'Logbook loans' may be outlawed
A form of secured borrowing known as logbook loans, or bills of sale, may be outlawed under government proposals.The department for business innovation and skills (BIS) is consulting on plans to ban what it calls the "archaic" and expensive method of borrowing.
More than 1,000 people have complained to the Office of Fair Trading about these loans in the past four years.
The loans are usually secured against the value of cars and allow the lender to repossess without a court order.
"They were developed in the days of Charles Dickens and don't meet 21st century consumer standards," said consumer minister Kevin Brennan.
David Harker, chief executive of Citizens Advice said it was high time they were banned.
"There is no consumer protection and people can end up in serious debt and risk losing their car and even their home when they borrow money this way.
"CAB advisers have seen cases where borrowers have been subject to unfair or misleading sales practices.
"Bureaux have seen cases where lenders pursue shortfalls after sale aggressively, including putting people's homes at risk through the use of charging orders - a second chance at securing a previously secured debt," he explained.
The concept of the logbook loans stems from Victorian legislation - the Bills of Sale Act in 1878 and its amendment in 1882.
The item on which the loan is secured can be seized and sold if the borrower defaults, and the borrower can still be pursued if there is any shortfall when the item is sold.
Nearly 40,000 such loans were made in the year to March 2009 for sums amounting to £30m.
"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," said a government spokesman.
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