Logbook loans campaign
Citizens Advice campaign win on logbook loans
Citizens Advice welcomes the Law Commission’s announcement to review the Bills of Sale Act which governs logbook loans. We have been campaigning since the beginning of 2014 to secure changes to the way logbook loans and lenders operate so that consumers are better protected.
We would like to see changes to the law to include:
- the introduction of the same rights and protections as hire purchase and conditional sale agreements
- Better protection for third parties similar to those offered in hire purchase conditional sale agreements.
Hire Purchase and conditional sale agreements offer a much higher standard of protection to consumers by:
- requiring lenders to obtain a court order or the consumer's informed consent before taking possession of goods subject to an agreements, and
- granting innocent third party purchasers (buyers who have purchased a used car without knowing a previous owner has secured finance against it) 'good title'. This means that anyone who buys a vehicle in good faith, without knowledge of a prior hire purchase or conditional sale agreement can keep their car if there are problems with the agreement.
Citizens Advice will continue to pursue these changes to ensure consumers are better protected under the law.
Logbook loans leave people 'overloaded' with debt
Citizens Advice has released new evidence which reveals that people who take out logbook loans have twice as many debts as other borrowers. We are deeply concerned that irresponsible lending practices in this market are leaving consumers overloaded with debt.
This finding is the result of analysis of more than 23,000 cases of significant debt problems handled by bureaux between April and September 2013. It found 127 cases which involved a logbook loan (also known as bills of sale). The findings show, on average:
- logbook loan debts were worth more than double that of payday loan debts (£2,500 compared to £1,000)
- people with logbook loans had a total of ten debts, including other forms of credit, that’s double the number of loans held by all debt clients (five)
- 57 per cent of clients with logbook loans also had one or more other type of high cost credit
- 37 per cent of clients with logbook loans also had one or more payday loan
- the total amount of debt across all loans for people with logbook loans was £13,500.
The new research also finds that 40 per cent of people who took out a logbook loan are in work, with 33 per cent unemployed and 27 per cent not working due to things like caring responsibilities or ill-health.
Citizens Advice is concerned unscrupulous logbook lenders are handing out loans to people in desperate financial situations without carrying out any proper checks to establish it they can afford to pay back the loan. Evidence we released earlier this year found that there was a lack of proper checks to make sure the borrower could afford the repayments and some borrowers did not have the terms of the loans clearly explained.
What are logbook loans?
Logbook loans, or bill of sale lending, is a high cost form of credit.
A consumer will offer an item of their personal property (usually a car) as security for a loan they have taken. Interest rates are routinely circa 400 per cent annual repayment rate (APR) which is high for a secured form of lending.
Our evidence shows us there is a particular lack of consumer protection in logbook lending which is still governed by the Bills of Sale Acts dating from the Victorian period.
The Daily Mail, The Times, Metro and the Independent i have published stories on our logbook loans campaign following our Survey Monkey poll. Find out more about our campaign
Our Chief Executive Gillian Guy appeared on ITV News on 17 April to draw attention to the problem of logbook loans and aggressive debt collection practices within the market. Citizens Advice has seen cases where sexual harassment and death threats have been used to intimidate consumers. Our new figures show the number of loans are rising sharply - a worrying 33 per cent since 2011. The Independent discussed logbook loans on 18 April.
How do logbook loans work?
Under logbook loans, ownership of the item of property (usually a car) put up as security for the loan moves from the consumer to the lender meaning a lender does not require a court order before they can repossess the car.
Although the market in logbook lending is small, the level of consumer detriment in this market is high. Irresponsible lending and aggressive debt collection practices are common because there is no incentive for the lender to negotiate when the consumer gets into payment difficulties as they can seize the asset after issuing a default notice.
Some people who have taken out a logbook loan sell the car on without informing the buyer of the loan secured against it. The buyer stands to lose both the car and the money they paid for it if the lender decides to take possession of the asset – which is within their power. In these cases innocent third party consumers who have bought the car in good faith have few rights and their only access to redress would be to sue the person from whom they bought the car.
From our recent policy evidence briefing, of the consumers who have taken out logbook loans:
- 28 per cent were not treated fairly or appropriately by the lender.
- 17 per cent had not had the terms of the loans clearly explained in a way they understood.
- 17 per cent had their car taken away despite not being the original borrower.
- 14 per cent experienced harsh debt collection practices.
- 9 per cent had a lack of proper checks to make sure the borrower could repay.
- 8 per cent were hit with high charges for defaulting on their loan.