Frost Maisha article in the Express about the upcoming law to regulate logbook loans is one of the most talked about in financial and other sectors. Between 2001 and 2015, logbook loans in the UK have skyrocketed from 3000 to 37000. As Frost correctly captures the situation, many people have complained about the logbook loans and a law to regulate it was long overdue. However, this regulation should not simply target logbook loans, but need to be extended to cover other types of credit like the payday loans. In this post, we take a closer look at the regulation and what it means to the growing sector.
What are the risks of taking a logbook loan?
- You temporarily surrender the ownership of the car by signing the bill of sale. This means that the car ownership is transferred and it can be towed away any moment if payment schedule is not followed.
- The APR (annual percentage interest) is very high; often exceeding 400%.
- Logbook loans do not come with the same consumer protection like the hire purchase.
- The loan is more expensive than unsecured loans from conventional lenders.
- The risk of damaging your credit score even further is very high.
Legal Loopholes in the current law
To agree with Frost, the UK logbook loan legislation is marred with some loopholes.
- The borrower is left unprotected and, therefore, at the mercy of the lender. This has opened room for manipulation with little room for adjustment.
- Law does not protect buyers of cars with logbook loans. Most of them end up losing their cars when the lender repossesses them or paying the remaining loans.
The treasury’s effort to draft the new legislation to regulate the logbook loan is, therefore, timely to restore trust in this important sector.
The potential for the new law is acceptable across board
Since the national treasury announced that it is bringing a new law to regulate the logbook loans, many stakeholders have welcomed the move and indicated its great potential. To agree with the National Association of Motor Auction’s position, the motor industry had been thrown into disarray with most people being unsure whether the used cars they are selecting have loans that will haunt them thereafter.
The Law Commission pointed correctly that the current Bill of Sale is archaic and cannot guarantee justice and transparency in the current age. With the new law, it will be easy to control the rates by adopting the right method such as capping the interest rates. The law can also criminalize the sale of cars with loans on them or introduce a registry of all vehicles with loans.
The need to go beyond logbook loans
While the effort by the government is commendable as Frost correctly puts it, it is prudent to put other related forms of lending into practice. Of particular concerns are the no credit payday loans, credit card loans, and furniture loans. It is prudent to take a closer focus on the lending and introduce caps on interest rates that easily turn into a cycle of credit that many find difficult to handle.
More importantly, it is prudent that the government re-examines the economic status of the nation to find out why more people are going for logbook and payday loans.