Lenders Using Charging Orders To Intimidate Debtors

Tue, 30 Jun 2009

UK lenders have been accused by a leading debt charity of intimidating borrowers into making unaffordable repayments by threatening them with charging orders.

The Citizens Advice Bureau (CAB) has reported a 722 per cent increase in the number of applications for charging orders - where a lender applies to the court to change a previously unsecured debt into one that is secured against equity in the debtor’s property .

In addition, recent figures from the Ministry of Justice revealed that 74 per cent of the 132,000 applications made in 2007 resulted in charging orders being granted by the courts.

In its new ‘Out of order’ report, the CAB claims creditors are also increasingly asking courts to enforce charging orders by granting an order for sale, which allows a lender to recover the debt by forcing the sale of the debtor’s home .

While the government has axed plans that would have made it easier for creditors to obtain charging orders, Citizens Advice warns that the law around charging orders is still unclear and that some creditors are converting people’s debt with "increasing ease."

The charity’s report highlights the fact that "there is currently no minimum financial threshold for obtaining a charging order", meaning borrowers could be at risk of losing their homes over a small amount of money .

David Harker, chief executive of Citizens Advice, said: "The law as it stands leaves debtors far too exposed to unfair treatment and the risk of losing their homes from unsecured creditors ."

"Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. This is not only unfair to the individuals concerned who have offered payments towards their debts but is also unfair to other creditors ."

Although the Office of Fair Trading (OFT) is currently monitoring the use of charging orders, the CAB is now calling on the Ministry of Justice to look at the law and restrict access to enforcement when debtors are doing all they can to make repayments .

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

"The current law on charging orders urgently needs reviewing and appropriate protection put in place."
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