Fair Practices Code for Lenders – Charging of Interest: Upholding Integrity in Financial Transactions

Posted On - 8 May, 2024 • By - King Stubb & Kasiva


In the world of lending, trust is built on integrity and transparency. One of the most important elements of maintaining that trust is the FPC (Fair Practices Code) for lenders. This code is designed to promote fairness, transparency and ethical lending practices. Let’s take a look at why the FPC is necessary and its importance in maintaining a fair and balanced lending environment.

Necessity of Fair Practices Code:

The need for the Fair Practices Code (FPC) stems from the fact that lenders and borrowers have information asymmetries when it comes to financial transactions. Lenders have specialised knowledge of interest rates, terms and conditions. Borrowers, on the other hand, have limited knowledge of the terms and conditions of their loans. Without proper regulations and guidelines in place, lenders and borrowers can engage in predatory lending practices. For example, lenders can charge usurious interest rates or charge hidden charges. This can lead to financial harm for borrowers. The FPC seeks to eliminate this asymmetry by mandating that lenders must be transparent, fair, and accountable in their lending practices. The FPC sets clear guidelines for lenders to charge interest. By levelling the playing field and providing borrowers with the knowledge they need, the FPC seeks to reduce predatory lending practices and encourage responsible borrowing and lending.

Significance of the Fair Practices Code:

The importance of the FPC lies in its ability to build trust, integrity and confidence within the lending industry. The FPC promotes ethical standards and transparency among lenders and borrowers, which helps to build trust between them. This kind of trust is essential for financial markets to function properly and the economy to remain stable. The FPC also plays an important role in protecting the interest of borrowers, especially vulnerable borrowers who may be at risk of predatory lending practices. The FPC prohibits discriminatory practices and ensures reasonable interest rates, thereby promoting financial inclusion and social justice. It ensures that borrowers have access to credit on fair and equal terms, regardless of background or circumstances.

The Fair Practices Code (FPC) enforces transparency by compelling lenders to furnish explicit details regarding interest rates, calculation methodologies, and fees. This enables borrowers to make well-informed choices and fosters a sense of trust. The FPC places emphasis on fair interest rates that are in line with market norms and the risk profiles of borrowers, thereby preventing any financial distress. It strictly prohibits any form of discrimination in determining interest rates, ensuring that everyone has equal access to credit. Regulatory compliance plays a crucial role in safeguarding the interests of borrowers and maintaining stability in the financial system. Furthermore, the promotion of borrower education enhances their financial literacy, empowering them to manage their finances responsibly and steer clear of exploitative practices. Ultimately, it benefits both borrowers and lenders.


In conclusion, the Fair Practices Code for lenders concerning the charging of interest is a vital regulatory framework that promotes integrity, transparency, and fairness in lending practices. By mandating transparency, reasonable interest rates, non-discriminatory practices, and regulatory compliance, the FPC ensures that borrowers are treated fairly and ethically in their dealings with lenders. It serves as a bulwark against predatory lending practices and contributes to a more inclusive and sustainable financial ecosystem. Upholding the principles of the FPC is not only a legal obligation for lenders but also a moral imperative to safeguard the interests of borrowers and maintain trust in the financial system.