FCA makes a U turn on guidance about Default Notices and Guarantors
The FCA have concluded that their previous view that it's not necessary to send a default notice to a guarantor before taking or demanding payment from them (which includes a direct debit and continuous payment authority) is in fact incorrect. They now advise that a default notice is required – if payment is taken from a guarantor without a default notice having been served then a guarantor may have a cause of action against a creditor and the FCA may also take disciplinary action.
Their original view was contained in a policy statement published in September 2015 (PS15/23). The revised view is set out in a consultation (GC16/2) which they have issued prior to formal guidance.
The FCA stated initially that it was not necessary to send a default notice to a guarantor before taking or demanding payment from them as this ‘would not amount to enforcement of security’. This view is at odds with the CCA which sets out, amongst other things, that :
• the definition of security in s189 of the CCA includes a guarantee;
• a default notice must be served on the debtor before the creditor can take steps in respect of a breach by the debtor of a regulated agreement (s87(1)); and
• a creditor must serve a copy of the default notice (which must itself comply with s88) on the surety (s111).
The FCA now say that they would not ‘expect to take’ disciplinary action against a creditor who had taken a payment from a guarantor without first issuing a default notice to the borrower and copying this to the guarantor during the period from 28 September 2015 to 19 February 2016. This stance is likely to create some uncertainty for lenders who took such payments during this period and is likely to raise the following questions, amongst others:
• Should payments received be returned?
• Will sending a default notice now ‘remedy’ the situation and can the creditor continue to receive payments?
The FCA are taking comments on this fresh guidance until Friday 18 March 2016. Click here
to read more about this issue.