Financial companies have the right to apply to a court for a charging order when borrowers have failed to keep up payments on credit card debt, loans or hire purchase commitments.
This order turns these unsecured debts into debts secured on the borrower’s property. Over the last five years the number of charging orders granted has risen from 45,000 to 164,000. However only a relatively small proportion of orders lead to people being forced to sell their homes.
Lenders applying for Charging Orders where debts are as little as £600
Some people are in receipt of a Charging Order because of debts of as little as £600, the Office of Fair Trading (OFT) has found. The regulator is clamping down on lenders who apply Charging Orders in this way.
Four providers have been ordered to “address concerns” about the way some consumer debts are enforced. In a minority of cases across the industry, lenders sent “oppressive and misleading” paperwork to borrowers.
James Falla of Beat My Debt is not surprised at the findings. “There are many thousands of people in Briton who are struggling financially. The banks and other lenders are aware of this and want to take the opportunity to protect themselves using charging orders” he said.
To avoid the risk of a charging order, it is important that homeowners who are struggling with debt take action early to resolve the problem. Generally speaking implementing a debt management plan will stop a creditor applying for a charging order. However you cannot guarantee to protect your property without using a more formal solution such as an IVA.
Unfair or oppressive collection tactics
“Our investigation uncovered instances of charging orders being used to secure debts of less than £600. Lenders are entitled to use charging orders but must do proportionately,” said Ray Watson, the OFT’s director of consumer credit.
“Where we consider the using of charging orders to be unfair or oppressive we will take action to protect consumers.”
The four are: Alliance and Leicester Personal Finance, HFC Bank – part of the HSBC group, American Express Services Europe, and Welcome Financial Services – part of Cattles. Each co-operated with the OFT during the investigation. They have since made changes to address the problems identified, the regulator said.
In general, during the investigation of the whole sector, the OFT found that some providers failed to consider the customer’s circumstances, applied substantial charges for bringing in debt collection agencies, and did not have adequate checks in place during lenders’ decision-making process.