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Civil Litigation Section

All change: New pre-action protocol for debt claims

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The pre-action protocol for debt claims comes into effect on 1 October 2017. Craig Underwood, managing director & head of legal practice, and Melanie Hart, senior associate and solicitor advocate, discuss what it means for civil court claims.

On 22 March 2017, the final version of the pre-action protocol for debt claims (the protocol), to be annexed to the Civil Procedure Rules of England & Wales was published, with an implementation date of 1 October 2017. 

The protocol will apply to all civil court claims by a ‘business’ (including sole traders and public bodies) seeking payment of a debt from an ‘individual’ (including sole traders), unless the claim is of a type already covered by another specific pre-action protocol (such as the mortgage possession claims PAP).  

The main requirements of the protocol include changes to the information which must be included in a letter of claim or letter before action to an individual in debt (debtor), the documentation which must be sent to the debtor with the letter of claim or letter before action and the time limits for responding. 

The letter of claim

The protocol stipulates that the creditor must issue a letter of claim to the debtor before they commence litigation proceedings and provide mandatory requirements for what the letter contains, as well as a prescribed set of enclosures. These new requirements include:

  • A requirement that the letter sets out clearly, the amount of the debt as well as any interest and charges due.
  • Full details of the written (or oral) agreement should be set out, as well as the option for the debtor to request a copy of the written agreement. 
  • In the event that the debt has been assigned since being incurred, the letter of claim must provide the details of any assignment. 
  • If instalments are being paid against the debt, but the creditor is still wishing to commence a court claim, the letter of claim should provide an explanation as to why the current arrangement is unacceptable.

Practitioners should refer to the Protocol for a full list of the requirements. 

Letter of claim enclosures

The protocol’s stated emphasis is to be open and transparent. Items that must be included with the letter of claim are designed to promote clarity in respect of the debt being recovered and include:

  • Reply form - on receipt of the letter of claim, a debtor can respond by way of a standard ‘tick box’ style reply form, (set out in the protocol) and a copy of which must be provided by the creditor to the debtor with the letter of claim.
  • Standard information form and financial statement - a standard document to enable the debtor to set out their income and expenditure. The standard financial statement launched by the Money Advice Service in March 2017 is annexed to the protocol, as an example, although it is not a mandatory requirement to use it. Any document which contains substantially similar information should suffice.
  • Up to date account statement (detailing interest and charges added) - if such an account statement is not available, creditors are able to provide the most recent statement along with confirmation in the letter of claim of any interest and charges which have been applied since the most recent account statement provided, or since the debt was incurred, if applicable.

The letter of claim must be delivered in paper format by post, unless expressly agreed otherwise with the debtor. The Protocol makes clear that a standard clause in an agreement opting out of paper format is insufficient for this purpose. This has caused many creditor representatives to criticise the protocol as unnecessarily costly to operate in volume debt recovery situations. 

The response

A creditor must now give the debtor at least 30 days from the date of the letter of claim to respond. Any requests for documents or information by the debtor should be made at this stage.  If a debtor states that debt advice is being sought or more time is required, the creditor must allow a reasonable period for the advice to be obtained and should avoid issuing proceedings until 30 days from receipt of the completed reply form, or from the creditor providing the documents requested, whichever is later.  

If a debtor requires more than 30 days to obtain the advice, the debtor must provide details as to why the advice cannot be obtained sooner and also when it is expected to be received. The protocol states that the creditor should then act reasonably in regards to providing extra time. Critics of the protocol cite the lack of funded advice available, such as citizens advice, legal aid and other support mechanisms, are likely to prolong the timescales whilst debtors seek appropriate advice. 

In the event that more time to pay is requested, attempts should be made for an agreement to be reached with due consideration afforded to the financial statement. If a repayment proposal is rejected, written reasons must be provided to the debtor.  

If a debtor fails to respond, proceedings may be issued 30 days after the letter of claim. If a response is received but no agreement reached, the protocol states that the parties should ‘take stock’ of their positions. In any case, in these circumstances, creditors are expected to provide a further 14 days’ notice of their intention to commence proceedings.  

Conclusion 

The protocol’s clear intention is to protect debtors from claims made by creditors where there is insufficient information provided about the debt and introduces a number of new requirements which creditors and debtors are expected to follow before court proceedings are commenced. 

Compared to existing practices, the passage of time from letter of claim to the commencement of court proceedings is likely to increase from an average of two weeks to 30 days, but possibly up to 74 days or more in some cases where debt advice is sought, or discussions are entered into. 

Although the protocol states that the courts will not be concerned with minor and technical breaches, particularly when the matter is urgent, they do have the power to consider breaches of the protocol and impose potential sanctions. These could include orders relating to the payment or rate of interest claimed, costs orders, unless orders and other case management orders provided to ensure compliance with the protocol.  

The protocol has been through a lengthy consultation process and has met with significant criticism, mainly from creditor representatives who argue that the protocol places a disproportionate burden upon them to provide historic information, some of which may not be readily available in the case of a debt sales or assignments.  Critics also suggest that the protocol disproportionally increases operating costs on low value debts. 

What is clear is that the protocol is designed to further protect the rights of debtors by encouraging the sharing of information and promoting settlement wherever possible.  What remains to be seen is the overall impact of the protocol. Debtors will undoubtedly be better protected but consumers may see the costs of goods and services increase if debts can no longer be pursued economically.

About the authors

craig underwood2

Craig Underwood is managing director & head of legal practice at Optima Legal. He is also a member of the Civil Justice Committee.  

melanie hart3

Melanie Hart is a senior associate & solicitor advocate at Harbottle & Lewis LLP. She is also a member of the Civil Justice Committee. 

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