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Response to the Law Commission's Bills of Sale consultation

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Logbook loans. How consumers can be better protected.

We welcome and are supportive of the Law Commission's proposals to reform Bills of Sale legislation in order to create effective modern legislative framework to govern logbook lending.

Our clients have first-hand experience of the detriment caused by the antiquated and inadequate consumer protection governing logbook loans. We broadly support the Law Commission’s proposals to reform the legislation but not outright ban bills of sale for consumer lending as long as consumer detriment levels are monitored and reduce significantly.

Summary of our main issues

  • We support the proposals to extend the requirement for a court order before repossession for vehicle mortgages. We would suggest that in order to strength this safeguard, the court should be given the power and discretion to allow borrowers more time to pay.
  • We disagree with the proposal for the hire purchase ‘one third threshold’ rule to be transferred to vehicle mortgages as borrowers of logbook loans are more likely to be financially vulnerable so need additional consumer protections.
  • We believe lenders should only be allowed to pursue borrowers for a shortfall following repossession and sale of a vehicle in certain circumstances such as where the security does not cover the original debt (less any early settlement discount) or where the borrower has acted in bad faith. Lenders should be constrained from having a second go at recovery where default interest and charges take the outstanding balance above the value of the security.
  • We support proposals for new protections for innocent purchasers where they will acquire ownership of the goods if they have acted in good faith. However, we do not see the need for there to be a regulation-making power to repeal this protection if vehicle provenance checks become free and routine. If this were to happen then the protection would most likely be invoked only rarely, but the need for protection would be an important backstop in those rare cases.
  • We support proposals to introduce the right of voluntary termination on vehicle mortgages.
  • We accept the reasons for not introducing a minimum amount for vehicle mortgages. However, we believe the Law Commission should consider protections for borrowers of small loan amounts.
  • We are supportive of the recommendations to simplify the document requirements for logbook loans and to include prominent statements in these documents. We believe that these prominent statements should also appear on websites and advertising to enhance borrowers understanding at each stage of the process.
  • We agree that where there is a failure to comply with vehicle mortgage document requirements then the lender should lose any right to the secured goods. However, we also think that the court should be given discretion to decide whether the lender retains or loses the right to sue the borrower for repayment of the loan.

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