The increasing numbers of innocent drivers having their car repossessed because of debts racked up by the previous owner is prompting a change in the law.
Citizens Advice has warned that the number of so-called logbook loans will soar compared to 2011. These are the payday loan of the motoring world where a car is used as security to borrow money against. The consumer advice organisation claims that almost one in five private used car buyers have had their car repossessed because of outstanding logbook loans, despite not being the original borrower.
The concern for second-hand car buyers is that because of the nature of logbook loans, they’re difficult to check up on. The Law Commission is now looking at revising the law around them to offer car buyers more protection. However, changes are unlikely to come into force until 2016.
Logbook loans are officially known as ‘bills of sale’. Many of the laws surrounding these date from the Victorian era and the loans don’t have to be registered. The Law Commission explained: “The lack of protection for consumers contrasts with modern consumer credit protections. Following default, the law allows a lender with a bill of sale to seize the property without a court order.” It means if someone sells a car with an unpaid debt secured against it, the lender can legally snatch the car from the new owner.
Between 2001 and 2013, the number of logbook loans taken out annually multiplied nearly 17 times – from 2840 to 50,656. In spite of this booming popularity, they’re one of the most expensive ways of borrowing money. They’re taken out by people with poor credit histories who find it hard to borrow money in other ways.
A typical logbook loan firm charges an interest rate of 319 per cent APR. To pay back a £400 loan over 12 months at this rate would mean interest and charges of £399.84, nearly doubling the original advance. Some have interest rates that are even higher.
Citizens Advice also warned of aggressive behaviour, sexual harassment and death threats from logbook lenders. It found that 28 per cent of people taking out loans had not been treated fairly or appropriately by the lender; 17 per cent had their car taken away despite not being the original borrower; 17 per cent had not had the terms of the loan clearly explained in a way they understood; and 14 per cent had experienced harsh debt collection practices.
Citizens Advice chief executive Gillian Guy said: “The logbook industry is still in the dark ages. It is absolutely absurd that a firm should be able to take away someone’s possessions without any due legal process. High interest rates and lack of affordability checks as well as threatening practices and phantom charges mean logbook loans are a toxic mix of the worst parts of payday loans and unruly bailiffs.”