Notice of penalty in arrears: When a trader provides credit, he admits that the debtor may default,

whether knowingly or unknowingly. Either way, the creditor is under a duty to provide the debtor
with a notice stating that he is in arrears and exactly how much money is owed.

Section 11 of the Consumer Credit Act 2006 alters the Consumer Credit Act 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 his
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), he is not entitled to enforce the agreement.

Moreover, the debtor 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.
Default sum

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.

Other changes

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).