Unfair law fails to protect logbook loan consumers
Logbook loan borrowers have too little protection and those who unwittingly buy cars subject to logbook loans have none at all.
Today the Law Commission opens a consultation to reform the archaic law underlying logbook loans – the “Bills of Sale Acts” – which remains unchanged since Victorian times.
Logbook loans are a way for borrowers to use their cars, vans and motorcycles as security for a loan. The borrower keeps possession of the vehicle and may continue to use it while making repayments. But if the borrower fails to pay, the lender is entitled to repossess the vehicle without a court order. Borrowers lose the vehicle they need and are often left with a large outstanding debt.
Consumers buying a second-hand vehicle in good faith can also lose out, if it turns out that the vehicle is subject to a logbook loan. In law, they do not own the vehicle. Instead, they face three unfair options: pay off someone else’s logbook loan, lose the vehicle or pay for it again.
In its consultation the Law Commission argues that the law on logbook loans should be reformed to include protections similar to those offered by hire purchase law. The Commission is seeking views on a list of provisional proposals:
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Protecting borrowers from abrupt repossession – where a borrower is in temporary financial difficulties but has already repaid more than one third of the logbook loan, lenders should have to apply for a court order before repossessing the vehicle.
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Giving borrowers the right to end the logbook loan – a borrower with no realistic prospect of repaying the logbook loan should be able to hand over the vehicle to the lender to release themselves entirely from the loan and any associated charges.
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Protecting private purchasers – where an individual has bought a vehicle for private purposes, in good faith and without knowing that it is subject to a logbook loan, they should become the owner of the vehicle.
Lenders are also failed by the current law. The regime for registering logbook loans is cumbersome and expensive. The Law Commission is also consulting on provisional proposals that would simplify the registration regime and could save the logbook loan industry around £2 million a year.
Stephen Lewis, Law Commissioner for Commercial and Common Law, said:
“Borrowers are increasingly turning to logbook loans, either as well as or instead of payday loans. They tend to be vulnerable, “sub-prime” borrowers who struggle to access more traditional forms of lending. But the law in this area is out of step with hire purchase legislation and offers little protection.
“Meanwhile, the law also fails private buyers who unwittingly buy second-hand vehicles subject to logbook loans.
“The law has not been changed since Queen Victoria was on the throne. It is high time that it was reformed to bring it up to date with modern standards of consumer protection.”
The Commission’s proposals are part of a wider review of the law of bills of sale, of which logbook loans are one type. The review also looks at documentary requirements and how secured lending on goods could be made easier for unincorporated businesses.
The consultation closes on 9 December 2015. A consultation paper with full details of the Commission’s recommendations is available here.
