The Consumer Credit Act (CCA) 2006 and its amendments affect all those of us who use credit to buy goods and or services, for example, under hire-purchase agreements or using a store credit card.
The Act governs the licensing of, and other controls, on traders who supply credit, or goods and services on credit. It is therefore a valuable tool to have knowledge of how it works at your fingertips.
This article explains the law under the CCA. Specifically, it explains what a creditor may do if the debtor breaches the agreement.
Arrears notice penalty
Of course, when a trader provides credit, he or she accepts that the debtor may default, whether intentionally or not, or knowingly or not.
Either way, the creditor is under a duty to provide the debtor with a notice stating that he or she is in arrears and exactly how much money is owed.
Section 11 of the CCA 2006 amends the CCA 1974 by inserting a new section - 86D - that sets out the consequences for a creditor if he fails to notify as required by sections 86B or 86C.
If the creditor fails to provide a notice when required to do so, then throughout the period of their failure (i.e. from the date that it was required to be given until the end of the day on which it is eventually provided), they are not entitled to enforce the agreement.
In addition, the debtor or hirer is not liable to pay any interest that relates to the period of the creditor or owner’s failure,
Notice of default sums
Section 12 of CCA 2006 applies to situations where a debtor or hirer under a regulated agreement incurs a default sum.
A creditor or owner must give the debtor or hirer a notice in the specified form when a default sum becomes payable as a consequence of a breach of the agreement.
For example, you hire a car for the duration of your holiday. There will often be a penalty sum payable if you incur a fine from using the car. The car-hire company might say this is to cover, for example, administration charges. Either way, certain sums are payable if you breach the agreement. Where this applies, the creditor must provide notice to the debtor of the amount they must pay.
This only applies where the default sum exceeds a specified amount.
Additionally, a creditor may only require a debtor to pay interest (in connection with a default sum) 28 days after the day the notice was given to the debtor. So if the creditor fails to give notice to the debtor then he cannot enforce the agreement until notice is given.
The term default sum has been redefined in s.18 of the CCA 2006. The term now means: an amount of money payable by a debtor or hirer in connection with his breach of a regulated agreement. In other words: a charge imposed for late payment of an instalment due under the agreement, or a fee imposed for exceeding a credit limit on a credit card.
A default sum does not include amounts that, as a consequence of a breach of the agreement, become payable earlier than they otherwise would have done. Nor does it include interest.
Interest on default sums
Section 13 has been amended so that a creditor or owner may only require simple interest to be paid in respect of default sums payable by the debtor or hirer. This includes sums payable under non-commercial or small agreements.
The minimum period after which a creditor or owner may take action (in respect of the agreement after having issued a default notice) is now 14 days. It used to be only 7 days. Section 14 of the CCA 2006 amends section 88 of the 1974 Act to create this extension.
Additionally, under s87, a creditor or owner must give the debtor or hirer a default notice in the prescribed form if he wishes to do any of the following:
- terminate the agreement
- demand earlier payment of a sum
- recover possession of any goods or land
- treat any right conferred on the debtor or hirer by the agreement as terminated, restricted or deferred
- enforce any security
Section 88 is also amended to allow the Secretary of State to prescribe information in the default notice to include any matters relating to the agreement (e.g. information about whether the agreement includes a term providing for the charging of post-judgment interest).
What to read next
There is other law that gives consumers rights against traders. We suggest that you might read about the Consumer Contracts Regulations next.