A borrower was on his way to work when his car was seized. Others have faced death threats and sexual harassment from moneylenders seeking repayment. Logbook loans, where borrowers put up their car as collateral for credit, have worried indebted charities for some time, and now the city regulator has said The Observer of his concerns about an industry where rogue behavior is prevalent.
Officially known as bills of sale, logbook loans are typically used by people in a hurry for a lump sum who cannot access credit from traditional vendors. The loans are often advertised as a way to access “quick cash” without “any credit checks” and allow people to raise larger sums than with a payday lender or other provider. alternative credit. Suppliers are willing to offer up to 50% of the value of the car, with repayments usually being spread over a 12 month period. However, interest rates often exceed 500% APR, so the costs add up quickly – and because the loan is secured, the cars can be repossessed if payments are missed.
The £40million sector is currently regulated by the Office of Fair Trading, but from Tuesday it will pass into the hands of the Financial Conduct Authority (FCA), alongside payday lenders and everyone else companies offering consumer credit. The new watchdog will begin a review sometime after that.
The FCA says it is concerned the market could provide “poor value for money” and cause “significant harm” to consumers who have very few alternative sources of credit. This suggests that there are “very low levels” of compliance with current OFT regulations and widespread rogue behavior, and that some consumers take out loans when they are in trouble or as a last resort after being rejected for other forms of credit.
“Logbook lenders have borrowers over a barrel,” says Christopher Woolard, director of policy, risk and research at the FCA. “People don’t realize their car can be seized if they fall behind on their repayments, with lenders often forcing borrowers to pay large sums to keep their vehicle when they can’t afford it.”
FCA research found around 40,000 consumers took out logbook loans in 2013, typically borrowing £1,000 at a time, although lenders offer sums of up to £50,000. In one case, he found that a borrower got stuck on the sidelines when the lender repaid his debt.
The borrower told FCA: “I was going to work…a truck was following me and came up next to me. This man was at the window, he reached out and took the keys. He looked like a policeman. He told me if I found £1,200 right there they wouldn’t take the car. They wouldn’t let me get my stuff out of the car…”
To make matters worse, cars that have been put up for warranty can be resold to unsuspecting buyers. A study by Citizens Advice found that in one in five cases involving logbook loans, a car was repossessed when its owner was not the original borrower. In these cases, the buyer loses both his vehicle and the money he paid.
The charity said a third of logbook borrowers had not been treated fairly or appropriately, and a voluntary code of practice introduced by the industry two years ago was routinely flouted . Some respondents have borrowed up to £19,000 and repaid up to eight times their original debt. And he fears the sector will expand when new rules on payday lenders reduce some borrowers’ access to short-term credit.
Gillian Guy, Managing Director of Citizens Advice, says: “The log book lending industry is full of illegal practices. Citizens Advice has helped people who have suffered abusive behavior, sexual harassment and even death threats from lenders trying to confiscate their car. Consumers also face confusing fees, exorbitant interest rates and inadequate credit checks, making the industry a toxic mix of irresponsible lending and daunting debt collection. Guy called on the government to urgently review the rules on the loan of logbooks and for the FCA to act.
Woolard said the new regulator was ready to act to reform the sector. “We expect businesses to treat everyone fairly – so we’re warning logbook lenders. Our new rules give us the power to crack down on any business that doesn’t put customers’ interests first .”