Alliance and Leicester Personal Finance, American Express Services Europe, HFC Bank Limited, which is part of HSBC, and Welcome Financial Services, part of Cattles plc, have all had requirements imposed upon them by the OFT after it uncovered problems.
A charging order is a court order that places a “charge” on a debtor’s property, turning unpaid, unsecured judgment debts into secured debts. Once prior ranking charges on the property are settled, the debt must then be paid back from the proceeds of the sale once 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, though this happens in a minority of cases.
While charging orders are a legitimate way to recoup unpaid debts, the OFT found problems in the way that lenders were using them.
The issues were specific to each lender, but the OFT said across the sector there was a failure to consider the customer’s circumstances or proportionality before asking the court to put a charging order in place.
In addition, lenders did not have adequate checks built into its decision-making process and applied substantial charges for referring cases to debt collection agencies.
In a minority of cases, the OFT investigation found that lenders sent oppressive and/or misleading correspondence.
The OFT said the four lenders had co-operated fully with its investigation and have made changes to address the problems it has identified.
In addition, the OFT said it is working to ensure that the whole banking industry uses charging orders and other debt enforcement tools responsibly.
Ray Watson, director of consumer credit at the OFT, 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.”
