Steps must be taken to regulate companies that offer “logbook loans,” according to debt counselors, who say the industry employs many of the practices that have given payday lenders a bad reputation.
With these loans, officially called deeds of sale, borrowers put their car as collateral: if they fail to keep up with repayments, the vehicle can be seized. Citizens advice says that logbook lenders have been known to use sexual harassment and death threats to intimidate customers.
A voluntary code of practice was introduced by the industry more than two years ago, but Citizens Advice’s analysis of 261 cases between February 2011 and January 2014 suggests that it is routinely flouted. The average loan was £ 1,286, but some people had borrowed up to £ 19,000 and repaid up to eight times the amount.
One in five cases reviewed resulted in repossession of a car, although the owner was not the original borrower. The vehicles had been sold with the loans still attached and the new owners were unaware that they had been used as collateral.
Citizens Advice is calling on the government and the Financial Conduct Authority to demand that lenders get a court order before they can remove a car and stop repossessing cars that were sold with loans.
“The logbook industry is still in the dark ages and is getting away with lawless practices,” said Gillian Guy, CEO of Citizens Advice. “It is absolutely absurd that a business can take someone’s assets away without due process. High interest rates and a lack of control over affordability, as well as threatening practices and Phantom fees, mean that logbook loans are a toxic mix of the worst parts of payday loans and unruly bailiffs.
Many deed laws have not changed since the Victorian era, and the language they use is old-fashioned and confusing, according to Citizens Advice. The code of practice states that credit documents should be written in “clear and understandable language,” but some borrowers were unsure of the terms of their loan and its repayment schedule. A woman who took out a £ 1,000 loan thought it could be paid off in three months, but found out she was tied to it for two years.
Citizens Advice’s analysis of loan cases in the logbook found that 14% had faced harsh debt collection practices, while 28% were not treated fairly or appropriately by the lender. . Almost a fifth had not seen the terms of their loans clearly explained, while almost a tenth had not been subject to appropriate checks to ensure that they could repay, and a similar proportion had been charged excessive interest rates.
The report cites a repossessed single mother of three who took out a logbook loan for just under £ 1,000 but was unable to meet repayments which amounted to nearly of £ 3,000 and carried an annual interest rate of over 500%.
A 22-year-old man bought a car online for £ 1,300 and spent an additional £ 700 on upgrades. He was given a logbook, but there was no indication that the car was the subject of a bill of sale. He believed his car had been stolen one night, but the police told him it had been legally taken over by a logbook lending company, and he ended up paying £ 2,000.
A woman who took out a logbook loan had to give up her job due to severe back problems. She fell into arrears and was visited by the lender. She was taking a cocktail of painkillers and was pressured into making another deal. When she couldn’t keep up with these payments, she began receiving text messages from a company representative, who suggested that in exchange for sexual favors, he should tell her when the company was going. ‘ready to come and collect his vehicle.
Experts said they fear the industry will prosper because it is not subject to the same kind of scrutiny as payday loans. “It’s really important that while payday loans are rightly discussed, other harmful forms of credit are not allowed to grow on the fringes,” Guy said. “Our evidence shows that logbook lenders have ignored the voluntary code and underscored the need for a tough stance on the part of the Financial Conduct Authority.”