Charging orders link unsecured debt to a borrower’s property, but banks are accused of imposing them too quickly
NatWest and RBS have been warned to not be too hasty in imposing charging orders on borrowers who have fallen behind with unsecured debt repayments.
Charging orders turn unsecured debt such as credit cards and personal loans into secured debt by linking it to the borrower’s property. A court grants a charge on the property, which means that if the debt remains unpaid the lender will be entitled to funds once the property is sold – in some cases it may even force that sale.
The Office of Fair Trading said the orders were a legitimate way to secure and ultimately recoup unpaid debts, but that banks seemed to have used them disproportionately in some cases.
It said they had apparently failed to consider customers’ financial circumstances and had not always taken into account customers’ efforts to repay debts using a debt repayment plan or other method. Many of the charging orders were used to secure relatively small amounts of debt, sometimes of less than £5,000.
The cases in question typically involve loans taken out in 2007 and 2008.
David Fisher, the OFT’s director of consumer credit, said: “Lenders are entitled to use charging orders, but they must do so proportionately and not to secure relatively small amounts of debt.
“Where we consider the use of charging orders to be unfair or oppressive we will take action to protect consumers.”
The OFT began looking at the orders in early 2009 after it emerged the number granted to lenders had surged from 49,213 in 2005 to 97,027 in 2007. Not all of these were related to credit agreements, but the OFT called on the lenders it licences to make sure they were not acting too hastily.
In 2010 it imposed requirements on Alliance and Leicester, American Express, HFC Bank Limited (part of the HSBC Group), and Welcome Financial Services after they responded with information about how they planned to improve their practices.
NatWest and RBS said it had changed the point at which it used charging orders some time ago to increase the value of the debts against which they were used.
It said in a statement: “We are committed to helping customers who find themselves in financial difficulty. We changed the thresholds for using charging orders ourselves in 2008. The cases reviewed by the OFT preceded these changes. We use charging orders only as a last resort”.