03/13    11 January 2013

The OFT has imposed requirements on Royal Bank of Scotland plc (RBS) and National Westminster Bank plc (NatWest), both members of the RBS Group, to address concerns about the way some customer debts are enforced via charging orders.

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 bank or other creditor which has obtained a charging order can also apply to the court for an order requiring the property to be sold, but this happens only in a minority of cases.

Charging orders are a legitimate way to secure and ultimately recoup unpaid debts. However, an investigation by the OFT concluded that there were problems with the way RBS and NatWest were using them.

The OFT's concerns included an apparent failure by the banks to consider customers' financial circumstances and the proportionality of the approach before asking the court to put a charging order in place. For example, the OFT found evidence that the banks were not always taking account of customers' efforts to repay debts using a debt repayment plan or other method, and that many charging orders were used to secure relatively small amounts of debt, sometimes below £5,000. 

The requirements imposed reflect proposals made by the two banks.

David Fisher, OFT 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.'

NOTES

1. Download the requirements imposed on each bank:
   
   Royal Bank of Scotland plc (pdf 79kb)
   National Westminster Bank plc (pdf 81kb)
2. The OFT is not able to resolve individual complaints by consumers on credit products, although it welcomes information from consumers to help it decide where to focus enforcement activities. Individual consumers with complaints about credit matters should, in the first instance, address these to the business concerned itself and then, if unresolved, to the Financial Ombudsman Services (www.financial-ombudsman.org.uk). 
3. 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. 
4. 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. 
5. 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. 
6. 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.  Prior to imposing requirements, in the absence of a suitable proposal by licensee (see below), the OFT must, amongst other things, issue a minded to impose requirements notice to the licensee. 
7. Alternatively a licensee may make a proposal to address the OFT's dissatisfaction pursuant to section 33D(4) of the CAA. In these circumstances the OFT is not required to issue a notice that it is minded to impose requirements provided its determination is in the same terms as the proposal made by the licensee. This was the process followed by RBS and NatWest. 
8. 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. 
9. The OFT imposed requirements in 2010 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 use of charging orders.