People who have taken out unsecured loans are increasingly finding that their homes are under threat – thanks to the scandal of moneylenders going to the courts to obtain “charging orders” on their loans.
Charging orders allow companies to secure previously unsecured debt against people’s homes.
Last year over 97,000 of these orders were granted in England and Wales, as compared to only 7,000 orders granted in 2000.
There has been a sharp increase in the use of charging orders in the last few months.
And now the government is pushing legislation that will make it even easier for creditors to obtain orders.
An adviser who works with people in debt spoke to Socialist Worker about the situation. “Creditors who sell unsecured loans charge higher interest precisely because they are meant to be ‘taking a risk’,” the adviser said.
“But if they can end up securing the debt on someone’s home, then where is their risk? In some cases apparently ‘unsecured’ creditors were even making lending decisions based on whether someone owned their own home or not.
“The government is now changing the law to make it easier for companies to get charging orders.
“That is one factor fuelling their rise – the government has effectively given courts and creditors a green light to go for them.”
At the moment creditors can apply for a charging order only if someone has defaulted on a loan and has a county court judgement (CCJ) against them.
But the Tribunals, Courts and Enforcement Act of 2007 removes the requirement for someone to have defaulted on a CCJ before a charging order can be applied for.
Charging orders don’t always lead to people losing their homes. But advice agencies report that this outcome is becoming increasingly likely.
“In theory it is up to the court to decide whether or not to grant a charging order,” the adviser said.
“But in my experience they never decide in favour of the debtor – it’s always the creditor who wins.
“This situation will only get worse as more and more people lose their jobs.
“Creditors themselves are now getting into trouble, which makes it more likely that they will try and force people into selling their homes. It’s an easy way for them to get some cash back.”
Northern Rock – which is now owned by the government – is among the most aggressive financial institutions when it comes to applying for charging orders.
Gordon Brown says he will take measures to help stop people losing their homes in this recession.
If he is serious, the government should scrap its plans to make charging orders easier to obtain – and stop banks such as Northern Rock from pursuing these orders.