Default notices, litigation and section 127(3) of the Consumer Credit Act

23 July 2010

Default notices, litigation and section 127(3) of the Consumer Credit Act

By Paul Bicknell

For a creditor to enforce a credit agreement against the debtor, he must serve the latter with a default notice, this notice must be served in accordance with section 88 of the Consumer Credit Act 1974 (CCA).

Generally, the prescribed form of a default notice according section 88 is as follows:

"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."

Section 127(3) of the Consumer Credit Act 1974

Should the debtor be sued for the outstanding amount, it may be open to the debtor to raise an argument that the agreement is unenforceable because it does not comply with the requirements of the Consumer Credit (Agreements) Regulations.

Agreements executed before 6 April 2007 are subject to sections 127 (3) & (4) of the Consumer Credit Act 1974 ('CCA'). Agreements entered into after that date are not by operation of the repeal under the Consumer Credit Act 2006.

The effect of sections 127 (3) & (4) truly displays the paternalistic nature of the CCA, in that where a breach of a prescribed term under regulation 6 and schedule 6 to the Consumer Credit (Agreements) Regulations 1983 is found, the agreement as a whole will be irredeemably unenforceable.

In other words, the lender cannot enforce the agreement or realise any surety under that agreement; the debt in effect is written off.

By Paul Bicknell. Paul is a trainee solicitor specialising in commercial and intellectual property litigation and can be contacted at paul.bicknell@lawdit.co.uk.