The government has announced that it will not proceed with a bill that would have provided more time for vulnerable people taking out 'logbook loans' to seek debt advice and avoid paying hundreds of pounds in court fees. The Law Commission, which drafted the Goods Mortgages Bill, said the news was 'disappointing'.
Bills of sale enable individuals to use goods they already own as security for loans while retaining possession of those goods. They are found in 'logbook loans', where a borrower grants security over their car or van. The borrower may continue to drive the vehicle so long as they keep up repayments: if they default, the vehicle can be repossessed.
Bills of sale are governed by the 1878 and 1882 Bills of Sale acts. Last year the commission recommended repealing the acts. Law commissioner Stephen Lewis said at the time that borrowers were not protected and lenders had extra costs because of '19th century red tape'.
The commission recommended replacing the acts with a proposed Goods Mortgages Act. Vulnerable borrowers who have repaid at least one-third of the loan could demand that the lender obtain a court order, although they would have to opt in to this right. Lenders would be required to serve borrowers with a possession notice. The commission said this would give borrowers three options: to require the lender to seek a court order, to terminate voluntarily or to ask for time to seek debt advice.
However, HM Treasury said yesterday that although it broadly supported the bill, concerns had been raised in a public consultation that the bill could encourage lending to vulnerable consumers. The treasury added that the number of logbook loans has fallen substantially and the Financial Conduct Authority is reviewing the high-cost credit market.
The treasury said: 'Given the concerns raised in the consultation, the small and reducing market, and the wider work on high-cost credit, the government will not introduce legislation at this point in time. The government will continue to work with the FCA as they carry out their high-cost credit review, and then further consider government action on alternatives to high-cost credit in light of the FCA’s review.'
Lewis stressed again that the current law does not provide adequate consumer protection. He said: 'Businesses, lenders and consumer groups strongly agreed our reforms would have made a vast improvement. However, we understand that there are enormous pressures on parliamentary time at the moment. We will continue to work with the government to explore ways in which we can bring forward reform in this area in the future.'