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The OFT warn numerous lenders over Charging Orders


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OFT acts on debt recovery measures

(UKPA) – 2 days ago


Action has been taken against four lenders that took steps to have unsecured debts customers were struggling to pay secured against their homes.

The Office of Fair Trading (OFT) has imposed requirements on Alliance & Leicester Personal Finance, American Express Services Europe, HFC Bank, part of HSBC, and Welcome Financial Services, which is part of sub-prime lender Cattles, following concerns about the way they were enforcing some consumers' debts.


The problems centred around the use of charging orders, which enable lenders to claim any funds left over following the sale of a customer's home, after priority debts - such as a mortgage - have been met, to repay the money they are owed.


The order effectively turns an unsecured debt into a secured one, and the creditor can go on to obtain a second order forcing the person to sell their property to settle their borrowings, although this only happens in a small number of cases.


The OFT said that although charging orders were a legitimate way for creditors to recoup unpaid debts, it had found problems with the way some lenders were using them. The problems were different for each business, but included cases where a charging order had been obtained on debts of less than £600.

Firms also failed to consider customers' circumstances before applying for an order, while they did not always carry out adequate checks when making lending decisions, contributing to the problems in the first place.


The OFT also found that firms were applying substantial charges to people when they referred their cases to debt collection agencies, while in some cases lenders sent "oppressive" and "misleading" letters.


The number of charging orders being made has more than doubled since 2005 to reach 111,000 last year, although not all of these will have been enforced.

Ray Watson, the OFT's director of consumer credit, said: "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."


The OFT said the four companies had co-operated fully with it during its investigation and had all made changes to address the specific problems identified. It added that it was working to ensure the whole banking industry used charging orders and other debt enforcement tools responsibly.

Copyright © 2010 The Press Association. All rights reserved.

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