When payments on a regulated loan are missed, the Consumer Credit Act 1974 requires the lender to send particular notices at particular times, and failing to send them has financial consequences for the lender. The Act applies across the UK. This guide sets out three kinds of notice, arrears notices (sections 86B and 86C), notices of default sums (section 86E) and default notices (sections 87 and 88), and what happens if a lender fails to send them. It explains the statute’s wording; the FCA’s separate conduct rules are covered in the guide to falling behind on repayments.
Arrears notices for fixed-sum loans
Section 86B applies where the borrower under an applicable agreement was required to have made at least two payments, has paid less than the total required, and the shortfall is no less than the last two payments due. When those conditions are satisfied, the lender must give a notice within 14 days and then further notices at intervals of not more than six months. Each notice must include a copy of the current arrears information sheet prepared by the FCA under section 86A, and the borrower has no liability to pay anything for preparing or giving it. The duty ends when the borrower ceases to be in arrears or a judgment is given that requires a sum to be paid. For agreements where payments are due at intervals of a week or less, the section substitutes four payments for two.
Arrears notices for running-account credit
Section 86C covers running-account credit such as a credit card. It applies where the borrower was required to have made at least two payments and the last two payments were not made. The lender must give a notice no later than the end of the period within which its next statement is due under section 78(4), and the notice must include the arrears information sheet. It can be built into a statement or other notice, and again the borrower pays nothing for it. Sections 86B and 86C do not apply to non-commercial or small agreements, and section 86B does not apply to a regulated deferred payment credit agreement.
What happens if the lender does not send an arrears notice
Section 86D sets out the consequences. During the period of non-compliance the lender is not entitled to enforce the agreement. The borrower also has no liability to pay interest to the extent it is calculated by reference to that period, nor any default sum that would have become payable during it, or that would become payable afterwards in connection with a breach occurring during it. The period starts when the notice was due and ends on the day the notice is given, subject to the further rules in the section.
Notice of default sums
Section 86E applies where a default sum becomes payable under a regulated agreement. The lender must give a notice within a prescribed period after the sum becomes payable, and this can be incorporated into a statement. The borrower has no liability to pay interest in connection with the default sum to the extent it is calculated by reference to a period before the 29th day after the notice is given, and if the lender fails to give the notice within the prescribed period it may not enforce the agreement until it does. Regulations can exempt default sums below a prescribed amount, and the section does not apply to non-commercial agreements, small agreements or regulated deferred payment credit agreements.
The default notice
Section 87 says that a default notice served in accordance with section 88 is necessary before a lender can, because of a breach, terminate the agreement, demand earlier payment, recover possession of goods or land, treat a right of the borrower as terminated, restricted or deferred, or enforce security. Under section 88 the notice must be in the prescribed form and specify the breach, what is needed to remedy it and the date by which it must be done, or the compensation required if it cannot be remedied. That date must not be less than 14 days after service, and the lender cannot take those steps before it. It must also carry information about the consequences of failing to comply and include the current default information sheet. A borrower who receives one can consider a time order and should seek free advice, as described in the guide to free debt advice.
Death of a borrower
Section 86 restricts what a lender may do because of a borrower’s death. If the agreement was fully secured, the lender is not entitled by reason of the death to terminate the agreement, demand earlier payment, recover goods or land, or enforce security. If it is only partly secured or unsecured, the lender may do those things by reason of the death on an order of the court only. The section does not affect payments made from the proceeds of a life assurance policy under an agreement to that effect.
FAQs
Is an arrears notice the same as a default notice?
No. An arrears notice under section 86B or 86C must be sent after missed payments and comes with an information sheet. A default notice under sections 87 and 88 is required before a lender can take enforcement steps because of a breach.
How long must I be given to remedy a breach?
Section 88 says the date specified in a default notice must not be less than 14 days after the date of service.
Can I stop paying interest if the lender forgot the notice?
Under section 86D, the borrower has no liability for interest calculated by reference to the period of non-compliance, and the lender cannot enforce the agreement in that period; the underlying debt remains.
The bottom line
Sections 86B to 88 of the Consumer Credit Act 1974 require lenders to send arrears notices, default sum notices and, before enforcement, a default notice with at least 14 days to remedy the breach. Failure has consequences: the lender cannot enforce and loses interest and default sums for the period of non-compliance. A borrower who receives any of these notices should read the deadlines and get free debt advice promptly. This is general information, not legal advice.
Sources
- legislation.gov.uk, “Consumer Credit Act 1974, section 86: Death of debtor or hirer”
- legislation.gov.uk, “Consumer Credit Act 1974, section 86B: Notice of sums in arrears under fixed-sum credit agreements etc”
- legislation.gov.uk, “Consumer Credit Act 1974, section 86C: Notice of sums in arrears under running-account credit agreements”
- legislation.gov.uk, “Consumer Credit Act 1974, section 86D: Failure to give notice of sums in arrears”
- legislation.gov.uk, “Consumer Credit Act 1974, section 86E: Notice of default sums”
- legislation.gov.uk, “Consumer Credit Act 1974, section 87: Need for default notice”
- legislation.gov.uk, “Consumer Credit Act 1974, section 88: Contents and effect of default notice”