If you fail to keep up repayments towards a debt or you pay less than you are required, you may receive a default notice, also known as a default letter or Notice of Default.
A default notice is a formal letter or warning that your creditor must provide before they can take any further action. This might include ending any agreement with you and asking you to pay early.
This can have serious financial consequences – it will be recorded on your credit file and can negatively impact your credit score.
A lender must first supply a default notice for all debts which are covered by the Consumer Credit Act 1974 (CCA). These debts include things like credit cards, payday loans, personal loans and hire purchase agreements.
How do I know if my loan is covered by the Consumer Credit Act 1974?
It is likely that your loan is covered by the Consumer Credit Act 1974 if it meets any of the following conditions:
The loan was taken out after 6th April 2008.
The loan was taken out between 1st May 1998 and 6th April 2008 and amounted to no more than £25,000.
The loan was taken out before 1st May 1998 and was for no more than £15,000.
If your loan is covered by the Consumer Credit Act 1974, it should clearly state at the top of your loan agreement, ‘Consumer Credit Agreement regulated by the Consumer Credit Act 1974’.
What does a default notice say?
A default notice, if you receive one, will state that it is a ‘default notice under the Consumer Credit Act 1974’. It should also provide you with the following information:
Details of the missed payments.
A date by which you must clear your arrears (this must be at least 14 days after the default notice has been issued).
Details of what will happen if you fail to clear your arrears within the given timeframe.
You will also receive an information sheet supplied by the Financial Conduct Authority (FCA) which will help you to understand the default notice and what your next course of action should be.
It will tell you what will happen if you’re unable to pay your arrears, the options you have available to you for managing your debt, and where you can seek debt advice.
What should I do if I receive a default notice?
If you receive a default notice, it is important that you first make sure that your lender has previously sent you a notice of sums in arrears. Without this, the default notice may not be valid. You should speak to a debt advisor immediately if you are unsure where you stand.
If you have previously received a notice of sums in arrears, you have several options available to you:
Clear your arrears within the given timeframe. No further/legal action will be taken.
Contact your lender, you may be able to come to an arrangement for repayment.
Seek debt advice.
Apply for a time order. This can give you more time to pay if the lender is taking court action against you.
In some cases, if you are on a Debt Management Plan (DMP), you may still receive a default notice as you are paying less than you are supposed to. This isn’t always a cause for concern, but you should still seek professional advice in the first instance as you have no legal protection under a Debt Management Plan.
Do I have to acknowledge a default notice for it to be valid?
While you may think that if you haven’t received a default notice through the post, you shouldn’t have to pay, this is not the case. If you have failed to notify your lender of any change in address and a default notice has been delivered to a previous address, this is still your responsibility.
The creditor is not required to prove that you have received the notice.
If you look at your credit report, you will be able to see if you have received a default notice to a different address.
How does a default notice affect my credit rating?
A default notice will remain on your credit file for 6 years. You may repay the debt after the default notice has been issued, in which case it will show as ‘satisfied’ or ‘settled’, but the default notice will still remain on your credit file.
Lenders may be less inclined to lend to you in the future, and this may mean that you are only accepted for loans offering higher rates of interest. It could also make it more difficult to sign up for things like mobile phone contracts and it could leave you paying more for your car or home insurance, as both of these use credit agreements if you plan to pay in instalments.
What happens if the default notice expires?
If you allow the notice period to lapse without clearing your arrears, your account will default. This means that any agreement that you had with your creditor is cancelled and they will proceed to inform the credit reference agencies.
The lender will start to ask for the full amount owed rather than any instalments that you have missed. If you have debt against a Hire Purchase (HP) agreement, they may apply to repossess these items.
Your creditors may also pass on your debt to a debt collection agency and they are likely to pursue further court action. In England, Wales and Northern Ireland, this may include a County Court Judgment (CCJ). The Scottish equivalent of a CCJ is known as a Scottish Decree.
What should I do if my default notice expires?
Nobody wants to be harassed by debt collectors or feel like their debt is out of control.
If your default notice expires, you are unable to reach an agreement with your creditors for a sensible payment plan, and you have unmanageable debt, there are several options available. These include a number of debt solutions such as IVAs (or Trust Deeds in Scotland).
If you’re looking for a way to manage your debt, get in touch with Scottish Debt Expert now for a free initial consultation. We’ll be able to provide you with further information on the different debt solutions available and provide expert advice to find the most appropriate one for you.
