Car Logbook ‘Loan’ as Property Deposit answer to Universal Credit?

by Readers Question

11:26 AM, 6th July 2017
About A year ago

Car Logbook ‘Loan’ as Property Deposit answer to Universal Credit?

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Car Logbook ‘Loan’ as Property Deposit answer to Universal Credit?

I have mentioned this once or twice in the past, but I’m now giving it serious consideration as the roll out of Universal Credit looms.

I’m not looking for alternative suggestions on how to solve the problem, rather just answers as to how this could be achieved.

I’m talking about car logbook loans as a form of deposit. Granted, it’s not common in this industry, but from what I understand when it is done for a monetary loan a bill of sale is produced and the logbook kept by the lender until the loan is repaid, thus it is possible.

Operating in a very poor area of the country and having mastered the Court system for both getting rid of problem tenants as well as claiming money back from homeowner guarantors (which all of my tenants require), with the introduction of Universal Credit locally at the end of this year, I expect an increase in arrears and problems and thus an increase in guarantors being taken to Court.

It would be nice if I had a short, sharp, shock of a method for dealing with smaller arrears and to get my message across that rent must and will be paid. I know there are services offered by Caridon Landlord Solutions, but I’m wondering if logbook loans are possible and what sort of FCA/Credit Licence might be required.

Luke



Comments

Neil Patterson

11:33 AM, 6th July 2017
About A year ago

Hi Luke,

I believe you would need to be registered under the consumer credit act by the FCA, Have a Data protection act licence and Money Laundering Regulations.

Also I am not sure how you would register it as a deposit with DPS.

I found a specific page from the FCA on this subject >> https://www.fca.org.uk/firms/consumer-credit-research-logbook-loans

A logbook loan is a loan secured on a vehicle where the consumer can continue using the vehicle, but ownership of the vehicle transfers to the lender.

A valid bill of sale, registered in accordance with the relevant legislation, operates to conditionally transfer the legal ownership of the vehicle to the lender as security for the debt. This does not apply to Scotland.

Bills of sale convey fewer consumer protections compared to those available for other forms of lending (eg because lenders obtain strong rights of seizure).
Key findings

We found that consumers:

perceive benefits of logbook loans in being able to access large amounts of credit without credit checks, with repayments staggered over a long period
often have few alternative sources of large amounts of credit
tend to come across the product and the lender they choose at the same time, doing little or no shopping around
are often unclear about important loan aspects, e.g. the total cost of the loan, additional charges and the fact that ownership of the vehicle transfers to the lender
found communication by some lenders to be misleading and limited
say they are often subject to aggressive and threatening behaviour if they experience repayment difficulties
often experienced payment difficulties at some point

Our research also shows that providers:

have high APRs, typically 400% or more, plus additional fees and charges
appear to rarely carry out affordability checks
mainly consider the value of the car when granting a loan online rather than the individual's ability to pay
consider employment status as more important than the value of the car when granting a loan in branch
report that they abide by the trade-body Consumer Credit Trade Association's (CCTA) code of practice (link is external), but noted there are numerous other lenders who do not
see repossession as a last resort
argue that low complaint levels, low repossession rates and high-levels of repeat custom are evidence of appropriate affordability assessments

What we will do next

Logbook lenders that wish to continue providing logbook loans need to demonstrate how they meet our threshold conditions. These include conditions on suitability (including that a firm’s affairs are conducted in an appropriate manner regarding the interests of consumers) and on business models (including that the firm’s strategy for doing business is suitable for its regulated activities and that its business model is not exploitative of customers).

Firms that fail to meet our threshold conditions will be unable to satisfy the necessary authorisation standards and will not be allowed to continue trading in the market.

We will also respond to issues through our supervision and enforcement to ensure standards are maintained in the market.

We will take action where we find evidence of actual or potential consumer harm caused by firms not complying with legal requirements, our Principles for Businesses, or the conduct of business rules in our Consumer Credit sourcebook (CONC).

The Law Commission have recently consulted on the Bills of Sale Acts (link is external) under which logbook loans are registered.
Further information

We carried out intensive consumer research to help us understand:

what consumers want and expect from the credit market
the role that credit plays for consumers in different circumstances and at different points in their lives
how credit can either help consumers or lead them into difficulty

Neil Patterson

11:36 AM, 6th July 2017
About A year ago

From the Law Commission >> http://www.lawcom.gov.uk/treasury-acts-to-change-unfair-law-around-logbook-loans/

Treasury acts to change unfair law around logbook loans
Log book loans can be thing of the past
8th February 2017

The Law Commission today welcomed the decision by Ministers to close a legal loophole which means buyers of second-hand vehicles are at risk of having them repossessed due to unfair laws around logbook loans.

Logbook loans are a way for borrowers to use their car or van as security for a loan and over the last 10 years their use has rocketed – but if payments are missed borrowers can face swift repossession.

Those who buy second hand in good faith can also unexpectedly find themselves losing the vehicle or having to pay off somebody else’s loan.

Following recommendations by the Law Commission in September 2016, Economic Secretary to the Treasury Simon Kirby has confirmed planned changes to the law to protect buyers and borrowers alike.

Stephen Lewis, Law Commissioner for Commercial and Common Law, said:

“This is great news for car-buyers. Every year many were unwittingly purchasing second hand-vehicles at risk of repossession due to unfair log book loans.

“The current law doesn’t give them the protection they deserve and our recommendations for changes are about putting people back in the driving seat when it comes to logbook loans.

“I’m pleased that the Treasury has agreed and acted swiftly to put the brake on this out of date legislation. We’re drafting a bill which we hope will be introduced into Parliament next autumn to change the law by 2019.”

Putting the brake on unfair logbook loans

The use of bills of sale, where people can use goods they own as security while retaining possession of those goods, has grown from under 3,000 in 2001 to over 37,000 in 2015. They are mostly used for logbook loans.

The Law Commission recommended changes that would make this form of lending fairer for borrowers and offer greater protection to people buying second-hand vehicles that are still subject to logbook loans.

Under the Commission’s recommended reforms, borrowers and buyers would be given similar protections to those offered by hire-purchase law:

Borrowers would have more time to pay – a borrower who is temporarily unable to pay but has already repaid more than one third of the loan could stop lenders repossessing the vehicle without a court order.
Borrowers could end the agreement – a borrower who cannot make any more payments would have the right to hand the car back to the lender and not be liable for the remainder of the loan.
Buyers of second-hand vehicles would be protected – where a private individual buys a vehicle in good faith and without knowing that it is subject to a logbook loan, they would become the owner of the vehicle and would not be liable for the loan.

In relation to goods other than vehicles, the new Goods Mortgages Act will also modernise the High Court registration system.

This would minimise the cost and difficulty of raising money against valuable goods and business assets to help businesses suffering from temporary cash flow problems access finance.

It will also allow individuals to raise cash against their valuable items, such as paintings, watches and antiques while remaining in possession and being able to use or lend the items to galleries or collectors.

Robert Mellors

13:08 PM, 6th July 2017
About A year ago

Highly regulated practice, for which you need a consumer credit licence and be approved by and registered with the FSA (or is it FCA?). It would involve so much "red tape" that I think this is a non-starter. However, nothing to stop you approaching an existing log book loan operator and seeing if they may be interested in assisting your potential tenants (but of course bear in mind that if the tenant is paying back a loan at 400% APR, then they may not have enough money to pay their rent as well). Perhaps a much better idea would be to have a meeting with your local credit union and see what loans they could make to your potential tenants (for use as a deposit, or rent in advance, or when UC don't pay).

Ian Narbeth

19:06 PM, 6th July 2017
About A year ago

Almost certainly Tenancy deposits for ASTs must be in the form of money. Section 213 Housing Act 2004 says:
Requirements relating to tenancy deposits

(1) Any tenancy deposit paid to a person in connection with a shorthold tenancy must, as from the time when it is received, be dealt with in accordance with an authorised scheme.
(2) No person may require the payment of a tenancy deposit in connection with a shorthold tenancy which is not to be subject to the requirement in subsection (1).

I don't see how you can deal with a log book in accordance with an authorised scheme.

Luke P

21:10 PM, 6th July 2017
About A year ago

Fair enough.

How does the same (deposit scheme) argument square with taking a guarantor? Obviously you can't put those into a scheme…

And just as with the logbook, they are only called upon *if* there's a problem.

Ian Narbeth

10:08 AM, 7th July 2017
About A year ago

Hi Luke, the analogy breaks down since a guarantor is not a deposit.

Now, if you were to hold the guarantor as hostage for the tenant's obligations.... Of course that's illegal and you'd have to feed and shelter them during the tenancy which would be counter-productive.

Sorry, un-PC creative thinking this morning.

Luke P

10:31 AM, 7th July 2017
About A year ago

Reply to the comment left by "Ian Narbeth" at "07/07/2017 - 10:08":

But a logbook is a deposit?

What if I took the guarantors logbook?

I hear this morning's news was essentially an admission that UC isn't working, so all of this might not matter anyway.

We are being backed into a corner, thought -limited to one month's deposit (not that I take deposits) and a Court system that is hard work to get redress from. If we have no safety net, then we cannot continue, it's a simple as that.

Ian Narbeth

11:31 AM, 7th July 2017
About A year ago

Sorry Luke you are missing the point. I did not say the log book was not a deposit. The problem is you cannot deal with a log book "in accordance with an authorised scheme". Therefore it cannot be taken as security and if it is the debtor (or his trustee in bankruptcy) can demand it back.

I share your frustration about another piece of anti-landlord law. Some MPs are starting to understand the law of unintended consequences and more will do so as the less creditworthy tenants find themselves homeless.

Whether the government will allow insurance-based schemes which allow recourse back to the tenant we shall have to see. I doubt insurers will take on the risk if they can't recover the six weeks or whatever of rent but if they can recover it the tenant is no better off and we have simply added more cost and complexity to the process which will ultimately be paid for by tenants in higher rents.

Luke P

11:50 AM, 7th July 2017
About A year ago

So I suppose you cannot deal with guarantors "in accordance with an authorised scheme" either, right?

Ian Narbeth

12:22 PM, 7th July 2017
About A year ago

Please re-read the first sentence of my post at 10:08.

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