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The Pre-Action Protocol for Debt Claims (the Protocol) came into force on 1 October 2017 and prescribes a course of conduct which the Court will expect parties to follow prior to issuing proceedings. 

The Protocol applies to any business that is pursuing legal action for the recovery of a debt from an individual. Where another Pre-Action Protocol applies (such as for mortgage arrears), the Protocol will not apply.

The Protocol follows the spirit of the overriding objectives set out in the Civil Procedure Rules. It aims, for example, to encourage early communication and disclosure between the parties to narrow the issues, engagement with ADR and it encourages parties to focus on acting in a reasonable and proportionate manner.

The Protocol, introduces a number of key requirements which a creditor will need to follow. Any Letter of Claim should contain:

  • the amount of the debt;
  • whether interest or other charges are continuing;
  • where the debt arises from an oral agreement, the basis of that agreement;
  • where the debt arises from a written agreement, the date, parties to it and confirmation that a copy of the agreement can be requested;
  • where the debt has been assigned, the details of the original debt and creditor, together with when it was assigned and to whom;
  • if instalments are being offered, why that is not acceptable;
  • details of how the debt can be paid (and payment options);
  • the address to which the completed reply form should be sent.

A number of documents must also be included with the Letter of Claim including an up-to-date statement of account and a form of response. The debtor has 30 days in which to respond or request a further reasonable period of time to obtain debt advice. Proceedings should not be commenced less than 30 days from receipt of the completed reply form or 30 days from the creditor providing any requested documents, whichever is later.

It is clear that the process of recovering debts will be more onerous, with an increased scope for delaying collection. Creditors will need to take a more pro-active approach to recovering debts and ensure time periods are met as required.

In addition, compliance is key and costs sanctions can be imposed for any failure to comply. These could include a creditor not being able to recover their legal costs or the recovery of interest being limited to a reduced rate.