Homes being repossessed to cover £600 debts

January 21st, 2011

An investigation by the Office of Fair Trading (OFT) has found that homes are being repossessed for debts at little as £600. This has led to the regulator clamping down on lenders who tell customers to pledge their homes against non-mortgage debts.

Four financial service providers have been ordered to “address concerns” about the way some consumer debts are enforced. It has been discovered that in a minority of cases across the industry, lenders sent “oppressive and misleading” paperwork to borrowers.

The process of securing these debts is known as a charging order. Financial companies have the right to apply to a court for a charging order when borrowers have failed to keep up payments on credit card debt, loans or hire purchase commitments.

This order turns these unsecured debts into debts secured on the borrower’s property.
Over the last five years, the number of charging orders applied for has risen from 45,000 to 164,000.

However, it should be noted that only a relatively small proportion of orders lead to people being forced to sell their homes.

The OFT 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 and this is clearly not the case in a minority of instances.

The OFT has stated that where they consider the using of charging orders to be unfair or oppressive they will take action to protect consumers.

The OFT has told four offshoots of major lenders to address the way they use orders.
The four are: Alliance and Leicester Personal Finance, HFC Bank, part of the HSBC group, American Express Services Europe, and Welcome Financial Services which is part of Cattles.

The OFT says that each of the four co-operated with the investigation and have made changes to address the problems identified.

In general, during the investigation of the whole sector, the OFT found that some providers failed to consider the customer’s circumstances, applied substantial charges for bringing in debt collection agencies, and did not have adequate checks in place during lenders’ decision-making process.

This case demonstrates, once again, that consumers need protecting from large financial institutions that will find any way they can to circumvent regulations to maximise their profits at the expense of vulnerable customers.

Thankfully there are signs that the coalition government is aware of the problem and is starting to take action.

This entry was posted on Friday, January 21st, 2011 at 6:09 am and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Homes being repossessed to cover £600 debts

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