Logbook loans are Dickensian relics that belong in the
dustbin of history, says Nicola Hoskins.
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Modern logbook loans are based on the Bills of Sale Act
1882, and successive governments have inexplicably preferred them
to be left out of the main consumer credit arena, with the result
that, even in 2011, the relevant law reflects the aim of the
Victorian legislators – protecting lenders’ assets without
corresponding protection being given to borrowers.
In essence this means that, after
default, vehicles can be repossessed without a court order. And
some providers have offered agreements making provision for the use
of force – including breaking windows of premises – in situations
where the security vehicle is kept on third-party premises.
This year the Department for
Business, Innovation and Skills revealed that small businesses were
actively using logbook loans as a way of improving short-term cash
flow and, for this reason, the Coalition government opted to retain
the status quo.
Perhaps, though, the operation of
logbook loans is beginning to come under pressure as a result of
internal regulatory action, rather than overhaul and reform by the
reluctant legislature. Back in November 2009, The OFT sought to
revoke the licences of linked businesses Log Book Loans Ltd and
Nine Regions Ltd, trading as Logbook Loans.
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By GlobalDataLengthy appeals processes followed,
but, in a dramatic moment – at least by the standards of the
first-tier consumer credit tribunal – the appeals were struck
out.
It emerged that the businesses were
leading customers to believe that solicitors were instructed to
take proceedings against them when their accounts went into
default, when, in fact, the firm named had no employees, and
certainly no lawyers permitted to engage in litigation.
The tribunal considered this was an
unfair practice, designed to pressurise and intimidate defaulting
customers unduly, and so it upheld the OFT’s decision to revoke the
licences.
Logbook loans create problems for
customers and lenders alike, as the protection extended to the
innocent purchaser in the Hire Purchase Act 1964 can in theory
apply to the loan company, because it is not a purchaser for trade
purposes. But perhaps continuing the robust line taken by the OFT
and Trading Standards will make these loans unattractive.
BIS is currently consulting on a
potential revamp of the entire consumer credit framework, and the
opportunity should not be missed to consign this Dickensian relic
to the past.
The author is a professional
support lawyer at Optima Legal
