Logbook loans work on an old Victorian law called the Bill of Sales Act.
Anyone taking out a logbook loan hands over the ownership of their vehicle to the loan company so that should they fail to pay back the debt, the company are within their rights to take posession of the vehicle and sell it at auction to retrieve their money.
What some unscrupulous car owners have been doing is selling their car on the second hand market without settling the logbook loan and without telling the buyer. The first the proud new owner of the vehicle will know about the outstanding debt and the ‘Bill of Sales Act’ is when they hear from the lender demanding their money back or the vehicle – and they are perfectly within their rights to do so because they own the car.
The problem is becoming so bad that the Trading Standards Institute have called for logbook loans secured on a bill of sale to be banned.
“We think they are absolutely archaic in terms of the language they use and in terms of the protection they provide consumers, it’s virtually zero. It’s about protection for the lender, not the consumer, and that’s why we call for them to be banned,” the Operations Director told the BBC.
The previous Labour Government were in the process of deciding whether to ban loans taken out on the strength of a bill of sale but the current Government has decided no further legislation is required and prefer instead for the industry to self regulate but Chief Executive of National Debtline says that’s not enough.
“We do believe that the government ought to insist that really we start again with this kind of instrument and move it something closer to the kind of consumer protection we would see with other loans,” says Joanna Elson.
The Consumer Credit Trade Association on the other hand, says it has had no complaints involving logbook loans.
One way to protect yourself from the Bill of Sales Act is to do an HPI check on the vehicle before handing over your hard earned cash. With over 30,000 (and rising) logbook loans being taken out every year the risk of buying a stinker is very real but if you do an HPI check and get a green light to buy the car and it then a logbook loan company comes knocking on your door and quoting the Bill of Sales Act at you, you will be covered by the HPI guarantee up to a maximum of £30,000