New safeguards to protect vehicle logbook borrowers

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Nov 24, 2017
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Many drivers use their car or van as security for a loan 

Peter Macdiarmid/Getty Images

Borrowers who use vehicle logbooks to secure a loan will have better protection under safeguards proposed by the Law Commission today.

Logbooks are a way for borrowers to use their car or van as security for a loan but under current law if payments are missed, borrowers can face swift repossession. 

Purchasers of second-hand cars can also unexpectedly find themselves losing the vehicle or having to pay off someone else’s loan.

The problems prompted the government to ask the Law Commission, an independent law reform body, to bring forward draft legislation.

Today the commission publishes its final report and draft Good Mortgages Bill, which will replace “bills of sale” and protect people using vehicles as security for a loan or other items such as art and antiquities.

Stephen Lewis, the commissioner in charge of the project, said: “Logbook loans can be a good source of credit provided the right consumer protections are in place. But the Victorian laws that govern them aren’t working for anyone. Borrowers aren’t protected and lenders have extra costs because of 19th century red tape.

“We’ve consulted widely and lenders and consumer groups agree: the bills of sale acts need writing off. Our new Good Mortgages Bill would consign these outdated laws to the scrapheap.”

Bills of sale, where people can use goods they own as security while retaining possession of those goods, have grown from under 3,000 in 2001 to more than 37,000 in 2015. They are mostly used for logbook loans, a high-cost form of credit regulated by the Financial Conduct Authority.

Research shows that they are used to secure amounts typically between £100 and £3,500 for a term of between six months and three years. The vast majority are taken out by borrowers who have difficulty accessing other forms of credit.

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