A lender, including a cash advance provider, can sell or transfer the right to collect a debt to another company, often a specialist debt purchaser, rather than pursuing the debt itself. This is called an assignment of the debt, and it is a common part of how the consumer credit industry manages debt that has fallen into arrears. The process is governed by ordinary property law, not by rules unique to consumer credit.
The legal basis for assignment
Section 136 of the Law of Property Act 1925 sets out the requirements for what it describes as a legal assignment of a debt or other legal thing in action. The assignment must be made in writing, signed by the party transferring the debt, and it must not simply be a charge over the debt. Critically, the person or company owed the debt originally must give express written notice of the assignment to the debtor. The assignment only takes effect, as a legal assignment transferring the right to sue for the debt in the new owner’s own name, from the date that notice is given, not from an earlier date such as when the sale itself was agreed between the two companies.
What the notice must achieve
Once proper written notice has been given, the new owner of the debt receives the legal right to the debt, the remedies for enforcing it, and the power to give a valid discharge for it without needing the original lender to be involved further. This is why a genuine assignment is normally accompanied by a formal notice confirming the sale and identifying who now owns the debt; a debtor who has not received such notice is entitled to query whether a company chasing the debt is actually entitled to do so on this basis.
What does not change when a debt is sold
An assignment transfers the right to the debt as it already exists; it does not create a new debt or a new agreement, and it does not change the amount owed, the interest that had already been agreed, or defences and complaints the borrower already had against the original lender. Section 136 also protects the debtor specifically where there is a dispute about who the assignment is actually owed to: the debtor can require the rival claimants to resolve the dispute between themselves through the court, or pay the disputed amount into court, rather than risk paying the wrong party.
Consumer credit protection continues to apply
Where the underlying agreement was a regulated consumer credit agreement, such as a cash advance, the new owner of the debt, if it is itself an FCA-authorised firm or is using an authorised firm to collect, remains subject to the same consumer credit conduct rules covered elsewhere on this site, including the FCA’s rules on how lenders and debt collectors may contact a borrower and how arrears must be handled. Selling the debt to a different company is not a way for the original terms or the borrower’s regulatory protections to be avoided.
Checking a debt sale is genuine
Because assignment depends on a specific written notice, a borrower contacted by an unfamiliar company claiming to have bought a debt can reasonably ask for confirmation of the assignment, including who the original creditor was, the account or reference number, and the amount said to be owed, before making any payment. This is a straightforward way to distinguish a genuine assignment, which should be capable of being evidenced, from an attempt to collect a debt that does not exist, is already settled, or belongs to someone else entirely.
What to do if contacted about a sold debt
Confirming the identity of the new owner, checking the amount claimed against the borrower’s own records of the original agreement, and querying anything that does not match, is the sensible first step before agreeing a new repayment arrangement with an unfamiliar company. Where a debt is genuinely owed, the underlying obligation to repay it does not disappear because it has changed hands, but neither does it become larger, or subject to different consumer protections, purely because of the sale.
FAQs
Does a debt seller have to tell the borrower it has sold the debt?
Yes. Section 136 of the Law of Property Act 1925 requires express written notice of the assignment before it takes effect as a legal assignment.
Does selling a debt change the amount owed?
No. Assignment transfers the existing debt on its existing terms; it does not create a new debt or change what was already owed.
Do the original consumer credit protections still apply after a debt is sold?
Yes, where the underlying agreement was a regulated consumer credit agreement, the applicable conduct rules continue to apply to the new owner or its collectors.
What if two companies both claim to own the same debt?
Section 136 lets the debtor require the rival claimants to resolve the dispute through the court, or pay the disputed sum into court, rather than risk paying the wrong company.
Bottom line
Selling a debt to a collection company is a legal assignment governed by section 136 of the Law of Property Act 1925, which requires express written notice to the borrower before it takes effect, and which transfers the existing debt on its existing terms without creating a new one or removing existing consumer credit protections. This article is general information, not legal advice on a specific debt; free debt advice services can check whether a specific assignment and the sums claimed are correct.