Government moves forward with logbook loan reforms
The National Association of Motor Auctions (NAMA) has welcomed moves by the UK Government to change the law around logbook loans.
Logbook loans are loans that are secured on a consumer's vehicle. According to the Law Commission, these are not traditional consumer credit arrangements but fall under archaic legislation known as the Bills of Sale Acts, which allow people to use goods they own as security while retaining possession of those goods.
The Government is concerned about the lack of protections available to consumers who take out a logbook loan, as well as third party purchasers who unknowingly buy a used car that is subject to a logbook loan. Such buyers can unexpectedly find themselves losing the vehicle or having to pay off someone else's loan.
Responding to recommendations made by the Law Commission, Economic Secretary to the Treasury Simon Kirby said last week that the Government agreed with its conclusion "that consumers and unincorporated businesses should continue to be able to use their existing goods as security while retaining possession of them but that the Bills of Sale Acts no longer provide an appropriate legal framework and should be reformed".
The planned changes to the law would make this form of lending fairer for borrowers and offer greater protection to people buying used vehicles that are still subject to logbook loans.
Stephen Lewis, Law Commissioner for Commercial and Common Law, said:
"This is great news for car buyers. Every year many were unwittingly purchasing second hand vehicles at risk of repossession due to unfair logbook loans.
"The current law doesn't give them the protection they deserve and our recommendations for changes are about putting people back in the driving seat when it comes to logbook loans.
"I'm pleased that the Treasury has agreed and acted swiftly to put the brake on this out of date legislation. We're drafting a bill which we hope will be introduced into Parliament next autumn to change the law by 2019."
Louise Wallis, head of NAMA, commented:
"Logbook loans have been problematic for the auctions and dealers, as well as consumers. Unlike consumer credit, the loans do not have to be settled when the car is sold, and means the new owner of the vehicle can be made to pay any outstanding debt -- even if they have not taken out the loan.
"Unlike vehicle finance, these loans do not have to be registered with the credit reference agencies, and so will not show up when a vehicle date check is carried out. This has meant that sellers are unwittingly selling vehicles with un-cleared finance to consumers.
"NAMA has campaigned for many years for a change in this law, and the Government is now acting to introduce a new type of loan called a 'vehicle mortgage'. These will have to be registered with credit agencies, giving sellers better protection. Furthermore, a consumer who unfortunately buys a vehicle with one of these loans will not be liable to the debt from a previous owner."