Background to the consultation
In July 2009, the Government published its Consumer White Paper “A Better Deal for Consumers: Delivering Real Help Now and Change for the Future”. One of the commitments we made in the White Paper was to consult on banning the use of bills of sale for consumer lending.
Purpose of consultation
Bills of sale are being use to support “log book” lending, namely lending using a consumer’s car as security. This practice has been the subject of relatively high levels of complaints to consumer groups and the OFT. Complaints relate to the lack of consumer protections available to people if they fall into arrears, unfair collection practices, the complex and confusing nature of the language used in agreements and the high cost of the loans. Consumers may have their assets – typically their cars – repossessed without the need for the lender to obtain a court order. Bill of sale loans may also encourage vulnerable consumers to slip even further into debt. This consultation seeks to address concerns about adverse outcomes for consumers where borrowing is secured under a bill of sale.
Areas for consultation
We want a better deal for consumers who have been using this form of subprime loan and to tackle any areas of emerging bad practice, while ensuring that any intervention is proportionate, transparent and targeted. We believe that a ban on using bills of sale for consumer lending is likely to be necessary to achieve this. We have yet to take a final decision on whether to proceed with a ban or whether alternative options would achieve a better result. We specifically seek your views on the proposals set out in this consultation document to help determine the most appropriate next steps.
In particular, the consultation seeks views on the following options:
- Whether current measures underway will provide sufficient additional consumer protection or if not, what other measures are needed;
- Whether a voluntary code of practice or self-regulation would provide sufficient additional protections for consumers;
- Whether targeted reform to bills of sale legislation would rectify the problems identified in relation to bills of sale;
- Whether a ban on the use of bills of sale for consumer lending would achieve the best outcomes for consumers while promoting an open, competitive and innovative credit market.
We also seek further evidence about the use of bill of sale loans, in particular: by the vulnerable with no access to mainstream credit; and for business purposes by the self-employed and owners of small firms.