The protocol has an emphasis on encouraging settlement and keeping debt claims involving individuals out of the court system. The first significant change is an enhanced letter before action which must include information about the contract that gave rise to the debt, as well as the right to request a copy of the original agreement. It must also give details of the interest being charged and how payment can be made. A statement of account, or a list of charges, must also be provided. Furthermore, court proceedings following a lack of response cannot be taken until at least 30 days after the date the letter is sent.
Another change is the introduction of a reply form which gives the debtor options either to admit the debt or pay up, dispute it, or request time to seek advice. Under the new protocol, where the debt is disputed or further time is required to negotiate, then the creditor must allow time for that to happen.
In addition there is a new right to request documentation, such as a contract or other document giving rise to the debt, and this must be provided within 30 days. While discussions are ongoing the creditor should not issue proceedings. If agreement is reached, proceedings are effectively discontinued, amd any subsequent breach requires a new letter of claim to be issued. If negotiations break down at any point, the debtor must give another 14 days’ notice before issuing proceedings.
In reality, this protocol is likely to have the biggest effect on businesses who are dealing with individuals, such as professional services. Businesses will now need to plan for unpaid debts being outstanding for longer and have effective systems in place to monitor interest levels and payment agreements to effectively deal with any outstanding debtors to prevent potential cash flow issues.