The FCA is consulting on proposed guidance in respect of the need for default notices under the Consumer Credit Act 1974 (CCA) when seeking to enforce security.

Last year, the FCA published a Policy Statement (CP15/6) containing its proposed changes to its rules and guidance on consumer credit.  In this Policy Statement, the FCA stated that it believed taking or demanding payment from a guarantor would not amount to “enforcement” of security for the purposes of Section 87 of the CCA and as such would not require a default notice.

The FCA has since reconsidered this matter and now believes this position to be incorrect.  It now believes that before requesting or taking payment from a guarantor, the creditor must first serve a default notice to the debtor in accordance with the CCA and provide a copy to the guarantor.

The FCA is consulting on the proposed guidance and inviting views until 18 March 2016. This consultation will be of particular interest to those who accept guarantees or indemnities in connection with regulated consumer credit or hire agreements.