Bank that turned bounty hunter

Nationwide is taking a former customer to court next week, demanding £80,000 in mortgage debt eight years after it sold his repossessed flat for £16,000.

The action comes despite a promise made by Nationwide in early 2000 that it would not chase customer debts after six years. It also raises questions about the value of voluntary codes for financial services firms.

Kit Hinton, who faces a Nationwide debt claim on Tuesday, bought a flat in Brighton in 1989.

"I was only 20. I borrowed £34,500 in May 1989 for a £35,000 flat. By early 1990, I was in serious arrears. I left the flat in July 1990, although I made some payments after that," says Hinton, now a data processor for an insurance company.

Nationwide did not sell the flat until July 22, 1994 for £16,000 - despite earlier offers of around £25,000.

Costs for arrears, sale expenses, inspections, insurance and unspecified "general costs" inflated the debt to £50,005, and further interest costs since then have pushed it to an astonishing £79,213 - money which Hinton says he does not have.

"After I left the flat, I heard nothing from Nationwide. I moved back with my parents, then got married, managed to get another mortgage, and now we have two children," he says.

Nationwide finally made phone contact with Hinton on July 28, 2000, beginning an extraordinary legal tussle in which it stands accused of breaching industry-wide agreements designed to end the misery of negative-equity debts from the early 90s.

In January 2000, following a campaign by Jobs & Money, the Council of Mortgage Lenders agreed to a six-year limit for chasing mortgage debts, down from 12 years before. The six-year limit was approved by the National Association of Citizens Advice Bureaux and the Federation of Independent Advice Centres.

Lenders such as the Halifax favoured six years; but Nationwide was among the more vocal opponents of the change, arguing for an eight-year limit, then claiming "the society was under pressure from our wider membership to pursue debts" - although it was unable to detail this pressure. MP Paul Flynn specifically named the Nationwide in a Commons motion in December 1999.

When Nationwide made contact with Mr Hinton, it was just after the six-year limit had expired. He will argue in court that it was days too late.

But the Nationwide will say in court that the six-year debt amnesty does not apply as it "attempted to contact" the shortfall victim earlier. Nationwide says this interpretation is in the small print of the original agreement.

Nationwide claims it started the process in August 1999. This consisted of:

Sending a letter in autumn 1999 to an address (supplied by tracing agent Internet Investigations and Credit Network Solutions) where Hinton lived in the early 90s - this was returned to sender, marked "gone away". This search cost £77.50.

Hiring the Central Group of Companies International Ltd in late June 2000 for a new £45 search which stated he was "apparently of no fixed abode" but which indicated a work address. Letters were sent to this address shortly before the six-year period expired, but there is no record of their delivery.

Yet Mr Hinton could have been found very simply. "I never made any attempt to hide from Nationwide. I'm on the voter list, I have a mortgage and have always lived in Brighton. But I only realised they wanted to deal with me more than six years after the sale and more than 10 years after I left the flat," he says.

"Anyway, if Nationwide really wanted to find me, all they had to do was to look at their own lists. I've had a Nationwide account since I was eight and they've been sending me statements and voting slips all the time. I'm a member," he adds.

Lenders who have taken a more benign attitude on shortfall recovery are appalled by Nationwide's action. "There could be a disastrous reputational issue for Nationwide. The agreement is voluntary but we all signed up. Ignoring it whenever we think expedient will lead to formal FSA regulations which no bank wants," says one leading lender.

Damon Gibbons, head of advice services at Leicester City Council says: "Nationwide appears to have failed in selling the property speedily, getting the best price, and using information in their possession to contact the borrower. This agreement now needs substantial clarifying if it is to have any credence."

Nationwide says: "We are going to court. We attempted to make contact within six years so we have not broken the wording of the agreement, which is voluntary. We sent letters by first class mail. We did not register them.

"We could have done more, however. We admit this was not well handled. We shall not seek interest after July 1994. But we would look to settle this speedily."