A recent broadcast of 5 Live Investigates on BBC radio
5 Live has refocused the spotlight on the controversial subject of
‘logbook loans’.
The programme highlighted the plight of a 24-year-old first-time
used car buyer who, after saving up and paying the £1,100 asking
price to a garage, was confronted by a demand for £600 for an
unpaid logbook loan which the previous owner of the vehicle had
failed to repay.
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Logbook loans offer no protection to consumers in this young
woman’s position because they are in fact conditional bills of sale
under legislation enacted in 1878 and 1882. Under a bill of sale,
the owner of an item of property – these days usually a car –
borrows a sum of money using the property as security. If the
borrower defaults, the property then becomes the property of the
lender, even if, as in this case, the borrower has sold the
property on to a completely innocent third party.
The story has a happy ending because the lender in this case
agreed to take just £200 to settle the debt, and repaid that in
full after the BBC started investigating the matter. However, the
publicity generated has prompted plenty of comment from consumer
groups.
National Debtline’s chief executive Joanna Elson said “We do
believe the Government ought to insist that really we start again
with this kind of instrument and move it something closer to the
kind of consumer protection we would see with other loans.”
In fact the Government announced late in January that the ‘Bills
of Sale’ money lending industry would work under a new Code of
Practice effective from 1 February 2011. Lenders are required to
provide customers with a plain English information sheet explaining
how bills of sale work, and what the customer can expect from the
lender.
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By GlobalDataConsumer Minister, Edward Davey, said: “It’s important that we
clarify what’s involved in a bill of sale loan. There have been
concerns in the past about how difficult they are to understand, so
this Code of Practice and the plain English information sheet
should provide more transparency on what a loan entails for both
the lender and the consumer. I welcome the fact that the majority
of the industry has already signed up to abide by this code.”
In response to calls that the practice should be banned
altogether the minister said: “The Government felt that any ban
could restrict consumer access to credit, reduce choice and push up
prices. This could also potentially force some consumers into the
hands of illegal lenders. It was also felt that it would be
disproportionate to ban an industry because of a few rogue
lenders.
“Added consumer protections from the new Consumer Credit Act and
the OFT will monitor the industry under the Irresponsible Lending
Guidance, which will have a positive impact on consumer rights for
bills of sale loans.”
