A borrower was on his way to work when his car was repossessed. Others have faced death threats and sexual harassment from lenders seeking repayment. Logbook loans, where borrowers put their cars as collateral for a loan, have been worrying charities for some time, and now the city regulator has said The observer of his concerns about a sector 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 providers. Loans are often touted as a way to access “quick cash” without “any credit checks” and allow people to raise more money than a payday lender or other credit provider. alternative. Suppliers are willing to offer up to 50% of the car’s value, with repayments typically being arranged over a 12-month period. However, interest rates often exceed 500% of the APR, so costs quickly add up – and because the loan is secured, cars can be foreclosed 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 all other companies offering consumer credit. The new watchdog will begin an exam sometime after this.
The FCA says it fears that the market offers “bad value for money” and “causes 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 some consumers take out loans when in trouble, or as a last resort after being rejected. for other forms of credit.
“Logbook lenders have borrowers for a barrel,” says Christopher Woolard, CFA director of policy, risk and research. “People don’t realize that their cars can be seized if they fall behind on repayments, with lenders often forcing borrowers to pay large sums to keep their vehicles when they cannot afford it.”
FCA research found that around 40,000 consumers took out logbook loans in 2013, typically borrowing £ 1,000 at a time, although lenders are offering sums of up to £ 50,000. In one case, he discovered that a borrower got stuck on the side of the road when the lender paid off the debt.
The borrower told FCA: “I was going to work… a truck was following me and approached 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 take my things out of the car… “
To make matters worse, cars that have been taken out of safekeeping can be sold to unsuspecting buyers. Search 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 to buy it.
The charity said a third of logbook borrowers had not been treated fairly or appropriately, and that a voluntary code of practice introduced by the industry two years ago was routinely flouted . Some interviewees have borrowed up to £ 19,000 and have repaid up to eight times their original debt. And he fears the industry could grow when new payday lender rules reduce some borrowers’ access to short-term credit.
Gillian Guy, CEO of Citizens Advice, says: “The logbook lending industry is rife with illegal practices. Citizens Advice has helped people who have experienced abusive behavior, sexual harassment and even death threats from lenders trying to confiscate their cars. Consumers also face confusing fees, sky-high interest rates and inadequate credit checks, making the industry a toxic mix of irresponsible lending and debt collection intimidation. Guy called on the government to urgently review the rules for lending logbooks and for the FCA to take action.
Woolard said the new regulator was ready to act to reform the sector. “We expect companies to treat everyone fairly – so we warn the logbook lenders. Our new rules give us the power to tackle any business that does not put the interests of customers first. “