Department for Business, Innovation and Skills (National):
Consumer Minister Kevin Brennan today announced plans to ban the use of an outdated law used to sell high-cost loans.
Bills of sale are typically used for ‘logbook’ loans which are secured against the value of the consumer’s car.
Consumer Minister Kevin Brennan said:
“These bills of sale are archaic and allow vulnerable peoples’ goods to be seized without a court order. They were developed in the days of Charles Dickens and don’t meet 21st Century consumer standards.
“They can encourage people to slip even further into debt rather than taking control of their finances.
“We must consider all the options but it seems they don’t fit easily into a modern consumer regime which should allow honest businesses to thrive and offer adequate protection for consumers.”
The number of registered bills of sale has risen over the years with nearly 40,000 being made between April 2008 and March 2009. This equates to around £30million in loans to consumers.
The Office of Fair Trading reports that more than 1,000 consumers have complained about problems with these loans and claims of losses total £1.47million in the last four years.
Complaints relate to the lack of protections available to people if they fall into arrears, unfair collection practices, the complex and confusing nature of the language used in the agreements and the excessively high cost of the loans.
The Government is launching the consultation today and is seeking views on the following options:
· Ban the use of bills of sale for consumer lending
· A voluntary code of practice or other non-statutory regulations
· Targeted reform to bills of sale legislation
Citizens Advice has seen a 100 per cent increase in enquiries relating to bills of sale in 2008/9. The following case study is an example of one of them:
In September a married mother of two took out a £500 loan to pay the rent and keep the family afloat after her husband lost his job. The debt has already grown to approximately £1,500. Her car is worth less than £2,000 and the loan company already have the logbook. She says she feels totally trapped and bitterly regrets taking the loan out
Second case study from Trading Standards:
Another consumer agreed with a lender to set up a direct debit for a loan of £500 to buy a car. This direct debit was never activated by the lender, and after two months the account was in default.
The consumer made two payments to bring it into credit, but received no written contact or notice regarding outstanding arrears - just texts from a collections agent including threats to register the car as stolen with the police if payment was not received. Their family and partner were also contacted.
The bill of sale offered by the lender, contained a provision that allows the lender to "break open doors or windows to obtain admission" to any premises on which the vehicle is situated.
Notes to editors
1. The consultation on bills of sale was first announced in The White Paper A Better Deal for Consumers – Delivering Real Help Now and Change for the Future on July 2nd 2009 and is available at : http://www.berr.gov.uk/whatwedo/consumers/consumer-white-paper/index.html
2. The consultation document can be found at http://www.bis.gov.uk/consultations
3. A bill of sale is a legal contract between the borrower and lender, which specifies that on a particular date at a recorded location and for a defined sum of money, the borrower sold to the lender a specific item of personal property. The property itself does not change hands and the borrower is able to continue to use the property, but the lender, as the ‘owner’, has personal rights of seizure. If the borrower defaults on repayments, the lender can take possession of the item of property without the need for a court order, then sell it and still pursue the borrower for any shortfall on the loan. The bill of sale is prescribed in the Bills of Sale Act 1878 and the amendment Act 1882.
4. Logbook type lenders are the majority users of bills of sale, one lender met by BIS accounted for over 50% of registered bills of sale and stated their average loan size was £750.
5. The consultation runs alongside the OFT’s review into the supply of high-cost credit and the forthcoming Guidance on Irresponsible Lending Practices.
Department for Business, Innovation & Skills
The Department for Business, Innovation and Skills (BIS) is building a dynamic and competitive UK economy by: creating the conditions for business success; promoting innovation, enterprise and science; and giving everyone the skills and opportunities to succeed. To achieve this it will foster world-class universities and promote an open global economy. BIS - Investing in our future.
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