The Ministry of Justice is consulting on a revised draft Pre-action Protocol for Debt Claims (Debt Protocol) after an earlier version was lambasted by representatives of the credit industry as being totally disproportionate. The new version attempts to strike a more proportionate balance between the needs of creditors, debtors and debt advisors.
Debt claims make up a huge swathe of the business of the courts. Lord Justice Jackson identified the need for a specific pre-action protocol for such claims in his final report reviewing civil litigation costs. The aim of such a protocol was to ensure that debtors, or alleged debtors, should be provided with sufficient information to enable them to get advice on their position before a claim was issued against them.
However, the draft Pre-Action Protocol for Debt Claims which the Civil Procedure Rule Committee (CPRC) put out for consultation in September 2014 caused consternation amongst the credit industry due to the volume of paperwork and information that creditors would be required to provide. Under its provisions creditors would not only be obliged to provide very detailed statements of account and a raft of other documents and information relating to the alleged debt but also a full copy of the Debt Protocol itself. This was considered disproportionate given that 95% of such claims go undefended.
In 2015 a new sub-committee of the CPRC was formed to consider the draft in light of the consultation responses. Representatives of the Civil Court Users Association, a debt purchaser organisation and a debt advice provider were all co-opted onto the sub-committee to ensure that relevant stakeholders’ views were taken into account. That sub-committee has now produced a new draft which has involved a large degree of re-working.
The main change has been to the volume of documentation which creditors will have to provide to alleged debtors as of right. A two stage approach will now be adopted whereby some information will have to be provided as of right with or in the letter of claim, with other information and documents being made available on request and debtors being prompted to consider what information they might want to ask for.
The burden on creditors to supply debtors with a full copy of the Debt Protocol has also gone. Instead creditors will have to provide debtors with a standard Information Sheet which sets out in plain English what their rights and obligations under the Debt Protocol are.
It looks as though creditors will be required to enclose a copy of any written agreement relating to the debt when they send the letter of claim. Creditors had argued that this would be disproportionately costly given that the debtor will already have received a copy of the written agreement when the debt was incurred. Also many creditors’ processes are not set up in such a way as to enable them to readily find an agreement relating to an individual’s case. In situations where the debt has been assigned, the debt purchaser wanting to initiate proceedings may not have received a copy of the credit agreement from the original creditor.
The sub-committee had sought to reach a compromise on this issue by providing that the written agreement should be provided as of right with the letter of claim "unless providing the agreement is disproportionately burdensome to the creditor". The CPRC was however unanimous in its view that such an agreement should be supplied as of right and that it would be inappropriate for creditors to decide whether it would be disproportionately burdensome to do so. Debt advisors need to be able to see the written agreement in order to be able to advise on compliance with the Consumer Credit Act, limitation issues and unfair contract terms. Having to request a copy of the agreement would simply cause delay. Further, creditors and debt purchasers alike shouldn’t be commencing proceedings without checking the underlying agreement and ensuring that there is adequate documentation to support the claim.
The draft is now out for consultation until 11 January 2016. We will provide a further update once the consultation has closed and the Ministry of Justice have confirmed how they intend to proceed. Creditors may need to review how they will go about filing and retrieving written agreements if the requirement to supply the debtor with a copy of the written agreement is retained in the final version of the Debt Protocol.