbook and guidance, and CMA/OFT materials, including – the FCA’s instalment credit exemption criteria (fca.org.uk), CMA guidance on unfair terms (assets.publishing.service.gov.uk), Business Companion advice on payment surcharges and CPRs (businesscompanion.info), the OFT’s action on airline surcharges under the CPRs (gov.uk), and recent policy developments on BNPL regulation (gov.uk). Each underscores the imperative of transparency and fairness when charging consumers more for the option to pay over time.
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