Guarantor chased before borrower

Legal position:
In England and Wales, guarantor loans are typically regulated under the Consumer Credit Act 1974 (as amended) and overseen by the Financial Conduct Authority (FCA). As a guarantor, you have agreed to repay the loan if the borrower defaults. The key point is that the loan agreement itself will usually determine the lender's rights to pursue you.

Generally, unless the guarantee specifies otherwise (for example, requiring the lender to exhaust remedies against the borrower first), the lender is legally entitled to seek repayment from you as guarantor without necessarily pursuing the borrower beforehand. This is because a guarantee creates a secondary liability that becomes enforceable upon the borrower's default. However, FCA rules under the Consumer Credit Sourcebook (CONC) require lenders to treat customers fairly, which includes considering the circumstances of both the borrower and guarantor before taking enforcement action. For instance, they must assess affordability and vulnerability, and they should not act in a way that is disproportionate or harassing.

That said, in practice, many lenders will attempt to recover from the borrower first, as this is often more straightforward, but they are not legally obliged to do so unless the contract explicitly states it. If the loan was taken out after 1 April 2014, additional protections under the FCA's high-cost credit rules may apply, potentially limiting aggressive pursuit.

Practical considerations:
Whether the lender can or should chase you first depends on specific facts that are missing here, such as the exact terms of the guarantee agreement, the date the loan was entered into, any notices of default issued, the borrower's payment history, and whether there have been any communications from the lender. If the borrower is in arrears, the lender must usually send a default notice under section 87 of the Consumer Credit Act before enforcing the debt, but this applies to the agreement as a whole.

It is worth noting that pursuing you as guarantor could expose the lender to complaints if they have not followed fair procedures. For example, if they ignore the borrower's ability to pay or fail to provide clear information, you might have grounds to challenge them via the Financial Ombudsman Service (FOS).

Next steps:
If a lender is pursuing you, I suggest the following in a sensible order:

1. Review the original loan and guarantee documents carefully to check the terms, including any clauses about pursuit order or notice requirements.

2. Contact the lender in writing (keep a copy) to request details of the borrower's default, any steps they have taken against the borrower, and confirmation of your liability. Ask for a pause in action while you investigate.

3. If you believe the pursuit is unfair, make a formal complaint to the lender, escalating to the FOS if unresolved (you have six months from the lender's final response to do so, and FOS decisions are binding on the lender).

4. Consider discussing with the borrower to encourage them to address the debt, as resolving it at source may be less stressful and costly for you.

Only if these steps fail and you dispute the debt should you consider formal legal action, such as defending any court claim, but bear in mind the costs and risks involved. If the loan involves a jurisdiction outside England and Wales, note that this advice is specific to that area; you may wish to consult our worldwide service, Atlas, for other locations.