consultation response: the law commission bills of sale...commission has concluded that logbook...

Consultation response: The Law Commission Bills of sale

Response by the Money Advice Trust

Date: December 2015

The Law Commission Bills of sale 2

Contents

Contents

Page 3 Introduction / About the Money Advice Trust

Page 4 Introductory comment

Page 5 Responses to individual questions


Introduction

About the Money Advice Trust The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust’s main activities are giving advice, supporting advisers and improving the UK’s money and debt environment. We help approximately 1 million people per annum through our direct advice services and by supporting advisers through training, tools and information. We give advice to around 200,000 people every year through National Debtline and around 40,000 businesses through Business Debtline. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK’s money and debt environment by contributing to policy developments and public debate around these issues.

Public disclosure Please note that we consent to public disclosure of this response.


Introductory comment We welcome the Law Commission proposals for reform of the bills of sale legislation. However, we believe that consumers would be better protected by an outright ban on logbook lending. We do not believe that this type of borrowing is fair to consumers and do not believe that it should be allowed to continue in a modern society. We note that the Law Commission has concluded that logbook loans provide “an important source of credit for many borrowers.” There are certainly good arguments to be put forward for why credit-impaired borrowers should have access to alternative sources of finance, but this does not mean this alternative should take the form of a logbook loan. We simply do not agree that it is fair to pass ownership of an asset to a lender to secure a loan that may be substantially lower in value than the asset in question. The argument that a ban would lead to alternative illegal lending, is not a justification for continuing an unfair form of lending. Having said that, we hope that the proposals will mitigate some of the worst aspects of logbook lending and go some way to increase protection for consumers. We share the view put forward in the paper that some issues need to be addressed by the Financial Conduct Authority (FCA) in relation to their authorisation and supervision of logbook lenders. We believe the FCA should take immediate action in relation to the following areas:

affordability checks adequate explanations of taking out a logbook loan adequate information on the costs of borrowing take action in relation to default charges whether a variation of the price cap for high-cost, short-term credit (HCSTC) should

be applied to the logbook loan industry protection of borrowers in debt in relation to forbearance and debt collection activities

by lenders.


Responses to individual questions CHAPTER 7: THE CASE FOR REFORM

Question 1: Do consultees agree that bills of sale should not be “banned” or “abolished”?

We do not agree that bills of sale or logbook loans perform a useful function in society. The free-to-client money advice and consumer sector have already provided substantial evidence of the consumer detriment caused by their experiences of bills of sale.1 We also contributed to the Business Innovation and Skills (BIS) consultation, and shared our views with the Law Commission. We feel that a bill of sale is an archaic lending product with obscure and complex rules that has no place in a modern society. The lending products offered using bills of sale are both oppressive and enforced unfairly. Consumer protection is inherently untenable given the nature of the legislation. We fully support a ban on bills of sale. The market for bills of sale appears to be amongst the more vulnerable, financially-excluded consumers who are faced with fewer options for taking out credit. We currently have the situation where higher-income, less vulnerable borrowers are afforded greater protection for typical credit-card borrowing, than those vulnerable borrowers who (you could argue) need the greater protection in law. We are not convinced that the degree of reform needed to ensure that bills of sale become a more consumer-friendly product would be worthwhile. It appears that the eventual product would look similar to a hire-purchase or conditional-sale agreement under the Consumer Credit Act 1974. As such financial products are available already, reform does not seem a viable way forward, given the resources that would be required to implement the changes. We cannot support an argument that says that the loss of access to log book loan type credit agreements will constitute consumer detriment. These products are causing consumer detriment and the interest rates, default charges and harsh enforcement combine to form a “toxic” product. Every effort should be made by Government and consumer education bodies to encourage potentially vulnerable or financially-excluded borrowers to shop around for credit, to explore credit unions and other social-lending provisions as an alternative to log book loans and to avoid loan sharks.

1 https://www.citizensadvice.org.uk/Global/Migrated_Documents/corporate/citizens-advice-evidence-on-bill-of-sale-lending---april-2014.pdf

https://www.citizensadvice.org.uk/Global/Migrated_Documents/corporate/citizens-advice-evidence-on-bill-of-sale-lending---april-2014.pdf

https://www.citizensadvice.org.uk/Global/Migrated_Documents/corporate/citizens-advice-evidence-on-bill-of-sale-lending---april-2014.pdf


Clearly, whilst not recommending them as alternative sources of credit, there are alternatives in the market such as payday loans and home credit. Whilst there are immense drawbacks with these types of lending, they are still preferable to bills of sale as they are not secured on valuable vehicles and other assets. It is not clear whether those who take out log book loans are doing so because there is literally no alternative available to them, or whether they are attracted by the advertising or the speed with which the loan can be agreed and the lack of credit checking. They may well not realise the full implications of the agreement to which they are committed.

Question 2: Do consultees agree that the law of bills of sale should be reformed? We have always supported an outright ban on bills of sale. However, if this is not the current proposal, then we would therefore support wholesale reform. This is certainly to be supported if the only other option is to retain the status quo. We retain the position that we favour a ban on log book loans. However, for the purposes of this consultation, we will look at how the proposals for reform could function in practice. CHAPTER 8: PROPOSALS FOR REFORM: A NEW LEGISLATIVE FRAMEWORK

Question 3: Do consultees agree that the Bills of Sale Acts should be repealed and replaced with new legislation regulating how individuals may use their existing goods as security while retaining possession of them?

We agree that the Bills of Sale Acts should be repealed as they are not fit for purpose. As we have said, we do not believe there should be an alternative legislative vehicle for bills of sale. However, if this proposal goes ahead then we would support a clear and straightforward piece of legislation that is easy to understand.


Question 4: Do consultees agree that: the phrases “bill of sale”, “security bill” and “personal chattels” should be replaced? the new legislation should use the term “goods mortgage” to refer to secured loans over goods generally? the new legislation should use the term “vehicle mortgage” to refer to secured loans over vehicles? Yes, we agree that the phrases should be replaced. We do not believe that the proposed terms of “goods mortgage” or “vehicle mortgage” will mean much to most consumers. Most people do not think of their house as belonging to the mortgage lender when they have a mortgage. This term is more likely to mislead a borrower into thinking that they still own their car but that the lender has a charge or security in relation to the car. The proposals as we understand them are still to pass ownership to the logbook lender. If this is the case, then the word “mortgage” is not helpful in this context. 2 Question 5: Do consultees agree that the new legislation should regulate transactions where individuals use goods they already own as security for a loan or other non-monetary obligation and retain possession of the goods? In particular, should the new legislation:

(1) apply only to security granted by individuals?

(2) cover transactions where the obligation secured is non-monetary?

(3) provide that goods are considered to be in the possession of the borrower if they remain under the borrower’s control?

We agree that it is sensible to exclude transactions that provide for the purchase of new goods on credit, and that this legislation should apply where the loan is secured on goods the borrower already owns. This should help to avoid the use of bills of sale to avoid taking out hire-purchase agreements to buy items on credit. It seems sensible to limit these provisions to individuals only, that goods must be under the borrower’s control to be considered in their possession and that the security is for monetary obligations only. 2 Mortgage definition: a legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt.


Question 6: Do consultees agree that the new legislation should not apply to: (1) dealings with intangible goods? (2) dealings with ships and aircraft? (3) any security interest which could be registered

as an agricultural charge (with the exception of loans secured on vehicles)?

We believe that the proposals to exclude these categories of interest are sensible. Question 7: Do consultees agree that a goods mortgage should take effect by transferring ownership to the lender unless the parties agree that it should take effect as a charge instead? These proposals make sense in the context of reform of bills of sale. As we have said, we are concerned with the overall principle of bills of sale. We are not convinced that a legal agreement transferring the entire ownership of a vehicle or other goods to a lender on the basis of a loan that may be substantially less than the asset transferred, is a good or fair principle. Question 8: For all goods mortgages (whether or not securing a regulated credit agreement, and whether taking effect as a transfer of ownership or a charge), do consultees agree that the new legislation should: (1) prevent lenders from repossessing goods except for one of three specified reasons:

(a) default on payment; (b) default on maintenance or insurance of the goods; or (c) the bankruptcy of the borrower?

(2) no longer provide that fraudulently removing the goods is a specified reason that allows lenders to repossess goods? (3) where there is a transfer of ownership, specify that ownership is automatically transferred to the borrower once the loan is repaid? We support these proposals in the context of reforming bills of sale. It is sensible to remove fraudulently removing goods as a reason for repossession. It is an important safeguard to specify that ownership will automatically transfer back to the borrower once the loan has been repaid.


Question 9: Do consultees agree that a goods mortgage should be available to secure loans of any amount with no minimum? We strongly disagree with these proposals. We would strongly support a minimum loan level. In the paper, there is an acknowledgement that there are frequent instances where bills of sale have been used for loans of £200 or less.3 These loans secure an asset that may be by far in excess in value over the loan secured. We do not understand why it is not an imperative when reforming the legislation to protect desperate borrowers from making financial transactions that are so evidently to their detriment. We would take issue with the suggestion that it is better for borrowers to take out a logbook loan because the interest rates are lower than a payday loan. The interest rates on both types of lending are extremely high and the risks of consumer detriment associated with a logbook loan are now substantially higher than those for a payday loan following FCA reforms. The paper acknowledges in other sections that the APR for logbook loans is extremely high, and suggests that the FCA considers incorporating such loans into their HCSTC regime which incorporates a cap on payday interest rates. We would suggest that the major detriment for consumers would be the risk of the loss of their vehicle or other asset, rather than the difference between the relative interest rates when taking out a logbook loans compared to a payday loan. Both sources of credit are expensive and cause consumer detriment; however, there is no risk of a loss of asset with a payday loan, so the risks of a logbook loan outweigh those for payday lending. Question 10: Do consultees agree that borrowers should not be permitted to use future goods as security for a loan, unless the loan is to be used to acquire those goods? We agree that borrowers should not be permitted to use future goods as security for the loan. This would be an extremely retrograde step for the reasons set out in the paper. 3 “Out of 102 bills of sale, 14 were for less than £500. The lowest was for £100. We found two bills of sale for £200; four for £250; there was one for £272.80 and three for £300. The remaining three were for amounts between £400 and £499.”


CHAPTER 9: PROPOSALS FOR REFORM: SIMPLIFYING THE DOCUMENT REQUIREMENTS Question 11: Do consultees agree that: 1) a goods mortgage should only be valid if it is set out in a written document signed by both parties? (2) the borrower’s signature should be a physical signature made in the presence of a witness? (3) the goods mortgage should be in a separate document from the credit agreement? We agree that a goods mortgage should be set out in a written document signed by both parties in order to be valid. The signature should be made in the presence of a witness. It is very important that the goods mortgage should be in a separate document from the credit agreement as this will help to reinforce the significance of the document. We would question whether this is an opportunity to build in a statutory cooling off period for all logbook loans. This would add to the consumer protection provisions in the amended legislation and give consumers the chance to think again about their decision to take out what is a high-risk credit product. Question 12: Do consultees agree that a goods mortgage document should contain: (1) the date of the goods mortgage? (2) the names and addresses of the borrower and lender? (3) the obligation which is secured by the goods mortgage? (4) a statement that ownership of the goods is being transferred to the lender, or that the goods are being charged in favour of the lender in order to secure the obligation? (5) the name, address and occupation of the witness? (6) a specific description of the goods? We agree that the goods mortgage document should contain all these elements. However, we are dismayed that the Law Commission considers it reasonable for lenders to come up with their own set of documents. There should be a set of simple, clear and prescribed forms that are used by all lenders. Anything less will be open to exploitation by the less scrupulous lenders by obscuring the warnings to consumers, setting out terms in small print, and in obscure English. We consider it less than adequate that it is mentioned as “helpful” for lenders to ask the Plain English Campaign to approve their documents but that you do not propose this to be a mandatory requirement. This problem can easily be avoided by having a prescribed form approved by the Plain English Campaign, which is required use by all lenders.


In our experience, any option to be flexible with the wording and terms in contracts, leads inevitably to a lack of transparency and a lack of fairness for consumers. Question 13: Do consultees agree that it is not necessary to require that the goods mortgage document contain: (1) a fixed sum where the secured obligation is monetary? (2) specific description of the goods in a separate schedule? It appears vital that a specific description of the goods. Including the fixed sum, is contained in the mortgage document so that there is no future dispute about the goods which are subject to the agreement. We can see that a separate schedule may not be necessary, but we believe that any description of the goods should be in a prescribed format so that it is clear and transparent for the consumer as to what goods are subject to the agreement. This could be on a separate page of the agreement? It should not be possible for the details to be included in an obscure hidden part of the agreement, where it is not easy for the consumer to check what has been secured under the agreement. Question 14: Do consultees agree that where a regulated credit agreement is secured on a vehicle the vehicle mortgage document should include prominent statements that: (1) the lender owns the vehicle until the loan is repaid? (2) in the event of default, the borrower risks losing possession of the vehicle?

Do consultees have views on: (3) the suggested formulations for the prominent statements? (4) whether the prominent statements should also appear on websites and advertising? We support the inclusion of prominent statements on vehicle mortgage documents. These should use prescribed wording and they should be in a set format and designated font size. However, the terms should form part of a contract that is required to be set out in a prescribed format with prescribed wording. As we have said in our answer to question 12, we do not believe that lender discretion as to the wording and format of the document will lead to good consumer outcomes. We would, of course, support the view that statements should be required to appear on both websites and advertising. We believe that this should be mandatory for lenders. In addition, we want lenders to be subject to sanction if they do not comply with these rules.


Question 15: Do consultees agree that: (1) adapted versions of the prominent statements should be required for regulated credit agreements secured on goods other than vehicles? (2) it is not necessary to include the prominent statements for goods mortgages which do not secure regulated credit agreements? We agree that adapted versions of the prominent statements should be required for regulated credit agreements that are secured on goods that are not vehicles. However, we would reiterate our point that we believe that it should be mandatory to use a set of prescribed format agreements in all cases. We cannot see how it will cause harm to include the statements on all goods mortgages even if these are for high net worth individuals or for business purposes of more than £25,000. They are warnings relating to consumer rights and we do not understand why these should be considered “paternalistic” as suggested in the paper. Question 16: Do consultees agree that the sanction for failure to comply with the document requirements should be that the lender loses any right to the secured goods, both as against the borrower and as against third parties? We agree that lack of compliance is very likely to cause detriment to borrowers. We agree that the sanction for failure to comply with the document requirements should be that the lender loses any right to the secured goods, as suggested. CHAPTER 10: PROPOSALS FOR REFORM: MODERNISING THE REGISTRATION REGIME Question 17: Do consultees agree that: (1) there should be no requirement to register vehicle mortgages at the High Court? (2) instead, a logbook lender should not be entitled to enforce a vehicle mortgage against a third party or trustee in bankruptcy unless the vehicle mortgage has been registered with a designated asset finance registry? (3) priority should be determined by the date and time that the details of the vehicle mortgage become publicly available? We agree that vehicle mortgages should not be registered at the High Court. It is very difficult to search and the process is obscure, expensive and so complex that no one can properly comply. It should instead be a requirement on logbook lenders to register with a


designated asset finance registry as suggested. If this is made mandatory to do so, then there needs to be sanctions on lenders for failure to comply. We support the proposal that a logbook lender should not be entitled to enforce a vehicle mortgage unless this has been registered with the designated registry. However, we see no merit in the proposal that the lender should be entitled to enforce a vehicle mortgage against a borrower even if they have failed to register it. Where is the incentive for the lender to register the logbook loan if they have no sanction for failure to do so, apart from the effect on subsequent third party purchasers? If the asset finance registry is to work appropriately it needs to be open, transparent, searchable, reliable and include the details of all logbook loans. It seems reasonable for the priority between competing loans to be decided by having regard to the date and time that the details became publically available. This might help provide an incentive for lenders to register. Question 18: Do consultees agree that: (1) a government entity should designate asset finance registries as suitable to register vehicle mortgages? (2) to provide an asset finance register which meets the needs of lenders and traders, asset finance registries seeking designation should meet four criteria:

(a) adequate data-sharing; (b) a suitable cost structure; (c) robust technology (coupled with indemnities); and (d) a complaints system?

We welcome other comments on the registration of vehicle mortgages. We do not support these proposals. We see absolutely no merit in a Government body designating three (and possibly more) competing commercial companies as asset finance registries. This seems to be a recipe for confusion, data inaccuracies and lack of transparency. It appears to replicate the current situation where there are three main credit reference agencies. Lenders can choose to register data on borrowers with any of these three, and there is not a requirement to share data sufficiently to ensure that any borrower or lender checking a file held by one agency will have access to all the data held across all three agencies. We cannot see why anything less than one central online and searchable register which will provide one authoritative source of data is worthy of consideration. Any register clearly needs to meet the criteria set out in the paper in relation to data sharing, a cost structure and adequate technology. It is vital that a robust complaints process is put in place with access to an independent ombudsman, such as the Financial Ombudsman Service (FOS), for dispute resolution. There must be clear rules in place to ensure that unscrupulous logbook lenders are not able to register interests that do not exist. Robust evidence requirements must be in place to demonstrate the existence of the interest when


added to the register. A clear set of rules for removing the registration on payment must be put in place along with sanctions for failure to remove the registration within a designated time period. Question 19: We expect that the designated asset finance registries will initially be HPI, Experian and CDL. We welcome comments on whether there are likely to be new entrants to this market. We are unable to comment on whether there are likely to be new entrants to this market. Question 20: Do consultees agree that mortgages on goods other than vehicles: (1) should be enforceable against the borrower whether or not they have been registered? (2) should not be enforceable against a third party or trustee in bankruptcy unless they have been registered with the High Court? We do not agree that mortgages on goods other than vehicles should be enforceable against the borrower whether or not they have been registered. This is for similar reasons as those we put forward in our answer to question 17. We agree that mortgages on goods should not be enforceable against a third party unless they have been registered, as suggested. Question 21: Do consultees agree that for registration of mortgages over goods other than vehicles at the High Court: (1) registration should be by email? (2) priority should be determined by time of submission? (3) original documents should no longer be required? (4) an affidavit should no longer be required? (5) lenders should email a registration form and a copy of the goods mortgage document? We welcome views on whether the registration form should include the location of the goods. (6) there should not be a statutory time limit? (7) the High Court should not be obliged to send goods mortgage documents to county courts? We welcome other comments on the registration of mortgages over goods other than vehicles.


We support most of these proposals. However, we do not agree that there should not be a statutory time limit for registration. Whilst seven days may be too restrictive a time period, it would appear reasonable to require registration within a set period of say 28 days. Question 22: Do consultees agree that to maintain the accuracy of the registers: (1) lenders should be required to enter notices of satisfaction in respect of satisfied vehicle mortgages and goods mortgages? (2) there should be a procedure for the borrower (at the lender’s cost if successful) to enter a notice of satisfaction where the lender refuses to do so? (3) re-registration of vehicle mortgages and goods mortgages should be required every ten years? The proposals do not seem to be completely satisfactory. Although lenders would be “required” to enter notices of satisfaction, there does not appear to be any sanction on them for failing to do so. We see no reason why under the proposals that the lender would bother to fulfil these requirements. Instead, the responsibility is being transferred to the borrower to enter the notice instead. This does not seem fair or reasonable. Whilst we support there being a mechanism for borrowers to take such action if they are faced with an intransigent lender, it should not be the borrower’s responsibility to make the process work. At the very least the asset finance registry should be required to be proactive in this process. It is not clear if the borrower would be required to pay any costs or fees upfront and claim them back from the lender where successful? Again, this would seem unfair. We believe there should be much stronger sanctions available on lenders to make these proposals work. A ten-year re-registration timescale seems too long for vehicle mortgages. We believe the current five-year period should be maintained. CHAPTER 11: PROPOSALS FOR REFORM: PROTECTING BORROWERS Question 23: Do consultees agree that: (1) the requirement for a court order before repossession should be extended to all regulated credit agreements secured by a goods mortgage? (2) the point at which the lender should be required to seek a court order is when one third of the total loan amount has been repaid? (3) lenders should be permitted to pass on the court fee to the specific borrower in question if a return of goods order is granted,


or if a suspended return of goods order eventually results in repossession? (4) lenders should be permitted to have recourse to borrowers for any shortfall following sale of the repossessed goods? (5) lenders should be permitted to seek a charging order against borrowers’ homes only in the limited circumstances set out in the CCTA Code? (6) in accordance with the CCTA Code on charging orders, lenders should not be able to apply for an order seeking sale even where they have obtained a charging order against borrowers’ homes? (7) lenders should be permitted to use the return of goods order, and so their own employees or debt collectors, to repossess the goods? We understand that the proposals will essentially mean that logbook lending mirrors hire purchase. We completely agree that the current rules on logbook lending offer no protection to borrowers whatsoever. However, we have some serious concerns about the proposals in the paper to remedy this situation. We have a fundamental disagreement with the premise argued in the paper in relation to the rules that a lender must go to court for repossession only once a third of the loan has been paid. All borrowers deserve the potential protection of the court. Falling into arrears where you have paid less than a third of the agreement does not demonstrate that you are refusing to pay as suggested in the paper. In our experience with callers to our advice services, a change in circumstances or loss of income can occur at any point. There is absolutely no rationale in the belief that someone finding themselves unemployed or sick once they have paid 8 out of thirty payments has done so intentionally whereas if they have paid 11 payments they are demonstrating that they have “encountered temporary financial difficulties and need additional time and a rescheduled repayment plan”. The essence of time order applications to reschedule payments is to allow an application for time to pay once an arrears or default notice has been served. There is no requirement in relation to how much of the debt you have paid before you can apply for assistance. We do not see the necessity for the protection of the court against repossession to kick in only once someone has paid a third of their agreement. We believe that the requirement for a court order before repossession should apply in all cases, irrespective of how much has been paid. Full account should be taken of financial difficulties; the court should be able to grant additional time to pay and be able to reschedule payments (in line with time order provisions). We are also greatly concerned by the proposals to allow lenders to use debt collection agents rather than county court enforcement agents to repossess the goods. If a return of goods order is made and the borrower does not comply with this order, then the creditor can apply for a warrant of delivery which is enforced by county court enforcement agents. It is possible to apply to the court to suspend a warrant of delivery. We are concerned that the Law Commission is suggesting circumventing the court to allow debt collection agents to repossess the goods instead. The Tribunals Courts & Enforcement Act 2007 has specifically


included protection for people faced with enforcement action for all types of debt by including the requirement for enforcement agents to issue a 7 day notice. The Law Commission appears to be suggesting that this protection is unnecessary for logbook lenders, whereas it is required for all other forms of enforcement. We would contest whether the argument put forward to justify this approach is even legally valid. Point 11.29 states: “Due to these difficulties, one hire purchase lender told us that practice is for hire purchase lenders to seize the vehicle on the basis of the return of goods order, using their own employees or debt collector.” We would suggest that enforcing a return order without first having obtained a warrant is not permitted as it is arguable that the goods are “protected goods” under s90 of the Consumer Credit Act 1974. The creditor has effectively prevented the debtor from exercising the right to seek a suspension of the warrant of delivery or a time order and has therefore repossessed the goods without exercising due process. Furthermore we would not suggest that the debt collection agents being subject to chapter 7 of the FCA CONC rules is adequate reassurance. Although this is indeed headed “Arrears, default and recovery (including repossessions)” there is little reference to repossession within this chapter and no protections relating to repossession are spelt out. We are also puzzled by how the proposals will work in relation to money judgments for any residual amount owed after repossession. In 11.43 the paper suggests lenders should be able to pursue a borrower for any shortfall outstanding on the total loan amount after repossession and sale. With hire purchase judgments for delivery of goods, we understand that the lender would need to issue a county court money claim for the shortfall and cannot rely on the judgment for delivery of goods to serve that purpose. As you will be aware, a money judgment may result in county enforcement action where the judgment remains unpaid. This enforcement action may be to issue an attachment of earnings order, warrant of control, or an application for a charging order amongst others. However, this cannot be done as implied in the paper and the CCTA code as an originating application. Whilst we of course support any attempt to protect borrowers from a charging order or an order for sale, the proposals as they stand do need amending to be clear under what circumstances a charging order can even arise. Also, it is unclear what legal force an undertaking by the CCTA not to enforce a judgment by using a charging order would have in court. As it stands, it would appear unlikely that a district judge would strike out a charging order application because it was to enforce a debt by a CCTA member of less than £500 in contravention of their code. Is it intended for the CCTA code provisions to form part of the legislation to prevent applications in these circumstances? This is the only way we can see that such provisions would be binding. Question 24: Do consultees agree that for regulated credit agreements secured by a goods mortgage: (1) borrowers should have the right of voluntary termination by handing over the vehicle or other goods?


(2) the right for borrowers to terminate voluntarily should be available until the lender has incurred costs to repossess the vehicle or other goods? We think these proposals overall are less than fair. If you carry on allowing log book lending in a new reformed version, consumers will face losing their vehicle. Although this may provide relief from an intolerable burden of owing a high interest loan, this may come at the cost of losing their vehicle for a loan that may only total a fraction of the value of the asset. This does not seem to be very equitable and seems to be an option that gives most benefit to lenders. At least it appears that the consumer will not owe any residual amount on the loan if the CCTA code is adopted, but there is the issue of the value of the asset which we address below. However, given this context, if your aim is merely to mitigate the effects of log book lending then we agree that the option of voluntary termination should be available to those who feel that this would be their best option. The proposal that voluntary termination should be available until the lender incurs repossession costs appears to be reasonable. This contrasts with the less than clear rules in relation to hire purchase and voluntary termination where you will have lost the right to terminate your agreement if the creditor has already terminated it or if the full balance of the agreement has become payable. We would wonder if section 11.50 of the paper is correct in stating that for hire purchase , 50% of the price must be actually paid in order for the borrower to exercise their right to voluntarily terminate their agreement. “In hire purchase, hirers only have the right to terminate voluntarily once they have paid, or once they pay the shortfall up to, half the hire purchase price.” We understand this is legally debatable as to whether the amount has to be paid, or it is a statement of what the borrower will be liable for in total after voluntary surrender. Question 25: Do consultees agree that the approach of the CCTA Code should be adopted so that voluntary termination: (1) is available immediately, without requiring any percentage of the loan amount to have been repaid? (2) acts as full and final settlement of all outstanding amounts? (3) is available except where:

(a) it is established that the vehicle or other goods have sustained malicious damage of whatever nature; or (b) it is evident that the borrower has contravened the obligation to take reasonable care of the vehicle or other goods to the extent that the contravention adversely and significantly affects the resale value?


Where vehicles are maliciously damaged, we welcome views on whether borrowers should retain the right of voluntary termination if they can show that the malicious damage was not caused by them or anyone associated with them. We are very concerned that the proposals for voluntary termination appear reasonable on first glance but have more worrying implications. Although it could be a tempting proposal for a consumer in a debt situation, to be able to surrender their vehicle and for this to constitute a full and final settlement of all outstanding amounts, the lender appears to benefit from the acquisition of a possibly valuable asset by keeping the vehicle. It could be completely disproportionate for the lender to profit from the sale of the vehicle that is acquired in this way. We would like to see proposals for the reimbursement of sums to the borrower that are over and above the outstanding loan and associated sale costs. The current proposals do not seem fair or proportionate on the borrower and should be amended. We would point out that under enforcement law there is the concept of an excessive levy under the regulations whereby enforcement agents may not take control of goods whose aggregate value is more than the amount outstanding. We agree that if voluntary termination is to form part of the amended rules, then it should be available immediately without requiring a certain percentage of the loan to be paid first. We would suggest that there need to be protections built in to allow for disputes about whether vehicles have been maliciously damaged and a mechanism in place to determine whether the borrower has taken reasonable care of the vehicle. We would not like to see unscrupulous lenders using the lack of “reasonable care” as a way of circumventing the right to voluntary termination. Certainly, if it can be demonstrated by the borrower that the vehicle has been damaged by a third party then the right of voluntary termination should be retained. Question 26: Do consultees agree that if the borrower protection measures we propose are enacted: (1) vehicle mortgages would not be used to secure the purchase of new vehicles on credit? (2) no further intervention is necessary? It would appear unlikely that lenders would want to use vehicle mortgages to secure the purchase of new vehicles on credit as the perceived advantages of a bill of sale over a hire purchase agreement would have disappeared. However, it is always difficult to predict how unscrupulous lenders would bend the rules to get round new legislation. We cannot therefore agree that no further intervention will be necessary, as lenders may come up with a novel way of circumventing the protections envisaged in the new regime. Question 27: Do consultees agree that where a goods mortgage secures a loan which is not a regulated credit agreement: (1) goods may be repossessed without a court order? (2) there should be no statutory right of voluntary termination?


We do not agree with the rationale that says that borrowers who take out business loans of more than £25,000 will not need legislative protection. Many small businesses may have loans that exceed that amount for equipment purchases but will not come under the bracket of sophisticated borrowers. We therefore do not agree that goods should be able to be repossessed without a court order and do not agree that there should be no statutory right of voluntary termination. CHAPTER 12: PROPOSALS FOR REFORM: PROTECTING PRIVATE PURCHASERS Question 28: Do consultees agree that: (1) a private purchaser who acts in good faith and without actual notice of the goods mortgage should acquire ownership of the goods? (2) the protection should apply to all goods subject to a goods mortgage, not just vehicles? (3) if the private purchaser did not act in good faith and/or had actual notice of the goods mortgage, lenders should only be entitled to repossess from them with a court order? (4) the proposed new legislation should contain a regulation-making power to amend its provisions, including the repeal of the protection granted to private purchasers of vehicles, if vehicle provenance checks were to become free (or almost free) and a routine part of buying a second-hand vehicle? We strongly support the proposals that an innocent private purchaser who acts in good faith and without notice of the logbook loan should acquire ownership of the goods. The current situation is extremely unfair on private purchasers who are faced with losing the vehicle, paying back someone else’s logbook loan or paying the logbook loan company for a vehicle they have already paid for. We agree that the protections should extend beyond vehicles and cover all goods subject to a logbook loan. Lenders who seek repossession from private purchasers should only do so under court supervision. Where a logbook lender seeks to recover a vehicle from a private purchaser, it should have to go to court to prove that the purchaser did not act in good faith or had notice that the goods were subject to a log book loan. It should not be possible for logbook lenders to repossess the vehicle without a court order. There should be a hearing to allow both sides to put their case and an order to be made by the court. This should not be subject to an ex parte application without a hearing. We have serious reservations about putting the responsibility on the third-party purchaser to carry out a vehicle provenance check. Certainly, it should be made a part of the process but


until it does, then most consumers will have little awareness of the need to carry out a vehicle provenance check before buying a second-hand vehicle. The number of sources of these checks is confusing and the costs of asking for a check are high. It is neither fair nor reasonable to expect consumers to carry out this task. In our experience, few of our clients understand the implications of hire purchase type agreements or logbook loans and will be routinely confused between hire purchase and logbook loans. The only possible time that it would be fair to expect consumers to carry out the checks is if it became a set requirement of the sale process to carry out a vehicle provenance check, and that this was available free of charge by searching a single online accessible register, where all such transactions would be registered by lenders. Question 29: We welcome views on whether the protection should be confined to “disposition” as defined by the Hire Purchase Act 1964, or whether it should extend more widely, to include (for example) exchange and barter? We believe that protection should extend as far as possible, both to the concept of disposition and extended to include gifts and exchange. Question 30: Do consultees agree that the FCA should be given jurisdiction to curb abuses in the way that logbook lenders treat private purchasers? We support this proposal. The FCA should be given jurisdiction to require logbook lenders to treat private purchasers fairly. The FCA should be the jurisdiction to supervise the activities of logbook lenders when dealing with private purchasers. The FCA should have the power to prevent logbook lenders from repossessing vehicles purchased in good faith by innocent third parties. Question 31: Do consultees agree that FOS should have jurisdiction to hear complaints against logbook lenders made by private purchasers of vehicles subject to logbook loans? It is vital that FOS is given the jurisdiction to hear complaints against logbook lenders made by private purchasers of vehicles subject to logbook loans. The current situation for private purchasers is both unfair and unsustainable. They should be able to seek redress.


CHAPTER 13: GENERAL ASSIGNMENTS OF BOOK DEBTS Question 32: Do consultees agree that registration of general assignments of book debts serves, in principle, a valuable purpose? We do not deal with this area. However, it would appear that registration of book debts serves a valuable purpose as assignments are already being registered with Companies House on a voluntary basis. This is no substitute for a searchable online register that is accessible to the public. We hope that this is developed in the future, as suggested. Question 33: Do consultees agree that a general assignment of book debts should be evidenced in a document which contains: (1) the names and addresses of the parties? (2) a statement that the book debts are assigned? (3) the date of the general assignment? (4) sufficient information to identify the class of book debts in question? (5) if the general assignment is time-limited, the duration? (6) the borrower’s signature in the presence of a witness? (7) the name, address and occupation of the witness? These proposals appear to be sensible. Question 34: Do consultees agree that the following changes should be made to the regime for registering a general assignment of book debts at the High Court: (1) the need for an affidavit should be abolished? (2) documents should be submitted by email? (3) the general assignment should be validly registered from the date and time of the automatic reply to the email? (4) the seven clear day time limit for registration should be abolished? (5) registration should be renewed every 10 years? We welcome other comments on the way that general assignments of book debts are registered at the High Court. Any proposals to simplify the current process would no doubt be welcomed by all concerned with the registration of book debts. However, it would clearly be preferable for a searchable


online registry to replace this High Court procedure. Maybe those involved in this industry could set up an online register and maintain it through payment of fees. CHAPTER 14: ABSOLUTE BILLS OF SALE Question 35: Do consultees agree that:

1. the requirement to register absolute bills should be abolished? Yes, we agree that the requirement to register absolute bills of sale should be abolished.

2. there is no need to continue to regulate the use of absolute bills?

The legislation ought to be repealed as it appears to serve no purpose. CHAPTER 15: ASSESSING THE IMPACT OF REFORM Question 36: We welcome evidence on the current cost of registering a logbook loan at the High Court. We seek views on our estimate that the cost of registering a logbook loan at the High Court is between £35 and £51. We are unable to comment on the costs of registering a logbook loan in the High Court. Question 37: We welcome evidence on the savings to the logbook loan industry if the requirement to register logbook loans at the High Court is abolished. Do consultees agree that abolishing the requirement to register logbook loans at the High Court will save the logbook loan industry between £1.67 million and £2.43 million a year? We are unable to comment on the savings for the logbook loan industry if the requirement to register logbook loans at the High Court is abolished. Question 38: We welcome evidence from logbook lenders as to the percentage of cases in which they repossess from borrowers and how many repossessions currently take place after the one third point at which a court order would become necessary under our proposals. We are unable to provide this information as we are not logbook lenders.


Question 39: We seek views on whether the figures would change if our proposals are implemented. We welcome views on our initial estimate that, if our proposals are implemented, between 0.7% to 1.1% of logbook loans will involve a court order before repossession. We are unable to provide this information as we are not logbook lenders. Question 40: What are the likely costs of a court order? We seek views on the estimate that the combined cost of the court fee and legal costs would be in the region of £600. We are unable to provide this information as we are not logbook lenders. Question 41: We welcome evidence from logbook lenders about the costs they would incur in borrowing money from banks and other lenders to finance a period of delay in repayment from borrowers. We are unable to provide this information as we are not logbook lenders. Question 42: We seek evidence from logbook lenders about: (1) the amount of money received in settlements from innocent private purchasers; and (2) the value obtained from vehicles repossessed from innocent private purchasers. We are unable to provide this information as we are not logbook lenders. Question 43: We welcome views on the costs of achieving readily available vehicle provenance checks for consumers. We are unable to provide this information as we are not logbook lenders. Question 44: We welcome evidence on the transitional costs to the logbook loan industry of adapting to the new legislation. We seek views on an initial estimate that these costs would be less than £50,000 for each logbook lender. We are unable to provide this information as we are not logbook lenders.


Question 45: We welcome evidence on the number of bills of sale registered at the High Court each year that are secured on goods other than vehicles. We welcome comments on the estimate that 260 of the bills of sale registered at the High Court in 2014 were secured on goods other than vehicles. We have nothing to add to your estimates regarding bills of sale registered in the High Court that are secured on goods other than vehicles. Question 46: How far might such use of goods mortgages expand if our proposals are implemented? In particular, is there a demand from unincorporated businesses and high net worth individuals to use goods mortgages to secure guarantees, revolving facilities or overdrafts? We are unable to estimate whether the use of goods mortgages would expand if the proposals are implemented. This may depend upon whether the FCA HCSTC rules continue to have an impact in the payday market, the availability of credit for those who are credit-impaired and whether the FCA takes action to restrict logbook lenders. Question 47: Are we right to think that most loans secured on goods other than vehicles are loans made to unincorporated businesses and high net worth individuals – and that relatively few are regulated credit agreements? We cannot comment on whether this estimate is accurate. It would appear to be a reasonable assumption to make. Question 48: We welcome evidence on the savings to lenders if our proposals to streamline the High Court registration regime for goods mortgages are implemented. Do consultees agree that the proposals to streamline the High Court registration regime would save between £23.10 and £50 per goods mortgage? We are unable to provide this information as we are not lenders operating in this market. Question 49: Do consultees have any evidence of disputes with private purchasers who have bought goods (other than vehicles) subject to a security bill of sale? We are unable to provide this information as we are not lenders operating in this market.


Question 50: We welcome evidence on the current cost of registering general assignments of book debts at the High Court. We seek views on our estimate that the cost of registering a general assignment at the High Court is between £480 and £1,735 (excluding VAT). We are unable to provide this information as we are not lenders operating in this market. Question 51: We seek views on our estimate that our proposals would reduce these costs by between £350 and £575 for each registration. How far would this reduction in costs lead to an increase in registrations of general assignments of book debts? We are unable to provide this information as we are not lenders operating in this market. Question 52: Do consultees agree that the only costs to the invoice financing industry of our proposals to simplify the High Court registration regime would be the transitional costs? We cannot comment on costs for the invoice financing industry. Question 53: We welcome views on the transitional costs to the invoice financing industry of adapting to the new legislation. We cannot comment on costs for the invoice financing industry.

For more information on our response, please contact: Meg van Rooyen, Policy Manager [email protected]

0121 410 6260

mailto:[email protected]


The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: 020 7489 7796 Fax: 020 7489 7704 Email: [email protected] www.moneyadvicetrust.org

mailto:[email protected]