Plans to ban logbook loans
Consumer Minister Kevin Brennan has announced plans to ban the use of an outdated law used to sell high-cost loans.
Bills of sale are typically used for ‘logbook' loans which are secured against the value of the consumer's car.
Consumer Minister Kevin Brennan said: "These bills of sale are archaic and allow vulnerable peoples' goods to be seized without a court order. They were developed in the days of Charles Dickens and don't meet 21st Century consumer standards.
"They can encourage people to slip even further into debt rather than taking control of their finances.
"We must consider all the options but it seems they don't fit easily into a modern consumer regime which should allow honest businesses to thrive and offer adequate protection for consumers."
The number of registered bills of sale has risen over the years with nearly 40,000 being made between April 2008 and March 2009. This equates to around £30million in loans to consumers.
The Office of Fair Trading reports that more than 1,000 consumers have complained about problems with these loans and claims of losses total £1.47million in the last four years.
Complaints relate to the lack of protections available to people if they fall into arrears, unfair collection practices, the complex and confusing nature of the language used in the agreements and the excessively high cost of the loans.
The Government is launching the consultation today and is seeking views on the following options:
Ban the use of bills of sale for consumer lending
A voluntary code of practice or other non-statutory regulations
Targeted reform to bills of sale legislation
Citizens Advice has seen a 100 per cent increase in enquiries relating to bills of sale in 2008/9. The following case study is an example of one of them:
In September a married mother of two took out a £500 loan to pay the rent and keep the family afloat after her husband lost his job. The debt has already grown to approximately £1,500. Her car is worth less than £2,000 and the loan company already have the logbook. She says she feels totally trapped and bitterly regrets taking the loan out
Second case study from Trading Standards:
Another consumer agreed with a lender to set up a direct debit for a loan of £500 to buy a car. This direct debit was never activated by the lender, and after two months the account was in default.
The consumer made two payments to bring it into credit, but received no written contact or notice regarding outstanding arrears - just texts from a collections agent including threats to register the car as stolen with the police if payment was not received. Their family and partner were also contacted.
The bill of sale offered by the lender, contained a provision that allows the lender to "break open doors or windows to obtain admission" to any premises on which the vehicle is situated.