FCA: logbook lenders threatening customers
FIRMS offering 'logbook loans', borrowing secured against a car, are responding aggressively when their customers struggle to repay, regulator research has revealed.
"People who use logbook loans are often in difficult circumstances with few other borrowing options. The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found," Christopher Woolard, the Financial Conduct Authority's (FCA) director of policy, risk and research said.
Anyone taking out a logbook loan risks their car being repossessed if they can't keep up with repayments.
But, the regulator found, lenders were extremely quick to threaten to, or even physically try to, repossess without giving their customers a chance to work out a new repayment plan.
In one case, the lender repossessed by pulling a borrower over when they were on the way to work, leaving them stranded by the roadside.
59,286 logbook loans will be taken out in 2014, according to Citizens Advice, 35% more than were agreed in 2011.
Logbook customers taking unaffordable loans
Citizens Advice analysis of 261 logbook loans cases they've been involved in between February 2011 and January 2014 found that 14% of borrowers had experienced harsh debt collection methods and another 28% were not treated fairly.
The advice charity said that many customers were finding it hard to meet repayments because the lenders hadn't carried out affordability checks or properly explained the loan terms in the first place.
This week's FCA research backs up that claim.
The regulator found that some logbook loan borrowers were strongly encouraged to give the lender the 'right' information on their income and expenditure to get a loan or borrow over a shorter period.
Almost none of the respondents knew the interest rate of their loan, many were not clear about the total repayment amount and some were confused about the status of their car under the loan terms.
At the same time, people going to logbook lenders almost always feel that it will be extremely easy to borrow a large amount, a feeling strongly reinforced by the lenders (see below).
SOURCE: Promotional video from loans2go, a logbook lender with 60 branches in the UK.
Reforming 'bill of sale'
This confusion on price is partly down to the business model of the logbook companies. Like payday lenders, they prefer to present borrowing as a weekly or monthly cost, rather than in terms of interest or total cost.
Similarly, confusion over the loan terms often arises from the contract language.
Bill of sale, the formal name for logbook loans, is an infamously complex and confusing part of law that gives firms the right to repossess with very little oversight.
"It is absolutely absurd that a firm should be able to take away someone's possessions without any due legal process... logbook loans are a toxic mix of the worst parts of payday loans and unruly bailiffs," Gillian Guy, chief executive of Citizens Advice said earlier this year.
The charity says that possessions should only be repossessed through the courts, a suggestion the regulator is expected to consider later this year.
Threat to second-hand car buyers
As well as borrowers, logbook loans can pose a real threat to second-hand car buyers.
In 20% of logbook loans cases seen by Citizens Advice last year, a car was repossessed even though the owner hadn't been original borrower: they'd just unknowingly bought a second-hand car with an outstanding loan associated with it.
In one case, a man had bought a car with its logbook for £1,300 and spent another £700 on improving it when, one night, it disappeared. He went to the police to report it stolen but they found it had been legally repossessed by a logbook loan company. He had no way to get his money back.
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