Current project status
The current status of this project is: Complete.
List of project stages:
- Analysis of responses
- Initiation: Could include discussing scope and terms of reference with lead Government Department
- Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
- Consultation: Likely to include consultation events and paper, making provisional proposals for comment
- Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
- Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations
This project is complete. We laid our report before Parliament on 12 September 2016 and await the Government’s response.
In September 2014, HM Treasury asked the Law Commission to review the Bills of Sale Acts. Our 2016 report recommends that the Bills of Sale Acts should be repealed and replaced with modern legislation that imposes fewer burdens on lenders and provides more protection for borrowers.
What are bills of sale?
Bills of sale are a way in which individuals can use goods they already own as security for a loan. They are governed by two Victorian statutes, dating from 1878 and 1882.
The use of bills of sale has grown dramatically this century, from 3,000 in 2001 to over 37,000 in 2015. This reflects the rapid increase in the use of logbook loans.
A logbook loan is a type of sub-prime lending, where the borrower gives the lender a bill of sale on a vehicle they already own. The borrower may continue to use the vehicle so long as they keep up the repayments, but risks having it seized on default.
The law on bills of sale is seriously outdated, and causes problems for borrowers, purchasers and lenders alike.
Problems for borrowers
Unlike for hire purchase, lenders are allowed to seize vehicles without a court order, even if almost all the logbook loan has been repaid.
Problems for purchasers
Innocent private purchasers do not acquire ownership if they buy a vehicle subject to a logbook loan. Instead, they often face three stark choices: pay off someone else’s logbook loan; surrender the vehicle; or pay the lender for it again.
Problems for lenders
Lenders are also failed by the current law. Lenders must register logbook loans at the High Court in accordance with a cumbersome and expensive regime. We estimate that this adds around £2 million of unnecessary costs a year.
The legislation sets out complex documentation requirements. The sanction for non-compliance is severe and disproportionate: the lender loses its right to the vehicle and its right to repayment of the logbook loan.
The Bills of Sale Acts are archaic Victorian statutes, which are wholly unsuited for modern credit arrangements such as logbook loans and should be repealed in their entirety.
The Law Commission recommends a new Goods Mortgages Act to:
- Provide appropriate protection to borrowers, so that vehicles are not seized too readily;
- Protect innocent purchasers who buy vehicles without realising that they are subject to a bill of sale;
- Save £2m of costs caused by unnecessary registration and red tape; and
- Remove unnecessary restrictions on secured lending to small businesses.
If the Government accepts these recommendations, the next stage would be for the Law Commission to draft a Bill. We hope this Bill could be introduced into Parliament under the special procedure for uncontroversial Law Commission Bills.
The following publications are available:
- October 2014: initial call for evidence
- September 2015: consultation paper and summary
- A summary of the 38 responses we received to consultation
- A full copy of our report; a 21 page summary; and a 2 page factsheet (in English and Welsh)
The team involved in the preparation of the report included Tamara Goriely (team manager), Fan Yang (team lawyer), Sophia Hurst (research assistant 2014-15) and Robert Ward (research assistant 2015-16).
Area of law
Commercial and common law