RBS rapped over debt enforcement

Bank too quick to secure customers’ unpaid debts to their homes

Royal Bank of Scotland has been censured by the Office of Fair Trading for unfairly linking customers’ unpaid, unsecured debts to their homes.

The watchdog on Friday criticised RBS and its subsidiary NatWest about the way it enforced some customer debts through charging orders, legal orders that place a claim against the borrowers’ home, putting it at risk.

A bank can apply to a court for such an order if a borrower fails to repay debt owed on a personal loan or credit card. The process of securing these debts against a property means a creditor’s money can be recovered if a borrower sells their home.

Once this is obtained, the bank can go back to court to apply for an additional order requiring the property be sold to recover their debt. These are granted in only a small number of cases.

An investigation by the OFT raised concerns that RBS and NatWest failed to consider customers’ financial circumstances and the “proportionality” of the approach before enforcing debt in this way.

It found that the banks were not always taking account of customers’ efforts to repay debts, such as through a debt repayment plan or other methods.

The watchdog also discovered that many of these court orders were sought to secure relatively small amounts of debt, some as little as £5,000.

David Fisher, director of consumer credit at OFT, said that where it considered the use of charging orders to be unfair or oppressive it would take action.

“Lenders are entitled to use charging orders but they must do so proportionately and not to secure relatively small amounts of debt,” he said. A breach of a requirement could result in a maximum fine of £50,000 per breach and could see the company’s consumer credit licence revoked.

RBS said the cases reviewed by the OFT were from 2007 and 2008 and that it had changed its policy in 2008 before the investigation.

“We are committed to helping customers who find themselves in financial difficulty. We changed the thresholds for using charging orders ourselves in 2008. We use charging orders only as a last resort,” the bank said.

In 2010, the OFT imposed similar requirements on Alliance and Leicester Personal Finance, American Express Services Europe, HFC Bank and Welcome Financial Services over their use of consumer debt enforcement. It uncovered instances of charging orders being used to secure debts of less than £600.

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