Tweet
Default on CRA vs Default s87 / s88 CCA1974
There is a lot of confusion around where people seem to think that before a lender can issue a default entry against you (on your credit file) that they must adhere to s.87 & s.88 of the CCA or similar. This is not true!
There are two clear definitions for the term 'Default' and below you'll see them and the main purpose and reasoning behind them.
Default on Credit File
In order to be defaulted on your credit file the lender must first follow ICO Guidelines on Issuance of Default Notices. The latest version of this document is called: Principles for the Reporting of Arrears, Arrangements and Defaults at Credit Reference Agencies. You can access and read the document below (towards bottom of post - click the attachment).
It's important to pay attention to part 4 of the guide -
So in theory what that means is that before a default is registered against you with the credit record agencies (CRA's) you must be at least 3 months into your relationship breakdown, ie missed 3 contractual payments or you've come to some other arrangement to clear a debt that has subsequently broken down. There are exceptions, such as bank accounts or if they allow a DMP etc in which case it seems the lenders just add a default when they see fit - sometimes years later!
That is it. It's that easy for them to add a default marker against you.
We always suggest that you get this over and done with early doors if you're likely to get one years later, as it only lasts for 6 years so if your DMP is 10 years long you're actually probably better off getting defaulted first as that only lasts 6 years whereas the DMP will carry 6 years trailing DPM markers AFTER the end of the plan!
Default via s.87 / s.88 CCA1974
This is entirely different to the information above. This route is the legal route the lender must take prior to enforcing the debt ie trying to take you to court. It has nothing to do with a credit file and bears no impact to anything on your credit record. For instance, you could get a Default Notice in line with s.87 relatively soon after stopping payments yet the lender may not actually default you via the credit agency for several months, especially if they follow guidelines which state they 'should' add it within 3-6 months (but not all do).
The below should explain the provision of s.87 & s.88 and show why it's absolutely nothing to do with, and entirely separate, to your credit file.
s.87 Consumer Credit Act 1974 - 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;
(2) Subsection (1) does not prevent the creditor from treating the right to draw upon any credit as restricted or deferred, and taking such steps as may be necessary to make the restriction or deferment effective.
(3) The doing of an act by which a floating charge becomes fixed is not enforcement of a security.
(4) Regulations may provide that subsection (1) is not to apply to agreements described by the regulations.
s.88 Consumer Credit Act 1974 - Contents and effect of Default Notice
(1) The default notice must be in the prescribed form and specify;
(2) A date specified under subsection (1) must not be less than fourteen 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 seven 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 fourteen days 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.
(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.
There are two clear definitions for the term 'Default' and below you'll see them and the main purpose and reasoning behind them.
Default on Credit File
In order to be defaulted on your credit file the lender must first follow ICO Guidelines on Issuance of Default Notices. The latest version of this document is called: Principles for the Reporting of Arrears, Arrangements and Defaults at Credit Reference Agencies. You can access and read the document below (towards bottom of post - click the attachment).
It's important to pay attention to part 4 of the guide -
If you fall into arrears on your account, or you do not keep to the revised terms of an arrangement, a default may be recorded to show that the relationship has broken down, as a general guide, this may occur when you are 3 months in arrears, and normally by the time you are 6 months in arrears.
There are exceptions to this which may result in a default being recorded at a later stage, such as secured or long term loans e.g. mortgages, or if the product operates in a more flexible way e.g. current accounts, student loans, home credit. If an arrangement is agreed (see Principle 3 above), a default would not normally be registered unless the terms of that arrangement are broken.
There are exceptions to this which may result in a default being recorded at a later stage, such as secured or long term loans e.g. mortgages, or if the product operates in a more flexible way e.g. current accounts, student loans, home credit. If an arrangement is agreed (see Principle 3 above), a default would not normally be registered unless the terms of that arrangement are broken.
So in theory what that means is that before a default is registered against you with the credit record agencies (CRA's) you must be at least 3 months into your relationship breakdown, ie missed 3 contractual payments or you've come to some other arrangement to clear a debt that has subsequently broken down. There are exceptions, such as bank accounts or if they allow a DMP etc in which case it seems the lenders just add a default when they see fit - sometimes years later!
That is it. It's that easy for them to add a default marker against you.
We always suggest that you get this over and done with early doors if you're likely to get one years later, as it only lasts for 6 years so if your DMP is 10 years long you're actually probably better off getting defaulted first as that only lasts 6 years whereas the DMP will carry 6 years trailing DPM markers AFTER the end of the plan!
Default via s.87 / s.88 CCA1974
This is entirely different to the information above. This route is the legal route the lender must take prior to enforcing the debt ie trying to take you to court. It has nothing to do with a credit file and bears no impact to anything on your credit record. For instance, you could get a Default Notice in line with s.87 relatively soon after stopping payments yet the lender may not actually default you via the credit agency for several months, especially if they follow guidelines which state they 'should' add it within 3-6 months (but not all do).
The below should explain the provision of s.87 & s.88 and show why it's absolutely nothing to do with, and entirely separate, to your credit file.
s.87 Consumer Credit Act 1974 - 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.
(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.
(2) Subsection (1) does not prevent the creditor from treating the right to draw upon any credit as restricted or deferred, and taking such steps as may be necessary to make the restriction or deferment effective.
(3) The doing of an act by which a floating charge becomes fixed is not enforcement of a security.
(4) Regulations may provide that subsection (1) is not to apply to agreements described by the regulations.
s.88 Consumer Credit Act 1974 - 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.
(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 than fourteen 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 seven 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 fourteen days 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.
(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.
Comment