Default notice
A ‘default notice’ must be issued by a creditor for all debts regulated by the Consumer Credit Act 1974 before court action can start for early payment of money due under an agreement. A default notice is usually required in debt cases where arrears are claimed along with the money which would become due if the agreement ran its course. It is not required if the time allotted to an agreement is over, but an outstanding balance remains or if only arrears are claimed.
The default notice must contain details of:
•the type of agreement, including the name and address of the creditor and client; and
•the terms of the agreement which have been broken; and
•for fixed-sum credit, the early settlement figure; and
•the action needed by the client – eg, to pay arrears in full by a certain date; and
•the action the creditor intends to take if the client is unable to comply with the default notice – eg, refer to debt collection or start court action.
A default notice served on or after 1 October 2008 must contain the following further information.
•If the notice relates to a hire purchase or conditional sale agreement, information on the client’s right to terminate the agreement, including the amount of their liability if they exercises this right (see here). •Where applicable, a statement that the client may have to pay contractual interest in the event of the creditor obtaining a judgment (see here). •A copy of the current Financial Conduct Authority information sheet on default.1
The client must be given at least 14 days to carry out the required action. If the default notice requests payment, it must contain a statement about time orders and about seeking advice from a local Citizens Advice office, solicitor or trading standards department.
If a default notice is not complied with, a creditor can:
•terminate the agreement; and
•demand earlier payment of money due under an agreement.
If a default notice is not completed correctly (eg, it does not give the client sufficient time to respond or the arrears figure is incorrectly stated), it is invalid and the creditor must issue a fresh notice before taking action.2Brandon v American Express [2011] EWCA Civ 1187 Creditors do not always automatically initiate court action if a default notice is not complied with, so even if the time limit has expired, it is always worth trying to negotiate with a creditor in order to prevent court action. Clients often claim not to have received default notices – bear in mind that a default notice is treated as served for this purpose if sent by post to the client’s last known address.3s176(2) and (3) CCA 1974; Lombard North Central v Power-Hines [1995] CCLR 24 From 2 June 2021, default notices must comply with the Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020. These regulations amend and replace the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983, which prescribe the form of the notice required to be given by a creditor before taking specific action to enforce or terminate an agreement. The 1983 Regulations are updated by:
•banning the use of block capitals (often regarded as intimidating) as an aid to prominence;
•removing technical legal language;
•altering the wording and ordering of notices to improve clients’ understanding;
•signposting clients to up-to-date sources of support and advice.