OFT raps lenders for use of charging orders

The Office of Fair Trading has imposed conditions on four lenders over the way they use charging orders to recoup debts.

It has imposed the conditions on Alliance & Leicester Personal Finance, American Express Services Europe, HFC Bank, part of the HSBC Group and Welcome Financial Services, part of Cattles plc.

A charging order is a court order that places a charge on a debtor’s property, turning unpaid, unsecured judgement 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, 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.

The OFT report found the lenders were 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 OFT says the four companies have co-operated fully with the OFT during the investigation and have each made changes to address the specific problems identified within their business.

The OFT 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, says: “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.”

Sue Edwards, head of consumer policy at the Citizens Advice Bureaux, says: “CABs are concerned at the current use of charging orders to intimidate vulnerable debtors into paying more than they can afford, or to force the sale of a property to recover an, often small, unsecured debt by enforcing charging orders through an order for sale.

“It is vital that people who are doing their best to repay their debts should be protected from further debt collection, enforcement action and from enforcement related costs that are disproportionate to the size of the debt.

“Placing requirements on companies is a good start, but the current law on charging orders urgently needs reviewing and appropriate protection for people put in place.”