Peoples homes are being put at risk over debts as low as £600 according to the Office of Fair Trading (OFT). The OFT has found that some lenders have been telling their customers to pledge their homes against non-mortgage debt before using charging orders to recoup the money.
Charging orders are a legal way for lenders to recover debt but the OFT has found problems with the way some UK lenders use them. Used correctly charging orders simply require that debts are paid out of the proceeds when the debtor sells their property. However creditors can also apply to the courts to force debtors to sell their property sooner sometimes in cases where the debts are relatively small.
There has been a big rise in the use of charging orders in recent years – 164,000 in the last 12 months compared to 45,000 five years ago. The OFT stated that there has been a widespread failure by banks to consider the circumstances of their customers before asking for a charging order to be put in place.
‘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.’
Responding to the OFT findings a Citizens Advice spokesperson said ‘We 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.’
