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If you have a secured loan or second mortgage that is covered by the Consumer Credit Act, your lender must send you a default notice before they can start the standard repossession procedures. This page explains what to do if you are sent a default notice.

Is my loan covered by the Consumer Credit Act?

If your secured loan or second mortgage is covered by the Consumer Credit Act, it should state at the top of the loan agreement, 'Consumer Credit Agreement regulated by the Consumer Credit Act 1974'. Your loan will probably be covered if:

• you took the loan out after 6 April 2008, or
• you took the loan out after 1 May 1998 and before 6 April 2008 and your loan is for no more than £25,000, or
• you took the loan out before 1 May 1998 and your loan is for no more than £15,000.

Read the page about the Consumer Credit Act to find out more.

What is a default notice?

A default notice is a warning notice that your lender must send you before they can start the standard repossession proceedings, or take any other enforcement action, such as ending the agreement or asking you to pay up early.

The default notice should state that it is a 'default notice under the Consumer Credit Act 1974' and should tell you:

• details of the missed payments
• a date by which you must clear your arrears (this must be at least 14 days away)
• what will happen if you don't clear your arrears within the given time.

You should also be sent an information sheet, to help you understand the default notice. This will explain:

• what will happen if you can't pay your arrears off
• what your options are to manage your debt
• where you can get help and advice.

You can see what the information sheet should look like at the Office of Fair Trading website.

What should I do if I receive a default notice?

If you receive a default notice, make sure your lender has sent you a notice of sums in arrears first. If they haven't, the default notice may not be valid. Talk to a money adviser if you're in this position – they should be able to help you sort this out with your lender.

If you receive a default notice and have already received a notice of arrears, you have several options open to you. You can:

• clear your arrears within the time limit, in which case no further action will be taken
• contact your lender to try to make a repayment arrangement
• get advice regarding your debts
• apply for a time order.

Making a repayment arrangement

If you can't clear the arrears within the given time limit, but you do have money that you can pay towards the arrears on a regular basis, you could try to negotiate a repayment arrangement with your lender.

Applying for a time order

If you're not able to negotiate a repayment arrangement, you could apply to the sheriff court for a time order. A time order can change the lending agreement to make it possible for you to repay the loan and the arrears. If you are granted a time order and keep to the repayments, your lender will not be able to take further repossession action.

What happens when the default notice expires?

If you have not cleared your arrears, come to a repayment arrangement, or applied for a time order within the given time limit, your lender will be able to proceed to the standard repossession proceedings and issue you with:

• a notice of default, and/or,
• a calling up notice, and/or,
• a section 24 notice and initial writ.