The OFT has a duty to protect the interests of consumers by ensuring the fitness of those holding or applying for consumer credit licences. The OFT also has a duty to monitor social and commercial developments relating to the provision of credit and related activities.
The OFT is monitoring the lending and broking of secured loans to consumers that have recently gone bankrupt where the purpose of the loan is to annul the bankruptcy.
Where an individual has become bankrupt, the Insolvency Act 1986 allows the individual to apply to court to have the bankruptcy order 'annulled' in certain circumstances. One of the ways in which a bankruptcy may be annulled, subject to the discretion of the court, is where the bankruptcy debts and expenses of the bankruptcy have either been paid off in full or guaranteed to the satisfaction of the court.
There is a small but growing market in the UK of lenders and brokers that approach recently bankrupted homeowners offering short-term loans secured on the property in order to annul the bankruptcy before arranging for a remortgage.
A short-term loan is used to repay all outstanding unsecured debts and other costs and an application is made to annul the bankruptcy. Once the bankruptcy is annulled, a remortgage is entered into in order to repay the short-term loan.
The OFT sought information from consumers, trade bodies, debt advisors and licensees as part of its research into this market and recommended that responses be supplied by 30 October 2009.
The OFT identified from its research there has been lack of transparency by some lenders in dealings with consumers within this sector. Given the vulnerability of bankrupt consumers the OFT considers that such consumers need to be given full and clear information about any offer that is made to them. The OFT expects lenders operating in this market must take extra care to ensure transparency in their dealings with consumers, to adequately outline the risks involved and to take care to ensure that consumers do not find themselves placed in a worse financial situation.
In November 2010, the OFT took action to impose requirements to improve the practices of three associated companies, The Bankruptcy Protection Fund Ltd, Consolidated Finance Ltd and Alpha Mortgages Manchester Ltd, when offering bankruptcy annulment services.
More information can be found in the press release Bankruptcy annulment businesses told to improve practices (8 December 2010).
In addition, the OFT continues to monitor the bankruptcy annulment sector to ensure that the sector is operating fairly. We would welcome further submissions from interested parties to:
Secured Lending Team - 9C/23
Fleetbank House
2-6 Salisbury Square
London
EC4Y 8JX
Email: secured.lending@oft.gsi.gov.uk
Where can I go for help and advice?
Citizens Advice
For advice and information on debt and other topics, visit your nearest Citizens Advice Bureau - check the phone book for the address.
National Debtline
If you live in England, Wales or Scotland phone 0808 808 4000 or visit the National Debtline website for debt advice and information.
Consumer Credit Counselling Service
For debt advice throughout the UK - including Northern Ireland - phone 0800 138 111 or visit the Consumer Credit Counselling Service website.
Further information on bankruptcy is available from the Insolvency Service website.
Back to: Consumer Credit Act
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