Pre-action protocol for debt claims
The protocol applies to all debt claims where:
•the creditor is a business (including sole traders and public bodies);
•the client is an individual (including sole traders); and
•no other specialised protocol applies – eg, for rent or mortgage arrears.
The protocol states that its aim is to:
•encourage early engagement, communication and exchange of information between the parties;
•enable parties to resolve debt claims without court proceedings, including by agreeing reasonable repayment plans or alternative dispute resolution – eg, the Financial Ombudsman Service (see here); •encourage parties to act reasonably and proportionately with one another – eg, not running up costs which do not bear a reasonable relationship to the amount of the debt; and
•support the efficient management of proceedings that cannot be avoided.
Before starting proceedings, the creditor should send a ‘letter of claim’ to the client, which should contain the following information:
•the amount of the debt, and whether interest and charges are continuing;
•if there was a verbal agreement, who made the agreement, what was agreed (as far as possible, what words were used) and where and when it was agreed;
•if there was a written agreement, the date of the agreement, the parties to it and the fact that a copy of the agreement can be requested from the creditor;
•if the debt has been sold, the details of the original debt and creditor, when it was sold and to whom;
•if regular instalments are currently being offered by or on behalf of the client or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered;
•details of how the debt can be paid – eg, the method of and address for payment and details of how to proceed if the client wants to discuss payment options;
•the address to which the completed reply form annexed to the protocol and accompanying the letter should be sent.
It should also include:
•a statement of account detailing any interest and charges applied; or
•the most recent available statement of account with details of any interest and charges applied since that statement; or
•where no statements are provided, details of any interest and charges applied to the debt since it was incurred; and
•a copy of the information sheet, reply form and standard financial statement, all of which are annexed to the protocol.
The letter of claim should be clearly dated near the top of the letter and posted to the client on the day it is dated or, if this is not reasonably possible, the following day. If the client does not respond within 30 days, the creditor can start proceedings for the debt (subject to any other obligations the creditor has to the client – eg, under the Financial Conduct Authority’s Consumer Credit Sourcebook).
The reply form gives the client the following options:
•admitting all, or part, of the debt and to pay or propose payment terms for the amount admitted;
•confirming s/he is seeking debt advice;
•disputing all or part of the debt; or
•requesting documentation from the creditor to enable her/him to understand the debt.
If the client requests documentation, the creditor has 30 days in which to either provide it or provide a written explanation of why not. The creditor cannot start proceedings less than 30 days after the documentation and/or explanation have been provided and must also give the client 14 days’ notice of its intention to start the claim.
If seeking debt advice, the client must indicate on the reply form whether obtaining this will take longer than 30 days and, if so, provide details. In such cases, the creditor should allow a reasonable amount of time for this advice to be obtained. The creditor cannot start proceedings less than 30 days after the reply form has been received and must give the client 14 days’ notice of its intention to do so.
If the client does not fully complete the reply form, the creditor should attempt to contact her/him and obtain any additional information it requires to understand the client’s position. The creditor cannot start proceedings less than 30 days after the reply form has been received and must give the client 14 days’ notice of its intention to do so.
If the client indicates that s/he is disputing all or part of the debt, the parties should take appropriate steps to try to resolve the dispute without starting proceedings and consider alternative dispute resolution – ie, negotiation, referring the matter to a formal compaints process, such as the Financial Ombudsman Service and mediation.
If the client has proposed a payment arrangement and this is not accepted, the creditor should inform the client in writing and give reasons for refusing the proposal. If the proposal is accepted, the creditor should not start proceedings while the arrangement is in force. If client defaults on the arrangement, the creditor must send an updated letter of claim and comply with the protocol again. It need not send any further documents which have already been supplied to the client within the preceeding six months.
If the client responds but no agreement is reached, the creditor must give the client 14 days’ notice of its intention to start proceedings, unless there are exceptional circumstances – eg, if the limitation period is about to expire (see here).1For further details, see T Lett, ‘Pre-action Protocol for Debt Claims’, Quarterly Account 46, IMA Note: some housing advisers have suggested that, because landlords routinely apply for money judgments in possession claims on the ground of rent arrears, the protocol for debt claims applies to that part of the claim. Although this is arguable, it has not yet been tested, but it might be a useful negotiating tactic in appropriate cases.