GOODS MORTGAGES BILL
The purpose of the Bill is to:
-
Continue the Government’s work to deliver a consumer
credit market that functions well and delivers a good deal for
consumers by modernising outdated, Victorian-era
legislation.
The main benefits of the Bill would
be:
-
To provide increased protections to borrowers who have
taken out a mortgage on goods that they own, such as their car
(a “logbook loan”). Borrowers will be better informed about
their loan and the Bill would provide safeguards if borrowers
get into financial difficulty.
-
To remove unnecessary burdens on firms that raise the
cost of logbook lending.
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To create new opportunities for sole traders and
partnerships to access finance by reforming goods mortgages and
helping these businesses raise finance against their assets. It
will also provide greater confidence to invoice financiers to
lend to small, unincorporated businesses, and will make lending
cheaper.
The main elements of the Bill are:
-
Repealing the Victorian-era Bills of Sale Acts and
replacing them with a Goods Mortgage Act which enables
individuals to use their existing goods (such as a vehicle) as
security for a loan, while retaining possession of the
goods.
-
Increasing protection for borrowers who get into
financial difficulty, by introducing a new requirement for a
lender to obtain a court order before seizing goods where a
borrower has made significant repayments (where one third of
the loan has been paid) and wants to challenge the
repossession.
-
Helping borrowers in financial difficulty by giving
borrowers the right to voluntary termination by handing over
their vehicle or other goods to the lender.
-
Providing protection for innocent third parties who buy a
vehicle subject to a logbook loan that may be at risk of
repossession, and making it clearer that borrowers who
knowingly sell goods with a logbook loan attached could be
committing fraud.
Territorial extent and application
-
In line with the Law Commission’s recommendations, the
Bill would apply to England and Wales.
Key facts
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The Bill would cut wasteful red tape faced by lenders
that raise the cost of goods mortgage lending, such as onerous
and expensive High Court registration - complying with
registration requirements currently costs each firm about £46
per goods mortgage. The Law Commission has estimated that
abolition of High Court registration for mortgages of vehicles
would save firms £2 million per year. These savings can be
passed to consumers.
-
Tens of thousands of bills of sale are registered each
year - an average of 40,000 per year over the last five years.
We estimate over 150 borrowers a year will directly benefit
from the introduction of the requirement for a lender to obtain
a court order where a borrower has made significant repayments
and wants to challenge the repossession.
-
Currently, it can cost invoice financiers between £480
and £1,735 to register general assignments of book debts given
by sole traders or partnerships - reform of registration will
cut these costs significantly to around £125 per registration,
and reform will speed up financing to small businesses.
