On 9 September 2015, the Law Commission published a consultation paper, together with a consultation summary, on reform of the law relating to log book loans (a means by which individuals can use vehicles they own as security for loans, while retaining possession and use).
The paper acknowledges that current legislation relating to use of logbook loans, notably the Bill of Sale Act 1878, is out of date and offers little or no protection to vulnerable borrowers and those wishing to buy goods subject to bills of sale. At present, there are serious consequences for those who default on payments, with borrowers often losing possession of their vehicles quickly whilst having to deal with interest and other substantial charges. In light of this, the Law Commission proposes that the current legislation is repealed in its entirety and replaced, with consideration being given to the following three key proposals:
- Protecting borrowers from abrupt repossession: Where a borrower is in temporary financial difficulties but has already repaid more than one third of the log book loan, lenders should have to apply for a court order before repossessing the vehicle. There is a need to ensure that repossession is seen primarily as a last resort.
- Giving borrowers the voluntary right to terminate the log book loan: A borrower with no realistic prospect of repaying a log book loan should be able to hand over the vehicle to the lender in full and final settlement of the loan (following which, the borrower would no longer be liable for the outstanding amount or associated charges).
- Protecting private purchasers: Where an individual has bought a vehicle for private purposes, in good faith and without knowing that it is subject to a log book loan, they should become the owner of the vehicle – this is a similar position to that provided under current hire-purchase law.
The Law Commission is also consulting on proposals that would simplify the regime for registering log book loans. Please also see an executive summary to the consultation for more information.
The consultation closes on 9 December 2015. This will be followed by a final report in summer 2016.