For more than a decade, the problem of logbook loans has ballooned in the UK and is threatening to burst. Recently, the Financial Conduct Authority (FCA) passed a law that has been praised for its effectiveness in addressing the problem of Payday loans. The main focus of the new Goods and Mortgage Bill is protecting the buyer of a car with a loan on it. However, it falls short of addressing the real cause of the ballooning logbook loans.
In his article on June 21st in the Mirror, James Andrews captures the new law (Goods and Mortgage Bill) expected to replace the current Victorian-era Bill of Sale that has fallen short of protecting consumers.
How the new law will help borrowers
The main problem that logbook loan borrowers face when seeking credit using cars is the uncertainty of having the car recovered by lenders. In most of the cases, the borrowers lose the money they had been paying to clear the loan and the car. However, the new law adds useful protection measures for the borrower including the following;
- The lenders will be required to get court orders when seizing cars from clients who have been repaying their loans.
- The borrower has a chance to challenge the repossession in a court of law.
- Involving the court means that the car can only be sold at the correct value so that any extra cash is remitted back to the borrower.
The borrower can now relax knowing that though the ownership of the car was transferred to the lender, the latter cannot simply decide to take it away. This focus reduces the risks faced by car owners with logbook loans especially when they lag behind with several repayments.
Why the new bill needs more to address the problem of logbook loans
Though Andrews captures the new bill well and demonstrates how it will help to protect both borrowers and buyers of vehicles with loans on them, including more on the loans will make it more comprehensive.
- It does not factor the main reasons why people are going for logbook loans
The main reason why logbook loans have kept surging is that people are out of options. Therefore, they go for logbook loans despite the high risks involved. The new law should factor this and establish structures to help people get access to better, less risky, and lower interest rates even when their credit scores are not very good.
- The law omits the main reasons why people default on logbook loans
Though the new Goods and Mortgage Bill is a great step towards the right direction, it falls short of appreciating the reason for defaulting on logbook loans. Many people default because the interest rates are too high; they have other loans and must meet daily expenses. When all of these are squeezed on the personal income, the risk of defaulting surges with a huge margin.
- It leaves out the need for borrowers to get more financial education when getting logbook loans
Just like the recent law that regulated payday loans, the new Goods and Mortgage law should put consumer education at the heart of the entire process. The logbook loan dealer should be obliged to tell the lender all the involved risks. He should also have measures to address issues when they emerge during the repayment period.