The Pre-Action Protocol for Debt Claims
The final version of the Pre-Action Protocol for Debt Claims has been released and will come into force on 1 October 2017. The Protocol aims to encourage early communication, resolution without court proceedings and reasonable and proportionate conduct. It will increase the information and documentation which creditors must provide to debtors together with the letter of claim and introduces a new timeline from letter of claim to the issue of proceedings.
When does the Protocol apply?
The Protocol will apply to letters before claim sent to customers on or after 1 October 2017. It applies to any business claiming payment of a debt from an individual (including a sole trader). The Protocol does not apply to business to business debts unless the debtor is a sole trader.
The Protocol is intended to be complementary to any regulatory regime to which the creditor is subject. If compliance with the Protocol would be inconsistent with a regulatory obligation, such as a rule contained in the Financial Conduct Authority’s Handbook, the regulatory obligation takes precedence. The Protocol will not apply where the debt is covered by another Pre-Action Protocol, such as Mortgage Arrears. For a flowchart on the applicability of the Protocol, see the full article on the Eversheds Sutherland website.
What is the new process under the Protocol?
An enhanced 'Letter of Claim' is required, including details of the amount of the debt, dates and parties to a written contract, what was agreed in respect of any oral contracts, details in respect of any assignment and details of how the debt can be paid.
The Letter of Claim must also enclose:
- an Information Sheet (Annex 1 to the Protocol);
- a Reply Form (Annex 1 to the Protocol); and
- a Financial Statement form (an example is provided at Annex 2 to the Protocol).
The Letter of Claim should also enclose an up to date statement of account for the debt, the most recent statement of account together with information on interest and/or charges incurred since issue or where no statements have been provided, state in the Letter of Claim the amount of interest and other charges imposed since the debt was incurred.
The proposal that a copy of the agreement should also be provided has been rejected. The Letter of Claim will however, need to prominently state that such documents are available upon request. An individual will have 30 days to reply to the Letter of Claim using the enclosed Reply Form.
If the debtor indicates that they are seeking debt advice, the creditor must allow a reasonable period for the advice to be obtained. If a request for further documentation is made then the creditor must respond to that request, providing the documentation or otherwise explaining why it will not be provided, within 30 days.
In the event of a dispute, the Protocol requires that the parties take steps to seek to resolve it without recourse to court proceedings, in particular by considering Alternative Dispute Resolution (ADR). In some cases, especially where the debt is large, mediation might be appropriate.
Should the parties proceed to litigation, the court will take into account non-compliance with the Protocol when giving directions for the management of proceedings and when making orders for costs...
For further information and a flowchart on the process set out under the Protocol, see the full article on the Eversheds Sutherland website. For assistance with ensuring that processes and procedures are compliant with the new Protocol by 1 October 2017, please contact Anthony Davies or Steve Perry.
This guest blog was originally published as part of Associate Knowledge by BSA Associate, Eversheds Sutherland
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