28/11/2017
New law makes logbook loans fairer for all (E, W)
Outdated Bills of Sale Acts, which can cause problems for all parties involved with ‘logbook loans’ granted to individuals who pledge their cars as security, will be repealed and replaced by new legislation placed before Parliament by the Law Commission.
Bills of Sale governed by Victorian-era legislation allow people to retain use of pledged goods so long as they keep up repayments. They have increased from under 3,000 in 2001 to more than 37,000 in 2015, with high cost logbook loans taken out by borrowers who have difficulty accessing other forms of credit accounting for the vast majority of the increase.
Unfortunately Bills of Sale can potentially cause problems for
- borrowers, because they allow lenders to seize vehicles without a court order, even if almost all the loan has been repaid
- lenders, who must register logbook loans at the High Court under a cumbersome and expensive regime
- private purchasers, who do not acquire ownership if they unknowingly buy a vehicle that is subject to a logbook loan
The Law Commission, which was asked by government to review Bills of Sale Acts, recommended repealing and replacing them with the Goods Mortgages Bill, which will also
- ensure borrowers are given adequate warnings at the outset of an agreement
- introduce a new requirement for lenders to obtain a court order before seizing goods when the borrower has paid one third of the loan and wants to challenge the intended repossession
- allow borrowers to end their agreement by handing back the goods to the lender – instead of paying the rest of the loan
- purchasers who unwittingly buy a car with an outstanding logbook loan will not be liable and will keep the car
- help unincorporated businesses raise finance against their assets, by making lending cheaper and more straightforward
‘Goods Mortgages Bill Report’ traces the development of the Bill from 2014 when HM Treasury asked the Law Commission to review the Bills of Sale Acts. It links to key documents produced during the process, including the Law Commission’s 2016 report to parliament recommending the repeal and replacement of the Bills of Sale Acts, two 2017 consultations (September and July *) on the draft legislation and the draft Goods Mortgages Bill itself.
* ‘New Rules on Log Book Loans? (E, W)’, CPA News, 27 September 2017 – which also includes a link to ‘Goods Mortgages Bill to Give More Protection (E, W)’, 12 July 2017.
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