Regulatory Alerts2016-10-24
Added · Updated
Guarantor loans: default notices: FG17/1
The Financial Conduct Authority clarifies that enforcing a guarantee or indemnity includes demanding payment or using a continuous payment authority without appropriate prior notification, which constitutes enforcement under section 87 of the Consumer Credit Act 1974. Lenders must serve a default notice on the borrower and a copy on the guarantor before enforcing security, unless they provide pre-notification allowing at least five working days for the guarantor to cancel the payment authority. The guidance distinguishes between CCA default notices, which can be issued immediately after a breach, and credit reference agency defaults, which generally require the account to be in arrears for at least three months.