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OFT warns Alliance & Leicester on charging orders

American Express, HFC and Welcome also criticised

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The OFT has imposed requirements on four lenders to address concerns about the way they enforce consumer debts.

A recent investigation by the OFT found problems with the way some lenders use charging orders to recoup unpaid unsecured debts. The four lenders ordered to make changes in the way they operate are:

  • Alliance and Leicester Personal Finance Limited;
  • American Express Services Europe Limited;
  • HFC Bank Limited (part of the HSBC Group);
  • Welcome Financial Services Limited (part of Cattles plc).

Ray Watson, the OFT’s Director of Consumer Credit, said: ‘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 so proportionately. Where we consider the use of charging orders to be unfair or oppressive we will take action to protect consumers.’

What is a charging order?

A charging order is a court order that places a ‘charge’ on a debtor’s property, turning unpaid, unsecured judgment debts into secured debts. This means that once any prior-ranking charges on the property have been settled, the debt must be paid back out of the available proceeds of sale when the debtor sells the property.

A creditor who has obtained a charging order can also apply to the court for an order requiring the property to be sold sooner, although this only happens in a minority of cases.

What problems did the OFT investigation uncover?

The problems uncovered by the OFT’s investigation were specific to each business, but across the sector they included:

  • A failure to consider the customer’s circumstances or proportionality before asking the court to put a charging order in place;
  • Not building adequate checks into the lender’s decision-making process;
  • Applying substantial charges for referring cases to a debt collection agency;
  • In a minority of cases, sending oppressive and/or misleading correspondence.

Consumers who receive warning of a charging order must seek debt help

Which? borrowing and debt expert Martyn Saville commented: ‘The OFT’s findings are worrying and are a timely reminder that even unsecured debt can put your home at risk if you fail to keep up repayments. Anybody who receives a letter from their lender threatening a charging order should seek professional debt advice as soon as possible.

‘CCCS, National Debtline and Citizens Advice all offer independent, impartial advice that is free to the consumer. Whatever you decide, don’t contact a commercial debt management or IVA company.’

For the contact details of free debt advice organisations, read the Which? advice guide How to deal with debt.

For more details on the different types of lending available, read the Which? guide to your loan options.

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