The Government has announced that new rules have been proposed by the Treasury for Default Notices required under section 87 Consumer Credit Act 1974 (CCA).
Default Notices must be served by lenders on borrowers that have breached their CCA regulated agreement (e.g. by not paying amounts when they fall due) before the lender can terminate the agreement, demand early repayment of any sum, or recover possession of any goods or land.
The content of a Default Notice is heavily prescribed by regulations. The current requirements for Default Notices are contained in the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 which are now almost 40 years old. As well as prescribing specific wording that must be included in the Default Notice the regulations also specify how some of the information must be presented, including requiring some sections to be in capital letters. Research has shown that this capitalised text, and use of legal terms can make the information harder for borrowers in debt to understand.
Many lenders have tried to present the information in their Default Notices in a more consumer friendly way, but have been limited in what they are able to do by the current rules. Counter intuitively, many lenders' attempts to provide clear information to consumers has placed them in risk of breaching the arguably outdated regulations.
The new rules are designed to restrict the amount of information that must be made prominent, and require text to be shown in bold or underlined instead of in capital letters. The new rules will also allow lenders to replace confusing legal terms with simpler phrases that can be more easily understood.
The new rules are expected to come into force in December this year. Lenders will then be given six months to amend their template Default Notices to comply with the new requirements.
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