OFT Places Controls on Four Lenders

The Office of Fair Trading (OFT) revealed today that it has placed controls on the way that four major lenders recoup debts on their credit cards, overdrafts and unsecured personal loans.

The four lenders in question are Alliance & Leicester Personal Finance, American Express Services Europe, HFC Bank – which is part of the HSBC Group – and Welcome Financial Services. The controls relate to the way that the four use charging orders to recoup their debts on unsecured sums, such as personal loans and credit card bills.

Charging orders place a charge on the property of the borrower in question, effectively turning unsecured personal loans into secured loans.

Once any charges pertaining to the property are paid off, the previously unsecured debt must be repaid from the sale of the property. Sometimes the lender can even apply to a court for an order which mandates the early sale of the property.

Although charging orders are considered by the authorities to be a legitimate way to recover debt, the OFT said that in a minority of cases, it believed that some lenders were misusing them.

An investigation by the watchdog revealed a number of problems, specific to individual lenders, but on the whole involved a failure to properly look at the circumstances of the borrower or whether such a move was proportionate. The OFT stressed that the four companies had all co-operated fully with its investigation and had subsequently addressed the issues and changed the way they used charging orders on debts such as unsecured personal loans.

The OFT’s director of consumer credit Ray Watson said: “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.”