How a £600 credit card debt could lead to you losing your house
How a 600 credit card debt could lead to you losing your house
How could a credit card debt of 600 lead to you losing your house?
That's a question the Office of Fair Trading (OFT)will be asking credit card companies after they found that that is exactly what has been going on.
Credit card providers have been told by to curtail the practice of pressurizing customers into putting their homes on the line for debts amounting to under 600.
The financial watchdog has ordered a number of companies to reign in their use of charging orders in trying to enforce consumer debt.
Alliance and Leicester Personal Finance Limited and American Express Services Europe Limited were both singled out by the OFT as companies needing to "address concerns" about their use of charging orders.
A charging order is one of the ways a creditor can attempt to reclaim outstanding debt. Financial institutions can apply to a court for a charging order when a debtor fails to keep up payments on their credit card or other type of unsecured debt.
The order places a charge on the debtor's property or other asset, thereby turning unsecured debt into secured debt. When the debtor comes to sell the property, the outstanding money is reclaimed through the proceeds from the sale. While a charging order doesn't force the debtor to sell, an order of sale can be applied for that does.
The number of UK courts granting charging orders has risen in the UK from 45,000 to 164,000 during the last five years. The OFT's investigation has identified a number of problems relating to their use by creditors.
These include applying disproportionate charges for referring cases to debt collection agencies and failing to take into account individual consumer's circumstances before trying to obtain a charging order.
Ray Watson, the OFT's Director of Consumer Credit, said that the investigation revealed cases where charging orders were issued for debts of under 600. He pointed out that while lenders are perfectly entitled to use charging orders, they must be used proportionately. Failure to do so, he promised, would result in the OFT taking action to protect consumers.
Both Alliance and Leicester and AMEX have since made revisions to their policies on seeking charging orders so that they fall in line with the OFT's requirements which means charging orders shouldn't, in theory, concern those doing a credit card comparison.
AMEX will now need to be able to show that it has taken account of the financial and personal circumstances of its customers, the amount owed and whether it can be obtained by some other means, before seeking a charging order.
The OFT's actions have led to cautious praise from some consumer watchdogs.
Charities said that it was high time that the overzealous use of charging orders by financial organizations was reigned in.
She insisted that people who are attempting to repay their debts must be granted space in which to do it, rather being subjected to further enforcement action, debt collection and charges disproportional to the size of the existing debt.
While the OFT's requirements are a good start it is now the current law on charging orders that needs to be reviewed and swiftly since credit in the form of instant decision credit cards is now so easy to get hold of.
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