The Law Commission has drafted a bill that would provide more time for vulnerable borrowers with 'logbook loans' to seek debt advice and avoid paying hundreds of pounds in court fees.
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.
The commission says bills of sale are governed by two Victorian statutes, the 1878 and 1882 Bills of Sale acts. The non-political independent body recommends that the acts be repealed and replaced by its proposed Goods Mortgages Act.
Under the draft act, vulnerable borrowers who have repaid at least one-third of the loan can 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 says 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.
The commission says the additional time to seek advice is particularly important. 'It is intended to encourage borrowers to obtain help from a debt adviser and resolve problems without recourse to the courts,' it says.
The commission acknowledges that where borrowers engage with the court process, a right to put their case to a court is beneficial. 'However, without engagement, the court process can become an expensive rubber stamp,' the commission says. 'In the absence of evidence from the borrower about their ability to pay, the court has no alternative but to grant the [court] order. Court fees of several hundreds of pounds are added to the arrears, compounding the borrower's difficulties.'
Law commissioner Stephen Lewis said today: '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.'