What is a default notice?
To answer this question, we need to start by taking a look at the Consumer Credit Act 1974.
Consumer Credit Act 1974
The Consumer Credit Act 1974 is a piece of legislation that regulates almost all aspects of personal credit (for amounts up to £25,000), protecting borrowers and lenders alike.
The Act covers different kinds of credit, the most common being bank overdrafts, personal loans, secured loans, credit cards, store cards, Hire Purchase agreements and mail order catalogues.
Default notices
Under the Consumer Credit Act 1974, a default notice is an official letter which a lender will send to a borrower to inform them they’ve ‘defaulted on’ (broken the terms of) their agreement.
It must contain the following information:
- the name & address of the lender,
- which terms of the agreement have been broken,
- details of the action the borrower must take (e.g. paying the arrears), and
- details of the action the lender intends to take (e.g. passing the debt to a collector or starting court proceedings).
Most lenders (but not all) will issue a default notice if 3 monthly contractual payments are missed.
A default notice is a legal requirement – unless they’ve issued one, lenders are NOT allowed to:
- terminate the agreement,
- demand early payment, or
- take legal action.
Gregory Pennington are founder members of DEMSA (Debt Managers Standards Association).
DEMSA are the first trade body within the finance industry to successfully secure approval for its code of practice under the OFT Consumer Codes Approval Scheme (CCAS).
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