Several key changes to existing legislation have been made due to the Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020 coming into effect. We run through what you need to know.
The amendments, which came into force on 2 December 2020, have been welcomed by debtors and mental health campaigners, who have argued for years that changes were required to the form and content of default notices. Indeed, the rules around how to enforce default notices have not been changed in almost 40 years.
Now, there appears to be no better time to enforce such regulations than during a pandemic where many are facing severe financial hardships.
What has changed?
Under the Consumer Credit Act 1974, a default notice needs to be served on a customer before taking further action following missed payments.
The legislation initially stated that certain words and text must be used. For example, parts of default notices were required to be in capital letters and contained legal terms which were unknown to most lay persons. A default notice can be a daunting letter to open and is bound to be made worse by using legal terms which cannot be understood.
There are now clearer rules surrounding the information a default notice contains. Default notices will now point debtors in the direction of the government’s Money Advice Service in order to make sure they are informed about what they can do about their default notice. If debtors are better informed, aware of the consequences of default and understand their options, they will be in a better position to make informed decisions and reach a satisfactory resolution for all parties involved.
The legislation also puts into place a six-month grace period to enable creditors enough time to amend default notices accordingly. While a grace period is in place, it is good practice to make all required changes as soon as possible and ensure all employees and necessary parties are aware and up to date with the legislation.
It is vital that creditors consider the above and amend default notices to make sure they are compliant with the new legislation. Creditors should also be aware that the time limit for taking action has now been changed to 14 days, as opposed to seven days after the default notice has been served.
Hire purchase goods and the one-third rule
A further provision has also been included regarding the retaking of protected hire-purchase goods (such as cars) and the one-third rule. Under the one-third rule, if the debtor has paid at least one-third of the total amount payable under a credit agreement, creditors cannot take back the goods against the debtor’s wishes, without obtaining a court order to do so. Under the new regulations, if a debtor is unsure of the amount paid, they can seek this information from creditors, free of charge.
A further provision has been included regarding debtors ending their agreements and their rights to do so depending on the kind of agreement entered. Under a hire purchase agreement, debtors now have the right to end the agreement at any time before the final payment falls due.
The new regulations aim to improve the procedure and outcomes relating to default notices by providing the best outcome for all parties. It will result in customers being better able to respond to a fair default notice properly and discuss repayment with creditors on a more even footing.