Consumer Credit Update: Changes to Notices – what needs to be done?

12/11/2020

The Amending Regulations amend the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 (the 1983 Regulations), which prescribe the form and content of notices required to be given by creditors under sections 76, 87 and 98 of the Consumer Credit Act 1974 (the CCA) before they are able to take action to enforce or terminate a regulated agreement.

The rationale for such change has been driven by the increasing understanding of mental health since the 1983 Regulations were published, the link between problem debt and mental health and the impact these notices will have on consumers’ mental health. This was echoed by findings in 2018 by the Mental Health Policy Institute (MHPI), who found changing letters to those in debt would make a difference to consumers’ mental health, which included notices given under the 1983 Regulations.

The Amending Regulations are published as part of a drive by the Government to help those struggling with their finances and mental health. The Amending Regulations are designed to reduce the adverse impact of the notices and empower borrowers to take control of their finances, making it easier for borrowers to understand the notices and access further support if needed.

What is going to change?

The Amending Regulations amend the 1983 Regulations by:

1. Banning the use of block capitals to aid prominence

Often viewed as intimidating and detrimental to consumer welfare, the aim of such prohibition is to ensure that any alarm or distress caused to vulnerable or indebted borrowers is minimised.

2. Removing technical language

This includes the word “enforcement” and “judgement”, as they are viewed as difficult for borrowers to interpret. While the word “surety” is not widely understood, it is acknowledged that it is a term defined in the CCA, and sureties are given certain rights under the CCA, so it could not be removed. Where terms such as surety cannot be removed, the Amending Regulations state that simple explanations should be provided instead, or where it is possible, amending the term where appropriate.

3. Altering the wording and ordering of notices

This amends the form of the notices found in Schedules 1 to 3 of the 1983 Regulations, as well as removing Schedule 2 of the 1993 Regulations governing the form of default notices, replacing it in its entirety. This is designed to improve borrowers’ understanding.

4. Updating the sources of support

The Amending Regulations now refer to the Money Advice Services, which provides advice and directs borrowers to debt advice and support. This updates the sources detailed in the 1983 Regulations, which is now outdated.

What next?

The Amending Regulations come into force on 2 December 2020, with firms benefitting from a 6 month transitional period from this date to implement any amendments required.

In order to ensure compliance, affected firms must:

  • Take stock of its existing suite of documents, to assess whether the notices they send to borrowers will be affected by the changes. As detailed above, the changes affect notices issued under sections 76, 87 and 98 of the CCA;
  • Review its operational and internal systems to ensure that any changes required to be made are implemented in plenty of time; and
  • Carry out training of its staff who are responsible for issuing such notices to ensure they understand the changes made as a result of the Amending Regulations.

Is your firm affected? If so, we can help. Please reach out to us using the contact information provided.