What are logbook loans?
Logbook loans, or bill of sale lending, is a high cost form of credit.
A consumer will offer an item of their personal property (usually a car) as security for a loan they have taken. Interest rates are routinely circa 400 per cent annual repayment rate (APR) which is high for a secured form of lending.
Our evidence shows us there is a particular lack of consumer protection in logbook lending which is still governed by the Bills of Sale Acts dating from the Victorian period.
How do logbook loans work?
Under logbook loans, ownership of the item of property (usually a car) put up as security for the loan moves from the consumer to the lender meaning a lender does not require a court order before they can repossess the car.
Although the market in logbook lending is small, the level of consumer detriment in this market is high. Irresponsible lending and aggressive debt collection practices are common because there is no incentive for the lender to negotiate when the consumer gets into payment difficulties as they can seize the asset after issuing a default notice.
Some people who have taken out a logbook loan sell the car on without informing the buyer of the loan secured against it. The buyer stands to lose both the car and the money they paid for it if the lender decides to take possession of the asset – which is within their power. In these cases innocent third party consumers who have bought the car in good faith have few rights and their only access to redress would be to sue the person from whom they bought the car.
Raising the profile of the logbook loans problem
The Daily Mail, The Times, Metro and the Independent i have published stories on our logbook loans campaign following our Survey Monkey poll. Find out more about our campaign
Our Chief Executive Gillian Guy appeared on ITV News on 17 April to draw attention to the problem of logbook loans and aggressive debt collection practices within the market. Citizens Advice has seen cases where sexual harassment and death threats have been used to intimidate consumers. Our new figures show the number of loans are rising sharply - a worrying 33 per cent since 2011. The Independent discussed logbook loans on 18 April.
From our recent policy evidence briefing, of the consumers who have taken out logbook loans:
- 28 per cent were not treated fairly or appropriately by the lender.
- 17 per cent had not had the terms of the loans clearly explained in a way they understood.
- 17 per cent had their car taken away despite not being the original borrower.
- 14 per cent experienced harsh debt collection practices.
- 9 per cent had a lack of proper checks to make sure the borrower could repay.
- 8 per cent were hit with high charges for defaulting on their loan.