Shelved Reform on Log Book Loans
29 May 2018
Log book loans are advertised as an easy way to raise money and are often taken out by borrowers who have difficulty accessing other forms of credit. Log book loans are a form of high-cost credit often attracting APRs of 400% or higher.
Log book loans allow an individual to use their car as security while continuing to drive it and are attractive as lenders often don’t require a formal credit check. All you may have to prove to qualify for a log book loan is that you own the car being offered as security.
Log book loans are a form of bill of sale and a recent review of bill of sale legislation concluded that the existing law is archaic and wholly unsuitable to the 21st century. In particular, Log book loans were criticised as being costly, burdensome and sometimes risky for lenders, borrowers and purchasers of second hand cars.
Under the current bill of sale regime, cars may be repossessed if a borrower misses a single repayment. In addition, there are no protections for a purchaser who buys a car unaware that it is subject to a log book loan. If you buy a car which is subject to a log book loan you may need to repay the log book loan itself, pay for the car a second time or face losing the car.
However, reforms to how individuals can use their existing goods, such as cars, as security for loan have recently been shelved. Reforms were proposed to require a court order before assets, such as the car subject to the log book loan, could be seized. It was suggested that this protection would kick in when a borrower had repaid at least a third of the loan and wished to challenge a planned repossession. In addition, the reforms aimed to allow a borrower to end the financing arrangements by handing goods back to the lender rather than requiring full repayment of the loan.
Perhaps the most important aim of the reform package was to protect buyers in the second hand car market. The reforms would have meant that purchasers who unknowingly purchased a car with outstanding log book loans would not be held liable and could keep the car. There were also changes put forward that would make it easier to check if there was an outstanding log book loan as it is acknowledged that the current method of searching for relevant bills of sale is outdated, expensive and difficult.
The decision not to implement reforms to log book loans has been described as “deeply disappointing” by the Money Advice Trust. However, despite the lack of changes to this area of law, the government has announced that it will continue to work with the Financial Conduct Authority (FCA) as it carries out a review of log book loans as part of its overall high-cost credit review. There may well be future changes to the ‘unfair’ and outdated law governing log book loans.