UK imposes new rules for 'over-zealous' banks

The UK's trading watchdog has imposed new requirements on NatWest and Royal Bank of Scotland (RBS), following concerns about banks apparently being overly-zealous when linking people’s unpaid debts to their homes.

The Office of Fair Trading (OFT) said its concerns centre around the use of a type of court order called a “charging order”, which means that unpaid judgment debts can be clawed back if the customer sells their home.

The watchdog said that while such orders are a legitimate way of retrieving unpaid debts, a previous investigation concluded that there were problems with the way that RBS and NatWest, which are part of the same group, were using them.

The OFT’s requirements state that RBS and NatWest should not consider taking steps to make a charging order unless they have considered whether this is “appropriate and reasonable”.

It noted an “apparent failure” by the banks to consider customers’ financial circumstances and the proportionality of their approach before asking a court to put an order in place.

The OFT found evidence that banks were not always taking account of efforts to repay debts and that many charging orders were used to secure relatively small amounts of debt, sometimes below £5,000 (€6,120).

The watchdog’s monitoring of the situation relates to a period between 2005 and 2007, when it saw an uplift in the use of charging orders across the industry, and its concerns were not just related to RBS/NatWest.

The OFT said that in total across the industry, 49,213 charging orders were granted in 2005. Two years later in 2007, this had almost doubled to 97,027 charging orders, although many of these orders were not related to credit agreements.

In 2010 the watchdog imposed requirements on several other financial institutions to address its concerns about the use of charging orders.

RBS Group said that in its case, the OFT review relates to 15 cases from 2007-8 and it had already raised the threshold for the use of charging orders as the economy toughened and customers’ circumstances became more difficult.

A spokeswoman for the group said: “We are committed to helping customers who find themselves in financial difficulty.

“We changed the thresholds for using charging orders ourselves in 2008. The cases reviewed by the OFT preceded these changes. We use charging orders only as a last resort.”

A charging order can only be applied for when a court judgment has already determined that someone owes money to a creditor, and payment has not been forthcoming.

Charging orders do not force debtors to sell their home, but the creditor can also apply for an “order for sale”, requesting that the property is sold off sooner to repay the debt. Orders for sale are only granted in a small number of cases, the OFT said.

David Fisher, OFT director of consumer credit, said: “Lenders are entitled to use charging orders but they must do so proportionately and not to secure relatively small amounts of debt.

“Where we consider the use of charging orders to be unfair or oppressive we will take action to protect consumers.”

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