Pre-litigation conduct in respect of the requirements for debt recovery claims has become more and more comprehensive over the years and there are now numerous regulatory and legislative requirements that must be observed by creditors. However, there has never been a specific Pre-Action Protocol for debt recovery claims within the Civil Procedure Rules. Parties have instead been bound by the general Practice Direction on Pre-Action Conduct to enable parties to aim to settle the issue between them without the requirement to issue proceedings. Before commencing a debt recovery claim, parties should exchange requested information, act in a proportionate and responsible manner (particularly with relation to costs) and make every appropriate attempt to resolve the matter prior to starting proceedings. The Practice Direction on Pre-Action Conduct has proven itself to be a proportionate and practical guide to pre-action requirements in various claims where there is no contained specific protocol, including debt recovery.
2010 Debt Recovery Review
In 2010, Lord Jackson’s review of litigation costs recommended that a new and specific Pre-Action Protocol for debt recovery claims be introduced. The draft debt recovery protocol is currently out for consultation with its aim to closely mirror the existing Practice Direction on Pre-Action Conduct: to consider ADR, exchange information and act proportionately and reasonably etc. However, specific obligations are also placed on claimants and many see these as disproportionate and unworkable additions to the process of recovering debt. We have been informed that letters before claim should include:
- whether costs and interest are included and if so, a costs and interest calculation
- where regular instalments have been offered, accepted and are being paid, an explanation as to why court action is being considered
- a requirement for a 28 day period in which the Defendant can return a ‘reply form’ and a formal debt protocol notice of 200 words
The claimant is required to enclose with the letter before claim:
- a copy of the full debt protocol (which in its current form is nine pages)
- a complete statement of account containing details of:
- all charges and interest and the formula used to calculate them
- details of payments already made to the creditor by the debtor
- the defendant’s ‘reply form’ a copy of the contract/agreement and an SAE.
The A4 reply form gives the debtor six options for different responses including as an example that they are seeking advice on the matter or that they accept or deny the claim. If the debtor indicates that they intend to seek advice on the matter they are then to be given at least 28 further days to do so. In such a scenario, they would have a minimum of 56 days from receiving a letter before claim before being required to substantively respond.
Future Legislative Delays in Debt Recovery
In addition to the inevitable delays, implementation of the draft in its current form, would simply force creditors to duplicate many of the processes they already carry out. Debtors will already be receiving Notice of Arrears within 14 days under the 1974 Consumer Credit Act and subsequently at 6 month intervals while arrears are present. In the case of terminated agreements, details of breach remedy amounts are already included in default notices. Furthermore lenders are already bound to send account statements if requested. It is entirely possible that rather than helping to resolve claims prior to litigation, the protocol in its draft form would confuse debtors and create onerous burdens leading to an increase in litigation. Can it really be reasonable to send debtors reams of papers in different formats and with different ‘notices’ but all containing the same information?
The terminology may well confuse, with debtors now being called defendants and creditors now being called claimants. Debtors may not understand the meaning of ‘otherwise unenforceable or statue barred’ which is just one of the options for disputing the claim contained within the reply form? Will non-compliance costs sanctions and indemnity basis costs be understood or have any meaning to debtors? The draft protocol does not assist consumers as it is simply not consumer friendly.
Debt Recovery Protocol Balance Required
The need to tidy up protocols surrounding debt recovery was correctly identified in the Jackson report, however, balance is required. There is little or no point in a debt recovery protocol that seeks to in part or whole replicate existing regulatory or statutory requirements. Serious care and attention must be taken to ensure the finalised protocol does not overburden and confuse proposed litigation and add unnecessary delay or cost to debt recovery claims, a situation of no benefit to the system or either party involved.