The Law Commission welcomes plans outlined in today’s Queen Speech to close a legal loophole which means buyers of second-hand vehicles are at risk of having them repossessed due to unfair logbook loans.
As part of plans to make the country fairer the Government has announced it will act on Law Commission recommendations to scrap the outdated Victorian-era Bills of Sale Acts. They will now be replaced with a new Goods Mortgage Bill.
The Bill will:
- increase protections to borrowers who have taken out a mortgage on goods that they own, such as their car (so called logbook loans);
- ensure borrowers are better informed about their loan and provide safeguards if borrowers get into financial difficulty.
Law Commissioner Stephen Lewis said:
“Consumers everywhere should be pleased to see plans for a new Goods Mortgage Bill announced in the Queen’s Speech.
“Every year car buyers are unwittingly purchasing second hand-vehicles at risk of repossession due to outdated legislation on logbook loans.
“The current law doesn’t give buyers the protection they deserve but this new law – based on our recommendations – will put people back in the driving seat when it comes to logbook loans.”
Writing off the Bills of Sale Acts
The use of bills of sale, where people can use goods they own as security while retaining possession of those goods, has grown from under 3,000 in 2001 to over 37,000 in 2015. They are mostly used for logbook loans.
In September 2016, Law Commission recommended changes that would make this form of lending fairer for borrowers and offer greater protection to people buying second-hand vehicles that are still subject to logbook loans. Our recommendations would also allow for better use of high-value assets, such as art and antiquities, as security.
In today’s Queen’s Speech the Government confirmed it plans to take forward our recommendations in a new Goods Mortgages Bill.
The main elements of the Bill are:
- Repealing the Victorian-era Bills of Sale Acts and replacing them with a Goods Mortgage Act. This will enable individuals to use their existing goods (such as a vehicle) as security for a loan, while retaining possession of the goods.
- Increasing protection for borrowers who get into financial difficulty by introducing a new requirement for a lender 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 repossession.
- Helping borrowers in financial difficulty by giving borrowers the right to voluntary termination by handing over their vehicle or other goods to the lender.
- Providing protection for innocent third parties who buy a vehicle subject to a logbook loan that may be at risk of repossession.
- Make it clearer that borrowers who knowingly sell goods with a logbook loan attached could be committing fraud.
- To remove unnecessary burdens on firms that raise the cost of logbook lending
- To help businesses raise finance against their assets, make lending cheaper and provide greater confidence to financiers to lend to small unincorporated businesses.
- The Law Commission is a non-political independent body, set up by Parliament in 1965 to keep all the law of England and Wales under review, and to recommend reform where it is needed.
- The Law Commission was asked by HM Treasury in September 2014 to examine the Bills of Sale Acts and consider how they could be reformed. The Terms of Reference agreed with HM Treasury are available in the Commission’s report, Bills of Sale, p2.
- Currently, logbook loans represent 90% of bills of sale.
Logbook loans are regulated by the Bills of Sale Act 1878 and the Bills of Sale Act 1882.