CCA Debts – Should minimum thresholds be imposed on Orders for Sale?

In February the Ministry of Justice published a consultation paper considering whether a minimum threshold should be imposed on Order for Sale applications arising out of final Charging Orders on debts regulated by the Consumer Credit Act.

The consultation arose due to the Ministry of Justice’s concerns at (1) the large volume of final Charging Orders which had been granted over the past decade combined with (2) the fact that given the current economic climate, creditors are more likely to want to quickly exercise an Order for Sale to release the monies tied up in the charge.

The consultation paper considers four separate options:

1. Introducing a threshold on all Charging Order and Order for Sale applications.
2. Introducing a minimum threshold on just Orders for Sale in CCA applications.
3. Introducing a two-limb test before an Order for Sale could be granted ie a debt must be a high amount and account for more than a certain percentage of all debts owed to the applicant.
4. Restricting the scope of Orders for Sale by removing their applicability to consumer credit debts or residential property altogether.

Whilst the consultation paper does not openly criticise creditors for their actions in a difficult economic climate it does question whether debtors should be offered more protection, perhaps even enshrined by statute, from applications that may be considered oppressive.  Concerns such as this become apparent when the MOJ cites, by way of example, an order for sale on a property worth £300,000 arising out of a judgment debt of £500 secured by a Charging Order.

In order to ascertain whether existing debtor protection is sufficient, the MOJ considered the current statutory framework surrounding Charging Orders and Order for Sale applications as well as established case law and made the following observations:

• There is sufficient protection afforded to debtors within the current statutory framework to safeguard against oppression.  Furthermore, the framework does not pigeon-hole debtors in a way which may cause detriment.
• Although judicial decisions do differ between courts, there remains a uniform trend when considering Order for Sale applications. The general attitude of the judiciary is, correctly, that such applications are a last resort and the court will take into account all matters including any arguments under the European Convention of Human Rights in circumstances regarding children or family life.
• In the event that a creditor is denied the opportunity to enforce CCA debts through final Charging Orders and Orders for Sale, there is a risk that unsecured lending will be reduced or withdrawn to the detriment of society and the economy ie a significant proportion of society would either have credit lines reduced or closed eg young professionals in an inflated property market. This further suggests a reason for creditors acting with restraint in making an application for an Order for Sale.

In concluding that none of the four options set out above should be implemented, the MOJ took comfort from the OFT’s interim findings on applications for Orders for Sale, which revealed that a relatively small number of Orders for Sale are granted and the OFT, in its regulatory role, already acts as a safeguard to debtors as well as a passive deterrent to creditors engaging in unfair practice.

Notwithstanding the MOJ’s preliminary conclusions the consultation period remains open until 30 April 2010 and provides an opportunity to make representations against the backdrop of social and economic pressures on debtors.   We will await with interest the outcome of the consultations but, in the meantime, would agree with the MOJ that the existing safeguards are already fairly comprehensive. The more it is made clear by the judiciary that such applications will only be considered as a last resort, the less any speculative applications will be made.

If you would like to record your agreement to the conclusion or any disagreement and recommendations you can do so at www.justice.gov.uk.