By May and June this year, lenders will be required to make changes to the pre-contract credit information that they provide to their consumer borrowers, and to the form and content of any default notices that they issue. Lenders should use the time available to review and update their existing documentation in order to avoid credit agreements being unenforceable and default notices being non-compliant.
Changes to pre-contract credit information
Section 55 of the Consumer Credit Act 1974 requires a lender to provide a borrower with pre-contract information in a prescribed manner. Currently, this is provided via the Standard European Consumer Credit Information (SECCI) document.
To deal with the UK's exit from the EU, the snappily named Financial Services and Economic and Monetary Policy (Consequential amendments) (EU Exit) Regulations 2020 came into force on 30 December 2020.
These regulations set in motion (by making changes to other regulations relating to the UK's exit from the EU) the requirement for firms to remove references to SECCI (for loans) and European Consumer Credit Information (for overdrafts) by 30 May 2021. These headings do not have to be replaced with alternatives, it is just a case of deleting them.
Failing to update pre-contract credit information documents by the deadline could mean that credit agreements are unenforceable against borrowers with a court order.
Changes to default notices
Section 87 of the Consumer Credit Act 1974 requires a lender to serve a default notice on a borrower before the lender is entitled, in the event the borrower is in breach of the agreement, to (among other things) terminate the agreement or demand earlier payment of any sums under it.
The Consumer Credit (Enforcement, Default and Termination Notices) (Coronavirus) (Amendment) Regulations 2020 came into force on 2 December 2020 and make changes to form and content requirements relating to default notices.
The key changes require lenders to:
- no longer use block capital in order to achieve required prominence of certain words. Instead lenders must use lowercase and may use bold formatting or underlining (but not both);
- alter the prescribed wording and ordering of the notices to become more consumer friendly;
- provide clearer explanations of any legal jargon or words that are not easily understood, for example, by including prescribed wording explaining what is meant by "a surety", if applicable, (although a surety no longer has to be mentioned if there isn't one); and
- update sources of support identified in the Financial Conduct Authority's information sheet and the government's Money Advice Service.
Lenders must ensure that their default notices comply with the new Regulations by 2 June 2021.
Failing to comply with the strict form and content requirements relating to default notices does not mean that the agreement is unenforceable with a court order – instead, lenders will be required to serve a compliant default notice on a borrower before they are entitled to take any of the actions set out in section 87.
The regulations also make minor changes to the default notices which must be sent under section 76 (notice to enforce a term) and section 98 (notice of termination where there is no default by the borrower).