Consumer Credit Act - Notice of sums in arrears

If a borrower falls behind with the payments to a secured loan or second mortgage covered by the Consumer Credit Act 1974, the lender should first send them a notice of sums in arrears before sending a default notice.

This content applies to Scotland

Introduction of notice of sums in arrears

These notices were introduced in 1 October 2008 by section 9 of the Consumer Credit Act 2006.

Lender's requirement to send notice of sums in arrears

A lender must send a borrower a notice of sums in arrears 14 days [1] after:

  • the borrower is required to have made at least two payments by that time, and

  • the total sum paid by the debtor so far is less than the total sum that should have been paid by that date, and

  • the amount of the shortfall is no less than the sum of two payments, and

  • the lender is not already under a duty to send notice of sums of arrears to the borrower, and

  • the borrower does not owe the lender money from a previous judgment on the same agreement. [2]

If payments are due at intervals of one week or less, a notice of sums in arrears should be sent 14 days after:

  • the borrower is required to have made at least four payments by that time, and

  • the amount of the shortfall is no less than the sum of four payments, [3] and

  • the total sum paid by the debtor over the last 20 weeks is less than the total sum that should have been paid over that period. [4]

The lender should then continue to send the borrower notices at intervals of no less than six months until the arrears are cleared or a court judgment has been made about the agreement. [5]

The form of the notices is laid out in Schedule 3 of the Consumer Credit (Information Requirements and Duration of Licences and Charges) Regulations 2007.

Each notice should be accompanied by an information sheet prepared by the Office of Fair Trading, providing help and advice for the borrower. [6]

Failure to send notice of sums in arrears

If a lender fails to send a notice of sums in arrears within 14 days of the borrower accruing arrears as outlined above, or within six months of issuing a previous notice if the borrower remains in arrears, s/he will not be able to enforce the agreement until s/he has issued the notice. [7]

In addition, the borrower will not be liable to pay:

  • any interest accrued during the period of non-compliance, or

  • any default sum which would have been payable during the period of non-compliance, or

  • any default sum that would have become payable after the end of that period in connection with a breach of the agreement that has occurred during that period. [8]

Applying for a time order

If the borrower is unable to clear her/his arrears within 14 days s/he could apply for a time order. [9] S/he need not wait for the lender to issue a default notice. However, s/he must first send a notice of intent to the lender, including a proposal for paying off the arrears.[10] For more information, please see the page on time orders.

Last updated: 7 February 2020

Footnotes

  • [1]

    s.86B(2)(a) Consumer Credit Act 1974, inserted by s.9 Consumer Credit Act 2006

  • [2]

    s.86B(1) Consumer Credit Act 1974, inserted by s.9 Consumer Credit Act 2006

  • [3]

    s.86B(9) Consumer Credit Act 1974, inserted by s.9 Consumer Credit Act 2006

  • [4]

    s.86B(10) and (11) Consumer Credit Act 1974, inserted by s.9 Consumer Credit Act 2006

  • [5]

    s.86B(2)(b) Consumer Credit Act 1974, inserted by s.9 Consumer Credit Act 2006

  • [6]

    s.86B(6) Consumer Credit Act 1974, inserted by s.9 Consumer Credit Act 2006

  • [7]

    s.86D(3) Consumer Credit Act 1974, inserted by s.11 Consumer Credit Act 2006

  • [8]

    s.86D(4) Consumer Credit Act 1974, inserted by s.11 Consumer Credit Act 2006

  • [9]

    s.129(1)(ba) Consumer Credit Act 1974, inserted by s.16(1) Consumer Credit Act 2006

  • [10]

    s.129A Consumer Credit Act 1974, inserted by s.16(2) Consumer Credit Act 2006