WIREDGOV

The OFT has imposed requirements on Alliance and Leicester Personal Finance Limited, American Express Services Europe Limited, HFC Bank Limited (part of the HSBC Group) and Welcome Financial Services Limited (part of Cattles plc) to address concerns about the way some consumer debts are enforced.

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 but this only happens in a minority of cases.
Charging orders are a legitimate way to secure and ultimately recoup unpaid debts, however, a recent investigation by the OFT found problems with the way some lenders use them.

Problems uncovered by the OFT's investigation were specific to each business, as set out in the individual requirements, but across the sector they include 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; and also applying substantial charges for referring cases to a debt collection agency. In a minority of cases, lenders sent oppressive and/or misleading correspondence.

The four companies subject to today's announcement have co-operated fully with the OFT during the investigation and have each made changes to address the specific problems identified within their business, as set out in the requirements. The OFT is working to ensure that the whole banking industry uses charging orders and other debt enforcement tools responsibly.

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.'

NOTES

1. Download the requirements imposed on each firm:
   
   - Alliance and Leicester Personal Finance (pdf 87kb)
   - American Express Services Europe (pdf 62kb)
   - HFC Bank (pdf 71kb)
   - Welcome Financial Services (pdf 85kb)
   
2. A charging order is one of a number of enforcement methods available to creditors to ensure that judgment debts are satisfied. A charging order can only be applied for where a court judgment has already determined that a debtor owes money to the creditor, and payment under that judgment is not forthcoming. 
3. Once a charging order is obtained, a 'charge' is placed on the asset specified in the order. This will usually be the debtor's property. When the debtor decides to sell the property, once any prior ranking charges on it have been satisfied, the amount due is repaid out of the proceeds. Charging orders do not require debtors to sell their property. However, the creditor can make a further application to the court requesting that an order should be granted to enable the property to be sold sooner to repay the debt. This is called an 'order for sale'. Such orders only tend to be granted in a small proportion of cases. 
4. Under the Consumer Credit Act 1974 (CCA), businesses that offer goods or services on credit or lend money or are involved in activities relating to credit or hire must be licensed by the OFT. The OFT has a duty to protect the interests of consumers by monitoring the fitness of those holding or applying for licences. 
5. Under the CCA, where it is dissatisfied with any matter in connection with a business, a proposal to carry on a business or any other conduct by a licensee, associate or former associate, the OFT may impose 'requirements' on the licensee. Requirements may require a business to do or not to do (or to cease doing) anything specified for the purposes connected with addressing the OFT's dissatisfaction, or securing that matters of the same or a similar kind do not arise. 
6. A breach of a requirement can lead to a maximum fine of £50,000 per breach and/or be grounds for revocation of a consumer credit licence.