The Times October 24, 2005
Lenders aim to put homes at risk to recover credit card debt By Joe Morgan
TOUGH new action by the Government and lenders to tackle growing credit card debt will put homes at risk of repossession as companies seek to get their money back. The move has provoked alarm among debt advisers who are warning that the promotion of loans and credit cards should carry health warnings that homes may be at risk if repayments are missed.
But both the Government and big lenders, including many of the high-street banks, are embarking on a much tougher strategy to tackle Britain's trillion-pound debt burden. "The Government is committed to tackling over-indebtedness and addressing concerns about increased levels of consumer debt," a Department for Constitutional Affairs paper outlining plans for stronger enforcement powers, said.
Already a harder line towards those failing to pay their debts is being taken by the high-street banks, which are increasingly going to court to secure their loans against a debtor's house.
The number of "charging orders" has jumped from 13,000 in 1999 to
45,000 last year, with more and more people failing to make agreed payments to settle debts. A charging order means that, when a home is sold and the mortgage cleared, any money left over pays the outstanding bank or credit card debt. It also means that the creditor can apply to the courts for property, land and even a person's shares to be sold to meet the debt.At present the order can only be made if a debtor has failed to meet two consecutive payments of an agreed "instalment" plan to pay off the debt.
Now the Department for Constitutional Affairs is planning to make it even easier for the banks, credit card firms and major stores to repossess debtors' homes. The department is planning legislation to allow charging orders to be made even against those who are keeping up the agreed payments to pay off their debts.
A spokesman for the department said that it was committed to implementing the proposals outlined two years ago. "It remains the Government's position that responsible lenders who are owed money and have gained a valid judgment through the courts should have the right to enforce that judgment by the most appropriate means available," he said.
Debt counsellors said that both the Government's proposal and the upsurge in the use of court orders to secure loans was effectively abolishing the distinction between a secured loan such as a mortgage and an unsecured loan.
Steve Wilcox, a debt support adviser from Sheffield, said: "Our concern is that the new proposals in a sense abolish any distinction between a secured and unsecured loan."
The big high-street banks such as Lloyds TSB, NatWest, Royal Bank of Scotland and Nationwide are increasingly resorting to charging orders to collect debts.
But Barclaycard, Britain's biggest credit card issuer with nine million customers, does not use the orders when collecting debts. Other organisations which are recognising the importance of the orders are the utility companies, particularly as it is increasingly difficult to disconnect supplies to people failing to pay their bills.
Sue Chapple, head of client services at Complete Credit Management, whose customers include some of the larger water companies such as Severn Trent, said: "Their use will continue to go up as more people own their properties and more people have this as a financial asset."
Malcolm Hurlston, chairman of the Consumer Credit Counselling Service, a debt charity founded by the banks, said that the public should be told which firms are using charging orders so they know that their homes may be at risk.
The Government believes that allowing lenders to get a charging order even when someone is making agreed payments closes a loophole in the law. It said that at present people who have agreed to pay in small instalments can benefit from the sale of their property because they do not have to pay off the outstanding sum. "The debtor thereby obtains a capital sum and is under no obligation to make any payments towards the judgment debt," the Department for Constitutional Affairs ' paper said.
Jeremy Sutcliffe, a debt recovery solicitor at the National Bank of Australia, defended the use of charging orders by the banks. He said: "It is a perfectly legal procedure and it's quite a kind way of dealing with the debtor as opposed to making them bankrupt."
PLASTIC GROWTH
141 million payment cards in issue at the end of 2004 There were a further 25 million cards whose sole function is to withdraw cash and some 23 million so-called store cards Approximately 90 per cent of adults hold one or more cards Average debt per cardholder of £1,360 The number of transactions on all types of cards in 2004 reached 8.3 billion Total plastic card spending was £463.9 billion in 2004 The total for all plastic card purchases in Britain has grown from £1.488 billion in 1993 to £5.317 billion in 2004 To match the growth in cards the number of ATMs has increased from 19,100 in 1993 to 46,461 in 2003 Source: The Association for Payment Clearing Services (Apacs).