The Office of Fair Trading (OFT) has placed requirements on four financial institutions after raising concerns over how they were using charging orders.

Alliance and Leicester Personal Finance, American Express Services Europe, HFC Bank (part of the HSBC Group) and Welcome Financial Services (part of Cattles plc) have been told to address concerns about the way some consumer debts are enforced.

A charging order is a court order that places a ‘charge’ on a debtor’s property, turning unpaid, unsecured judgment debts into secured debts. This means that once any prior ranking charges on the property have been settled, the debt must be paid back out of the available proceeds of sale when the debtor sells the property. A creditor who has obtained a charging order can also apply to the court for an order requiring the property to be sold sooner but this only happens in a minority of cases.

Charging orders are a legitimate way to secure and ultimately recoup unpaid debts, however, a recent investigation by the OFT found problems with the way some lenders use them.

Problems uncovered by the OFT’s investigation were specific to each business, as set out in the individual requirements, but across the sector they include a failure to consider the customer’s circumstances or proportionality before asking the court to put a charging order in place not building adequate checks into the lender’s decision-making process and also applying substantial charges for referring cases to a debt collection agency. In a minority of cases, lenders sent oppressive and/or misleading correspondence.

The OFT says the four companies have co-operated fully during the investigation and have each made changes to address the specific problems identified within their business, as set out in the requirements. The OFT is working to ensure that the whole banking industry uses charging orders and other debt enforcement tools responsibly.

Ray Watson, the OFT’s director of consumer credit, said: “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. Where we consider the use of charging orders to be unfair or oppressive we will take action to protect consumers.””