The British public have been particularly careful with their finances in past months, licking their wounds after a culture of overspending and credit reliance left many deeply in the red. Some consumers in debt have found solace in the way that their unsecured loans are giving them the reassurance that their homes and assets are safe. However, in an announcement by the impartial charity the Citizens Advice Bureau, some consumers are being urged not to take their situation lightly.
This advice comes after High Street banks and credit card companies awaiting payments on unsecured loans began to go through the legal system to transfer unsecured loans into secured ones. The court process, known as a charging order, is beginning to become a threat to the indebted who are already struggling to meet bills.
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Since the beginning of the millennium, the amount of charging orders that High Street banks and credit companies have applied for has increased sevenfold. Successful applications result in the attachment of a toxic debt to an asset like a property, which could mean the repossession of a home to pay for a loan £15,000 or lower.
The recession has meant yet another sharp increase in applications for charging orders. Because of the financial situation, the rate of injunctions is likely to rise in a similar fashion. Nearly three-quarters of charging order applications which went through the Courts in 2007 were successful, according to Ministry of Justice statistics - a stark warning that 105,000 families were affected by the process in that year alone.
David Harker is a representative of the Citizens Advice Bureau, the charity that began to raise alarm bells that consumers were helpless to see their unsecured loans turn into secured loans. He made strong accusations that the legal system were not taking into account a criteria that usually has to be met for charging orders to become an option to lenders.
"Charging orders are being granted even when [appropriate] circumstances do not apply. Both creditors and judges are working round existing legal safeguards for debtors."
The Bureau, which has helped arrange plans to repay debt in smaller supplements, is beginning to become concerned that 600,000 consumers who are in such plans are at risk from the dire implications that charging orders bring.
Calls for changes to be made to the legalities that surround secured loans have been reacted to by the Government, who have launched initiatives for indebted homeowners to avoid their house being repossessed. For example, those with secured loans and bad credit are currently being offered the opportunity to avoid paying interest on their balance for two years, in the form of the Homeowner Mortgage Support Scheme.
Still, the Government is facing criticism that the changes are not good enough. Some experts, like David Harker, are in the belief that charging orders are being used excessively and unnecessarily, meaning extreme changes in the lives of millions for small returns. This cry for charging orders to become a final resort for lenders is currently going unheard, and with the credit crunch stifling, it seems any action could be a long way away.
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