Credit, collections & insolvency news
The Law Commission has today published it’s report on Bill of Sale announcing a series of recommendations to protect borrowers from ‘unfair’ logbook loans. Logbook loans are a way for borrowers to use their vehicle as security for a loan. Borrowers who fall behind with payments can find their vehicle swiftly repossessed, as well as high charges escalating the outstanding loan. The loan follows the vehicle, leaving some third-party buyers unexpectedly finding themselves facing the loss of the vehicle they have bought in good faith.
The use of bills of sale has grown dramatically this century, from 3,000 in 2001 to over 37,000 in 2015. This reflects the rapid increase in the use of logbook loans.
The Law Commission’s report recommends similar protections for borrowers and buyers as those offered by hire purchase law, through a new Goods Mortgages Act to replace ‘archaic’ Victorian Bills of Sale legislation to:
If the Government accepts these recommendations, the next stage would be for the Law Commission to draft a Bill.
Jane Tully, director of external affairs at the Money Advice Trust said: “While we would have preferred to see a recommendation for logbook loans to be banned all together, this report is good news for consumers at risk of falling victim to this unusual form of borrowing. Logbook loans are relatively few in number compared to other forms of borrowing, but they can cause significant difficulties. At National Debtline we helped more than 600 people who were struggling to repay logbook loans last year – including some who have discovered that a loan is attached to a second hand vehicle they have bought.
“If they are implemented, the Law Commission’s recommendations should make a significant difference in protecting borrowers and vehicle owners. We would urge the government to still keep this issue under review, and return to the option of a ban on logbook lending if problems persist.”
Peter Tutton, Head of Policy at StepChange Debt Charity, said: “Legislation on logbook loans is over a century old and not fit for purpose, so it is good to see action being taken. Logbook loans can cause significant harm and the current protections are wholly inadequate.
“We need effective, modern consumer protection and these recommendations are a positive step forward. However, in their current form, they will not provide adequate protection and the people who will suffer are the ones that need it the most.
“If people have to actively opt-in to receive protection from the courts against lenders repossessing their car, our evidence suggests it will not work. It requires too much proactivity and understanding from financially vulnerable people who may not even feel able to open their mail. It also requires too little from sub-prime lenders seeking to take away a car that could be essential for work or family life.”
Gillian Guy, Chief Executive of Citizens Advice, said: “Patchy and outdated laws on logbook loans have failed borrowers and consumers. High interest rates and charges, as well as aggressive debt collection practices have caused serious financial difficulties for borrowers of logbook loans. But the problems don’t stop there. People who have bought a second hand car not knowing it had a logbook loan attached have been chased for the debts and lost their car as a result.
“It’s good the Law Commission has recognised the difficulties logbook loans are causing by recommending changes to help stop unfair repossessions- although this will need to be monitored to ensure borrowers really are being protected. Writing off debts if the car is now in the hands of another owner will also help motorists avoid losing their cars for someone else’s debt.”
