Handle early settlement and withdrawal requests

Consumers have a statutory right to repay regulated credit agreements early and to withdraw from most agreements within 14 days of signing. These are two distinct rights under the Consumer Credit Act 1974, each with its own process and obligations on the creditor.

Getting this wrong has consequences. If you fail to provide a settlement statement within the statutory deadline, you lose the right to charge interest for that period. If you obstruct withdrawal, you risk FCA enforcement action and claims under the unfair relationships provisions.

This guide explains what your firm must do when a customer asks to settle early or exercises their right of withdrawal.

Early settlement: the statutory framework

Sections 94 to 97 of the Consumer Credit Act 1974 give consumers the right to repay all or part of a regulated credit agreement at any time. You cannot contractually exclude or restrict this right.

When a customer contacts you about early settlement, your obligations begin immediately.

Early settlement and repayment rights (s.94-97 CCA 1974)

The consumer's statutory right to repay a regulated credit agreement early, including settlement statement requirements, rebate calculation, compensation caps, and partial early settlement.

Under sections 94 to 97 of the Consumer Credit Act 1974, a consumer has the right to repay all or part of a regulated credit agreement at any time. The creditor must provide a settlement statement on request and may charge limited compensation for early repayment. The rebate of charges is calculated under the Consumer Credit (Early Settlement) Regulations 2004 (SI 2004/1483).

Right to early repayment (s.94): The debtor may at any time give notice to the creditor and repay the whole or part of any sum payable under a regulated credit agreement
Settlement statement (s.97): On receiving a request from the debtor, the creditor must provide a settlement statement within 7 working days, showing the amount required to discharge the debtor's indebtedness
Statement validity: The settlement figure stated is valid for 28 days from the date of the statement
Partial early settlement (s.94(3)): The debtor may make a partial early settlement at any time, and any overpayment beyond the minimum required must be treated as an early repayment of future instalments
Rebate calculation: The debtor is entitled to a rebate of charges (interest and fees) that have not yet accrued, calculated under the Consumer Credit (Early Settlement) Regulations 2004
Compensation cap - agreements over 12 months remaining: The creditor may charge compensation of up to 1% of the amount repaid early, but only if the remaining term exceeds 12 months
Compensation cap - agreements 12 months or fewer remaining: The creditor may charge compensation of up to 0.5% of the amount repaid early if the remaining term is 12 months or fewer
Compensation exclusion: No compensation is payable if the early repayment falls within a period for which the rate of interest is not fixed, or if the amount repaid early does not exceed GBP 8,000 in any 12-month period
Failure to provide statement: If the creditor fails to provide a settlement statement within 7 working days, it is not entitled to interest from the date the request was received until the statement is provided

Consumer Credit Act 1974 - Early payment by debtor (s.94)

Handling a settlement request step by step

Partial early settlement

Under section 94(3), customers can also make partial early repayments at any time. You must treat any overpayment beyond the current minimum required as an early repayment of future instalments. Recalculate the remaining balance and either reduce the term or the instalment amount accordingly.

Common settlement scenarios

Customer switching lender: The new lender may request the settlement figure directly. Verify that the customer has authorised this disclosure before providing figures to a third party.

Customer remortgaging: Where the consumer is consolidating debts into a mortgage, the settlement process is the same. The conveyancer or new lender may coordinate timing of the settlement payment.

Customer clearing debt from savings: Apply standard settlement procedures. The customer is not required to explain their reason for settling early.

The 14-day right of withdrawal

The right of withdrawal under section 66A is entirely separate from early settlement. It allows consumers to walk away from most regulated credit agreements within 14 days, without giving any reason.

14-day right of withdrawal from credit agreements (s.66A CCA 1974)

The consumer's statutory 14-day right of withdrawal from most regulated credit agreements under s.66A of the Consumer Credit Act 1974, including scope, exercise method, repayment obligations, and exceptions.

Section 66A of the Consumer Credit Act 1974 (inserted by the Consumer Credit Directive transposition in 2010) gives consumers a 14-day right of withdrawal from most regulated credit agreements. This right can be exercised without giving any reason and without incurring any penalty, though the consumer must repay the principal and accrued daily interest.

Withdrawal period: 14 days beginning on the day after the latest of - the day the agreement is made, the day the debtor receives a copy of the executed agreement, or the day the debtor is informed of the credit limit (for running-account credit)
How to exercise: The debtor must give oral or written notice of withdrawal to the creditor or a credit intermediary. No specific form is required, but the notice must indicate the debtor's intention to withdraw.
Repayment of principal: The debtor must repay the amount of credit drawn down plus any accrued interest without undue delay, and in any event within 30 days of giving notice of withdrawal
Daily interest calculation: Interest accrues at the rate stated in the agreement from the date the credit was drawn until the date of repayment. No other charges may be imposed for withdrawal.
30-day repayment deadline: 30 calendar days from the date the debtor gives notice of withdrawal to repay the principal and accrued interest
Effect of withdrawal: The agreement is treated as if it had never been entered into, except for the obligation to repay the principal and interest. Any ancillary service contract linked to the credit agreement is also terminated.
Exceptions - land mortgages: The right of withdrawal does not apply to agreements secured on land (first or second charge mortgages)
Exceptions - other: Does not apply to credit exceeding GBP 60,260, agreements for business purposes, bridging loans, or credit agreements cancellable under s.67-73 CCA 1974 (which have their own cancellation regime)

Consumer Credit Act 1974 - Right of withdrawal (s.66A)

How withdrawal works in practice

Customer notification: The customer can give notice orally or in writing. There is no prescribed form. If the customer says "I want to cancel" or similar words indicating an intention to withdraw, treat this as a valid notice.

Repayment: Within 30 days of giving notice, the customer must repay the credit drawn down plus any daily interest that has accrued. You must not impose any other charges for the withdrawal.

Ancillary contracts: Any linked service contract (such as payment protection insurance) is automatically terminated when the customer withdraws from the credit agreement.

Key distinction from early settlement: Withdrawal treats the agreement as if it had never been entered into. Early settlement ends an existing agreement that ran its course. The practical difference is that withdrawal carries no compensation charge, whereas early settlement may incur up to 1% compensation.

What to watch for

Late settlement statements: If you fail to provide the statement within 7 working days, you lose the right to charge interest from the date of the request until the statement is provided. This is a self-executing penalty under the Act.

Obstructing settlement: The FCA views any attempt to discourage or delay early settlement as a serious conduct issue. Do not make settlement conditional on speaking to a "retention team" or impose administrative hurdles.

Rebate disputes: If a customer disputes the settlement figure, review the calculation under the Early Settlement Regulations 2004. The actuarial method prescribed by the regulations must be applied correctly.

Official sources

Legislation and FCA guidance on early settlement and withdrawal rights.

Consumer Credit Act 1974 - Early payment by debtor (s.94)
Statutory right to repay early and settlement statement obligations.
legislation.gov.uk
Consumer Credit (Early Settlement) Regulations 2004
Prescribed rebate calculation method for early settlement.
legislation.gov.uk
Consumer Credit Act 1974 - Right of withdrawal (s.66A)
14-day withdrawal right for regulated credit agreements.
legislation.gov.uk
FCA CONC 6 - Post contractual requirements
FCA rules on post-contract obligations including settlement.
fca.org.uk

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Handle early settlement and withdrawal requests

Early settlement: the statutory framework

Handling a settlement request step by step

Partial early settlement

Common settlement scenarios

The 14-day right of withdrawal

How withdrawal works in practice

What to watch for

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Early settlement: the statutory framework

Handling a settlement request step by step

Partial early settlement

Common settlement scenarios

The 14-day right of withdrawal

How withdrawal works in practice

What to watch for

Related guides in Financial Regulation Overview

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