Logbook loans to be banned
“Archaic” logbook loans look set to be banned, under new proposals announced this week.
The number of registered logbook loans, which are secured against the value of the borrower’s car, has jumped in recent years, with nearly 40,000 worth £30 million taken out between April 2008 and March 2009.
However, the government is concerned that such loans, also known as 'bills of sale', leave borrowers at risk because their vehicle can be seized without a court order. It also believes this type of lending encourages people to slip further into debt.
"These bills of sale are archaic and allow vulnerable peoples' goods to be seized without a court order,” says consumer minister Kevin Brennan. “They were developed in the days of Charles Dickens and don't meet 21st Century consumer standards.”
Logbook loans, which are mainly taken out by people who need money quickly and have a bad credit history, are notoriously expensive, with interest rates potentially as high as 600%.
Although the borrower retains possession of their vehicle and can continue using it, they must sign over the V5 logbook to the lender. This gives it temporary ownership, through a bill of sale, until the debt is repaid.
More than 1,000 people have complained to the Office of Fair Trading about problems with logbook loans over the past four years, with claims of losses totaling £1.47 million. And Citizens Advice reports a 100% increase in enquiries relating to logbook loans over the past year.
The lack of protection available to borrowers in arrears, unfair collection practices and the excessively high cost of these loans were the biggest causes for complaint.
In one recent case, Citizens Advice says a mother of two took out a £500 loan after her husband lost his job – it has already grown to £1,500, and her car is worth less than £2,000.
In another recent case, logbook loan paperwork contained a provision that allowed the lender to "break open doors or windows to obtain admission" to any premises on which the vehicle was situated.
The government is likely to ban logbook loans altogether, although it is also considering introducing new laws to protect consumers. A consultation on the proposals will run for 12 weeks.
A logbook loan is a way of raising cash with the loan secured against the borrower’s vehicle and the logbook held by the lender as security against the loan. They are aimed at people with poor credit ratings who may have outstanding county court judgements (CCJs), individual voluntary arrangements (IVAs) or are bankrupt as loans are approved without credit checks being carried out. The vehicles should be no more than eight years old with no finance outstanding. They must be insured and taxed and the potential borrower must have a regular source of income. Like payday loans, this type of borrowing is expensive, with APRs of 500%.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.