Notice of Arrears are legal notices that lenders are required to serve on you when you miss two or more installments on a Consumer Credit Agreement, such as a personal loan or credit card.
Examples of Consumer Credit Agreements are finance agreements you enter into, not in the course of a business, and include:
- Personal loans (including secured loans, but not Credit Union loans);
- Credit cards
- Store Cards
- Hire Agreements
- Hire Purchase Agreements (including Conditional Sale and PCP Agreements).
The most important obligation usually owed under a Consumer Credit Agreement is the one to make the contractual payments on time (usually monthly).
However, it is accepted not everyone will be able to do this, so the Consumer Credit Act 1974, makes provisions that outline what should happen when you miss a payment.
It also places obligations on the lender, stating what they must do before demanding all their money back, or taking legal action.
Notice of Arrears
The first of these is the duty on the lender to issue a Notice of Arrears. These are governed by section 86 (B) (C) and (D) of the 1974 Act.
What this says is a lender must issue an Arrears Notice on a borrower when they have missed two installments. That notice must be served within 14 days of the consumer owing two installments (or in cases where the installments are due weekly, after four missed payments).
Notice of Arrears are not shown on your credit reference file, but the missed payments are.
Lenders are not allowed to charge borrowers for the preparation and sending of the Notice.
What a Notice must contain is tightly regulated and must be accompanied with an Arrears Notice Information Sheet, which can be found here.
What if a Notice is not served?
Where a lender fails to serve an Arrears Notice, he cannot enforce the agreement and cannot charge interest or any default sums during the period of non-compliance, which means the period beginning with the date he should have served the notice and the date he does eventually serve it.
A lender must serve further Notices at six-month intervals.
The duty to serve a Notices only stops once there are no more arrears owed under the agreement or a judgement from a court has been obtained.
Notice of Arrears and Time Orders
Once a Notice of Arrears has been served, a Consumer can, where it is appropriate, apply for a Time Order.
For more information on Time Orders, see here.
