Bills of Sale

Current project status

• 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

Replacing the Victorian era Bills of Sale Acts to bring greater protections for consumers taking out loans on goods. In May 2018, the Government said it will not introduce legislation at this time.

Download the final report

Download the report summary

The problem

Bills of sale are a way for people to use their goods as security for loans while retaining possession of those goods.

They are mostly used for logbook loans – loans against cars – a high-cost form of credit regulated by the Financial Conduct Authority.

Bills of sale have grown from 3,000 in 2001 to about 37,000 in 2015 and 2016, with a peak of 52,000 in 2014.

The vast majority are taken out by borrowers who have difficulty accessing other forms of credit.

Bills of sale are fraught with problems, both legally and practically. They:

• allow goods to be repossessed on a single default, with little protection for borrowers.
• give no protection at all to purchasers who unwittingly buy goods subject to bills of sale.
• are unnecessarily costly and impose burdensome formalities on lenders.
• are inflexible and stifle more complex commercial transactions such as securing guarantees and revolving credit, even when the individual is a business or high net worth.

The project

In September 2014, HM Treasury asked the Law Commission to review the Victorian-era 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 Our 2016 report recommends that the Bills of Sale Acts should be repealed and replaced with modern legislation that imposes fewer burdens on lenders and provides more protection for borrowers.

In the summer of 2017 we consulted on draft clauses, which were intended to form part of the Goods Mortgages Bill announced by the government in the Queen’s Speech in June 2017.

In September 2017, we published a full version of the draft Goods Mortgages Bill.

Our recommendations

We recommended that the Bills of Sale Acts be replaced with a new Goods Mortgages Bill. The proposed Goods Mortgages Bill would:

• Ensure borrowers are given adequate warnings at the outset of the agreement.
• Increase protection for borrowers by introducing a new requirement for lenders to obtain a court order before seizing goods. This would occur where the borrower has paid one third of the loan and wants to challenge the intended repossession.
• Allow borrowers to end their agreement by handing back the goods to the lender – instead of paying the rest of the loan.
• Protect buyers of second-hand vehicles – purchasers who unwittingly bought a car with an outstanding logbook loan would not be liable and would keep the car.
• Help unincorporated businesses raise finance against their assets, by making lending cheaper and more straightforward.

Businesses, lenders and consumer groups strongly agreed our reforms would make a vast improvement to the Bills of Sale Acts.

Result

In the Queen’s Speech 2017 the Government announced its intention to introduce the proposed Goods Mortgages Bill.

In September 2017, HM Treasury launched a short, targeted consultation asking stakeholders about their support for the aims of the Bill, and its suitability for the Law Commission’s special parliamentary procedure for uncontroversial bills.

Having analysed the responses, the government announced in May 2018 that it would not introduce legislation at this point in time. It cited the “small and reducing market and the wider work on high-cost credit”.

In our response, we expressed our disappointment that consumers would not be protected and pledged to work to explore ways in which we can bring forward reform in this area in the future.