New Charging Order legislation comes into force

Last post: Apr 7, 2013

Critical new developments with Charging Orders

Under the new rules in Charging Orders (Order for Sale: Financial Thresholds) Regulations 2013, debtors throughout England and Wales can lose their houses for being unable to pay-off debts as low as £1,000.  This applies to any and all kind of consumer debt, may it be for a payday loan or even a credit card. The new rules are particularly worrisome due to two reasons.  Firstly, it overturns the Coalition Agreement of 2010 that bans orders for sale on unsecured debts of less than £25,000.  Secondly, the number of households that could potentially be put under charging orders would definitely increase.  According to the latest available data of 2011, just over 400 households were compelled by courts to be sold to satisfy debts. The recent increase in house prices mean that creditors are most likely to get paid if they force the sale of a home.  Under existing rules, a creditor with a charging order gets paid only after all responsibility to the mortgage lender is settled. Before the new ruling came out, a creditor may apply for a charging order only after a debtor gets a county court judgement (CCJ) against them for an unpaid debt of £1,000 or more.  In addition, the charging order is usually only granted if the debtor misses a repayment instalment under the CCJ.  The new rules now allow a charging order to be issued simultaneously as a CCJ. After the charging order is issued, only then can a creditor request the court for a property to be sold.  But most of the time it does not reach this stage since timing is also considered by the creditor, since he ranks behind the mortgage lender in claiming proceeds of a house sale.  But given current real estate property prices, the creditor may just as well get a piece of the pie. Actually, prior to this new regulation there was no minimum amount of debt required to recoup the debt via an order for sale.  But it was not expected to be this low.  A much higher level of around £25,000 would have been more appropriate and more protective of consumers.   The Ministry of Justice says it lowered the minimum to prevent creditors in forcing people into bankruptcy just for a £750 loan.  Questions have been raised though on why not the bankruptcy threshold be raised instead? Concerns over whether regulators would also be tightening the criteria in filing for charging orders, have also come to light.  For example, NatWest, its parent Royal Bank of Scotland, Alliance & Leicester, American Express and the HSBC subsidiary HFC have recently been censured by the Office of Fair Trading (OFT) due to the misuse of charging orders.  It was found out there were instances wherein charging orders had been used for sums close to only £1,000.  It was also reported that these banks also did not take into consideration efforts that consumers made to repay their debts.  These banks have been warned by the OFT to consider the size of the debt before applying for charging orders, otherwise face a revocation of their consumer credit licences.