When Borrowers go into arrears with their Consumer Credit Agreements, Lenders have a right to serve Default Notices on them.
The reason why Lenders do this is to bring it to their borrower’s attention that they have defaulted on an obligation, usually to make regular installments.
Before Lenders do this, however, they should notify the borrower that they have missed a payment.
Lenders may also be under an obligation to serve a Notice of Arrears on the Borrower, where two or more months payments have been missed.
This is vital.
If Lenders do not do this, they cannot charge interest for the period that they are in non-compliance with the duty to serve a Notice of Arrears. Nor can they enforce the agreement.
This continues until they serve the Notice of Arrears.
What else must the Lender do?
If Lenders want to take any of the actions specified below, they must serve a Default Notice. If they do not, they are not able to:
- Terminate the agreement;
- Demand early payment of any sum;
- Recover possession of any goods or land;
- Treat any right conferred by the agreement as terminated, restricted or deferred; or
- Enforce any security.
When Lenders serve a formal Default Notice, it must specify what the nature of the default is and if it is capable of being remedied, what steps must be taken.
Where it is not possible to remedy the default, and a sum is due to compensate for the default, lenders must specify the amount and the date it is to be paid by.
Lenders cannot take any of the action stated above without first giving a minimum of 14 days to allow the borrower to take the necessary action required to remedy the default.
If the default is remedied within the specified period, the agreement should continue as normal, as if the breach did not occur.
However, lenders may choose to restrict or suspend any right the borrower had to draw on any further credit.
They, cannot, however, take any of the action mentioned above.
When the Default Notice is served, the Borrower must also be provided with an Information Sheet, which can be seen here.
Default Notices and your Credit Score
An expired Default Notice can be registered on a Credit Reference file and may remain there for six years. However, it should also be noted an account may be put into default without a formal Notice being served and this may be registered with Credit Reference Agencies.
The important thing about a formal Default Notice is once it expires without being complied with, it allows the creditor to take the listed actions.
Default Notices and Time Orders
Another reason why Default Notices are important, is once served, they allow the Borrower to apply for a Time Order. For more information about Time Orders, see here.
