Lenders turn the screw on debtors
Sunday 10 April 2011
Lenders are increasingly using a little-known clause in consumer credit legislation to squeeze money out of debtors.
The use of "attachment of earnings orders", which allow lenders and other creditors to take money directly from debtors' salaries as soon as they are paid, has risen by 30 per cent in past year, according to legal information service Sweet & Maxwell. The firms said there were 15,339 applications for attachment of earnings orders in the third quarter of 2010 (the most recent period for which figures are available, up from 11,800 applications in the first quarter of 2010. The news may anger regulators as in 2009 the Financial Services Authority criticised firms' use of the arcane orders, particularly when it came to mortgage debt and chasing arrears.
The FSA recommended that lenders should offer borrowers other options, such as temporary lending holidays or changing the repayment terms before embarking on legal action to recover their debts. "Attachment of earnings orders are becoming more popular because other options available to creditors to recover debt have become less effective during the downturn," says Claire Sandbrook, a Sweet & Maxwell spokeswoman and author of the book Debt Recovery Through the Courts. "The creditor needs to know who the debtor's employer is, but it is quite easy to find that information, particularly if the creditor is a bank or credit card company, which is often the case."
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