Default notices (DNs)

A default notice is issued by a lender when a borrower breaks the contractual agreement and fails to make the required payment, taking the account into arrears. The notice has to set out the nature of the breach and give the borrower a timescale to put it right.
Most banks do not retain copies of default notices sent; unless you retain your own copy, you will not be able to establish whether the notice you received was compliant or not.
A non-compliant default notice can be used to defend a claim.
Do not alert the creditor to the fact that they have issued  a defective or non-compliant notice, keep this ace up your sleeve.
Need for a default notice

Before a creditor can bring enforcement action against a debtor under s.87(1) of the CCA, the creditor must issue a Default Notice in the form prescribed by s.88 of the CCA and by The Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983.

87 Need for default notice.

(1) Service of a notice on the debtor or hirer in accordance with section 88 (a “default notice”) is necessary before the creditor or owner can become entitled, by reason of any breach by the debtor or hirer of a regulated agreement,—

(a) to terminate the agreement, or

(b) to demand earlier payment of any sum, or

(c) to recover possession of any goods or land, or

(d) to treat any right conferred on the debtor or hirer by the agreement as terminated, restricted or deferred, or

(e) to enforce any security.

Section 14 of the Consumer Credit Act (CCA) 2006 extends the minimum period to remedy the breach from seven to 14 days.

Section 14: Default notices

36. Section 14 amends section 88 of the 1974 Act to extend from seven to 14 days the minimum period after which a creditor or owner may take action in respect of the agreement after having issued a default notice.

Contents and effect of default notice

A default notice must contain the following:

  • The type of agreement it refers to.
  • The name and address of the creditor and debtor.
  • The terms of the agreement that have been broken.
  • The action required of the debtor, such as payment of the arrears by a certain date. The debtor must be given at least 14 days to comply.
  • The action the creditor intends to take if the debtor does not comply with the notice. If a notice is not complied with, the creditor can
    • terminate the agreement.
    • demand early repayment of money due under an agreement.
  • If the notice requests payment, it must contain a statement about time orders and seeking advice from the CAB or a solicitor.

A default notice served on or after 1 October 2008 must contain the following additional information:

  • In the case of a HP or conditional sale agreement, information about the debtor’s rights to terminate the agreement .
  • A statement that the debtor may have to pay post-judgment interest if judgment is obtained, where applicable.

Section 88 of the Consumer Credit Act sets out what a Default Notice should include:

88 Contents and effect of default notice.

(1)The default notice must be in the prescribed form and specify—

(a)the nature of the alleged breach;

(b)if the breach is capable of remedy, what action is required to remedy it and the date before which that action is to be taken;

(c)if the breach is not capable of remedy, the sum (if any) required to be paid as compensation for the breach, and the date before which it is to be paid.

(2)A date specified under subsection (1) must not be less than14 days after the date of service of the default notice, and the creditor or owner shall not take action such as is mentioned in section 87(1) before the date so specified or (if no requirement is made under subsection (1)) before those 14 days have elapsed.

(3)The default notice must not treat as a breach failure to comply with a provision of the agreement which becomes operative only on breach of some other provision, but if the breach of that other provision is not duly remedied or compensation demanded under subsection (1) is not duly paid, or (where no requirement is made under subsection (1)) if the 14days mentioned in subsection (2) have elapsed, the creditor or owner may treat the failure as a breach and section 87(1) shall not apply to it.

(4)The default notice must contain information in the prescribed terms about the consequences of failure to comply with it and any other prescribed matters relating to the agreement.

(4A)The default notice must also include a copy of the current default information sheet under section 86A.

(5)A default notice making a requirement under subsection (1) may include a provision for the taking of action such as is mentioned in section 87(1) at any time after the restriction imposed by subsection (2) will cease, together with a statement that the provision will be ineffective if the breach is duly remedied or the compensation duly paid.

When is a DN defective?

A default notice can be defective if:

  • It does not allow the debtor enough time to remedy the breach, taking into account time for service;
  • It asks the debtor to pay the full outstanding balance rather than the arrears;
  • The T&Cs for a credit agreement often include a term that says “1) you must pay us immediately any amount which exceeds your credit limit and 2) you must pay us any arrears you have built up”, however, on the default notice, they may only ask for one amount of the other. In this case, even if the debtor paid what the default notice required, he would still have been in breach;
  • The notice is issued in the name of a company which is not the creditor. This is a breach of schedule 2 para 1 of the Default Regulations as the name and address of the creditor NOT his agent must be stated on the notice;
  • The notice omits the S.10A statement as required by the CCA 1974 and regulations.

Schedule 2 of The Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 sets out what a default notice should say:

SCHEDULE 2 – FORM OF DEFAULT NOTICE BEFORE A CREDITOR OR OWNER CAN BECOME ENTITLED, BY REASON OF ANY BREACH BY THE DEBTOR OR HIRER OF A REGULATED AGREEMENT, TO TERMINATE THE AGREEMENT, DEMAND EARLIER PAYMENT OF ANY SUM, RECOVER POSSESSION OF ANY GOODS OR LAND, TREAT ANY RIGHT CONFERRED ON THE DEBTOR OR HIRER BY THE AGREEMENT AS TERMINATED, RESTRICTED OR DEFERRED OR ENFORCE ANY SECURITY

Details of agreement

1. A description of the agreement sufficient to identify it.

Parties to agreement

2. (1) The name and a postal address of the creditor or owner.

(2) The name and a postal address of the debtor or hirer.
Details of breach of agreement and action required to remedy, or pay compensation for, the breach

3. A specification of:—

(a)the provision of the agreement alleged to have been breached; and

(b)the nature of the alleged breach of the agreement, specifying clearly the matters complained of; and either

(c)if the breach is capable of remedy, what action is required to remedy it and the date, being a date not less than seven days after the date of service of the notice, before which that action is to be taken; or

(d)if the breach is not capable of remedy, the sum (if any) required to be paid as compensation for the breach and the date, being a date not less than seven days after the date of service of the notice, before which it is to be paid.
Action by the creditor or owner to be ineffective if breach remedied or compensation paid

4. Where any action is specified under paragraph 3(c) or (d) as required to be taken, a statement that the provision for the taking of any action by the creditor or owner such as is mentioned in paragraph 6 will be ineffective if the breach is duly remedied or the compensation is duly paid in the following form—

“IF THE ACTION REQUIRED BY THIS NOTICE IS TAKEN BEFORE THE DATE SHOWN NO FURTHER ENFORCEMENT ACTION WILL BE TAKEN IN RESPECT OF THE BREACH”.

Note:

This statement shall follow the specification under paragraph 3(c) or (d) of any action required to be taken.

Additional statements that should be included:

Time order

9. A statement in the following form indicating that the debtor or hirer is entitled to apply under section 129 of the Act in England and Wales to the county court, in Scotland to the sheriff court or in Northern Ireland to the High Court or the county court for a time order—

“IF YOU HAVE DIFFICULTY IN PAYING ANY SUM OWING UNDER THE AGREEMENT OR TAKING ANY OTHER ACTION REQUIRED BY THIS NOTICE, YOU CAN APPLY TO THE COURT WHICH MAY MAKE AN ORDER ALLOWING YOU OR ANY SURETY MORE TIME”.
General

10. A statement in the following form—

“IF YOU ARE NOT SURE WHAT TO DO, YOU SHOULD GET HELP AS SOON AS POSSIBLE. FOR EXAMPLE YOU SHOULD CONTACT A SOLICITOR, YOUR LOCAL TRADING STANDARDS DEPARTMENT OR YOUR NEAREST CITIZENS` ADVICE BUREAU”.

11. A statement in the following form—

“IMPORTANT—YOU SHOULD READ THIS CAREFULLY”.

Consequences of failure to comply with the rules

Schedule 2 of The Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 details the consequences of non-compliance:

Consequences of failure to comply with default notice

5. Where any action is specified under paragraph 3(c) or (d) as required to be taken, a statement indicating the consequences of the failure by the debtor or hirer to comply with the default notice in the following form—

“IF YOU DO NOT TAKE THE ACTION REQUIRED BY THIS NOTICE BEFORE THE DATE SHOWN THEN THE FURTHER ACTION SET OUT BELOW MAY BE TAKEN AGAINST YOU [OR A SURETY]”.

Notes:

  1. This statement shall be followed by the specification under paragraph 6 of the further action intended to be taken by the creditor or owner.
  2. Creditor or owner to omit words in square brackets if there is no specification under paragraph 6(e) of any action intended to be taken to enforce any security.
    Action intended to be taken by creditor or owner

6. A clear and unambiguous statement by the creditor or owner indicating, if any action specified under paragraph 3(c) or (d) as required to be taken is not duly taken or if no such action is required to be taken, the action which he intends to take by reason of the breach by the debtor or hirer of the agreement—

(a) to terminate the agreement;

(b) to demand earlier payment of any sum;

(c )to recover possession of any goods or land;

(d) to treat any right conferred on the debtor or hirer by the agreement as terminated, restricted or deferred;

(e) to enforce any security;

(f) to enforce any provision of the agreement which becomes operative only on a breach of another provision of the agreement as specified in the notice,

at any time on or after the date specified under paragraph 3(c) or (d), or, if no action is specified under that paragraph as required to be taken, indicating the date, being a date not less than seven days after the date of service of the notice, on or after which he intends to take any action indicated in this paragraph.

Default notices and you
A defective default notice (DN) can cause trouble for the creditor and even lead to a claim being dismissed; a creditor may have to look at discontinuance and pay your costs. When you receive a default notice you should staple it to the envelope it came and and write the actual date received, then file safely.
The default notice must give a debtor 14 clear days from the date of service to remedy the breach before any of the actions specified above can be taken. The courts assume two days from the date of sending to effect service.
A defective (“bad”) default notice is not a valid argument to dispute the account or stop making payments, however, it could come in handy if court proceedings were issued.

Do not alert the creditor to the fact they have issued a bad or defective Default Notice.

Default notices are independent from defaults recorded on your credit files.
Case law

The following cases relate to defective default notices and consequences for the creditor and in favour of the consumer:

Sections 87(1) and 88 and schedule 2 para 3 of the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 (SI 1983/1561)

By a notice dated 3 October 2008 and received on 9 October 2008 the Claimant was given until 21 October to pay £3,3361.78 a period of 12 (not 14) days. Furthermore the relevant indebtedness was assigned to the Defendant before 21 October 2008 thus rendering the notice ineffective to discharge its function.

Further the sum of £3,3361.78 was overstated by £26.65.

The wrong agreement number was given.

As stated earlier, the table on the FRC was incorrectly drawn and escaped detection despite the scale of the run. It must now be common ground that the default notice was sent by second class post despite MBNA’s original assertions to the contrary. Furthermore, I accept the contemporaneous annotation of the Claimant on the default notice (TB1/164) that the Office of Fair Trading information sheet was not included despite the assertion in the letter that it had been and Mrs Worden’s evidence that she “would find it surprising if there was no sheet”.
54. On 3 October 2008 MBNA sent a default notice (TB4/1502). Paragraph 12 of Mrs Worden’s statement dated 26 July 2010 reads as follows:

Exhibited to this Witness Statement at “NW3” is a copy of the default notice which was served by MBNA on the Claimant (“the Default Notice”). The Default Notice was dated 3 October 2008 and, in accordance with MBNA’s standard procedure was despatched to the Claimant on 3 October 2008 by way of UK Mail’s Business Class service which guarantees delivery within two days of despatch, including Saturdays. It is not, and was not in October 2008, the standard practice of MBNA to send default notices to customers by second class post. There is no reason why the Default Notice sent to the Claimant in this case would have been sent by second class post contrary to MBNA’s standard procedures.

55. Investigation by the Claimant who knows about such things revealed that the notice was sent by second class post. Mrs Worden’s own investigations revealed that it was “possible” that this was so. Her manner indicated that this was an elegant way of conceding the point as in my view she had to. Thus subsequent investigation contradicted a hitherto firmly held position of the Defendant that the notice had gone by a suitable post and was served in time. It was not. It was issued and sent by second class post on 3 October 2008 arriving (as was to be expected) on 9 October 2008 and was stated to expire on 21 October 2008. Given the date of delivery, the expiry date should have been 23 October 2008. The notice was bad.

56. At about the same time as that covering the notice of default, MBNA assigned the debt said to be owed by the Claimant to the Defendant. It was one of a parcel of debts of the type regularly sold to entities such as the Defendant. There is a dispute as to precisely when the debt was assigned. I am not sure how much turns on the point. On any view the default notice was served before the assignment. Notice of the assignment was not given before the date given for the expiry of the notice and payment to MBNA within the period would have operated as a good discharge.

57. The position deteriorated and in light of a threat to proceed against the Claimant’s home he took pre-emptive action and started these proceedings.

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