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 has monitored the use of 'charging orders' as a method of enforcing judgment debts, where the debts originally arose under regulated consumer credit agreements.
What is a charging order?
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. The original debt may have arisen under a consumer credit agreement. However, charging orders can also be used to enforce the payment of monies after a judgment in other types of action.
Once a charging order is obtained a 'charge' can be placed on the asset specified in the order. This will usually be the debtor's property. When the debtor decides to sell the property 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'. It appears that this currently happens in a very small proportion of cases.
OFT acts on concerns about charging orders
The OFT announced that it had 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.
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 this 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.
Further details of the requirements can be found in press release 119/10 - OFT acts on concerns about charging orders.
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