Default notices – what are they and what do they mean?

posted by in Living with debt

Letters demands

You keep getting letters, but what do they mean?

Receiving a default notice through the post can be quite stressful and not knowing what this means can add to the pressure you’re already under. Let us help put your mind at ease and explain what it actually means.

A default notice is a formal letter which is usually sent after three to six missed payments. They can only be issued for debts that are regulated by the Consumer Credit Act.

There are several things that it should include:

  • The type of agreement
  • The agreement terms that have been broken
  • What you should do to put the account in order (how much you need to pay and by when)
  • What the creditor will do if you don’t comply with the request
  • How long you have to respond (this should be a minimum of 14 days)

It should also include an information sheet from the Financial Conduct Authority with guidance on what to do and how to get free debt advice. We’re listed on there.

They usually ask for a lot of money within a short period of time, something that’s impractical for most people to afford.

If you’re not able to meet the requirements of the default notice, the account is usually cancelled and you can no longer use the credit facility. Creditors will not always take further action listed in a default notice but they are legally entitled to if you don’t comply with the terms.

The creditor can also:

  • Demand the balance in full
  • Sell or pass the debt to a collection agency
  • Start court action
  • Start proceedings to repossess anything that forms part of the agreement (for example a car that is part of a hire purchase agreement)

The creditor can only carry out these actions after the account has defaulted. If you pay back the amount stated within 14 days, no further action is taken. If future payments are missed a default notice can be issued again.

We often hear from clients that haven’t received a default notice and their creditor has taken further action. It’s important to remember that the notice is considered served if the creditor has sent it by post to your last known address. It can be difficult to prove whether this was sent or received.

How will it affect you?

Default notices are recorded on credit files and usually remain there for six years. This could affect your ability to obtain credit in the future.

If the default was issued by mistake or you made the full payment within the time period, you can ask for it to be removed from your file.

To do this you would need to write to the lender including your account details and proof of why you think the information needs to be removed. You can also contact the credit reference agency but they would usually need to confirm it with the lender anyway (which can take more time).

If you don’t get a satisfactory or timely response within 28 days you can put in a complaint to the Information Commissioner.

You can read more about default notices on our website.

If you’ve received a default notice, it’s important that you contact your lender and make an affordable arrangement to repay the debt. You can use our online Debt Remedy tool to help you do this.

If you’re already on a debt management plan (DMP) with us and you receive a default notice, it’s important not to panic and stick to the agreement you have with us. If you’re unsure, just give us a call. We’ll be happy to help.

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Pavan Gata-Aura is a qualified debt advisor with 6 years of experience. She enjoys spending time with her two children, fundraising for charities, has spent time volunteering in Africa and takes part in organised races.

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